The Intergovernmental Panel on Climate Change (IPCC) has issued a stark warning about the need to drastically increase steps to reduce greenhouse gas emissions if the world is to limit the effects of climate change. A report released by the organisation also identified a significant investment gap.
The IPCC report assesses whether the world is on track to limit global warming to 1.5C above pre-industrial levels. This target was set as temperature rises beyond this could lead to serious, long-term environmental consequences.
The 2015 Paris Agreement involved nations, including the UK, pledging to limit global warming to “well below” a 2C rise.
However, the latest report from the IPCC says “immediate and deep” emission reductions across all sectors are needed or the target will be “beyond reach”.
To limit the effect of climate change, it’s estimated that global greenhouse gases will need to peak before 2025, and then fall by 43% by 2030. Even if this is achieved, it’s almost inevitable that the world temperature would temporarily exceed the 1.5C threshold before falling at the end of this century.
Greenhouse gas emissions reached their highest-ever level between 2010 and 2019
Between 2010 and 2019, average annual global greenhouse gas emissions were at their highest level in human history. However, the rate of growth is slowing as governments, businesses, and individuals adopt energy-conscious behaviours.
The report noted that positive steps have been made in the last decade, including:
- A substantial decrease of up to 85% in the cost of solar and wind energy
- Increased range of policies to enhance energy efficiency
- Reduced rates of deforestation
- Accelerated deployment of renewable energy.
To continue this trend and reach the IPCC’s goal, “major transitions” in the energy sector are still needed. Necessary steps include a substantial reduction of fossil fuel use, further improvements to energy efficiency, and the use of alternative fuels, like hydrogen.
While the findings of the report may seem bleak, it isn’t all doom and gloom.
The IPCC suggests that with the right policies, infrastructure, and technology in place to enable lifestyle changes, greenhouse gas emissions could fall by 40% to 70% by 2050. Along with other measures, such as reforestation, the world could limit the effect of climate change.
Hoesung Lee, the chair of the IPCC, said: “We are at a crossroads. The decisions we make now can secure a liveable future. We have the tools and the know-how required to limit warming.”
The investment gap: “Significant” gap needs to be closed by 2030
The steps that governments and businesses need to take to limit climate change will require huge investment.
The report suggests there are still “significant” gaps – it’s estimated that current investment is three to six times lower than the levels needed by 2030 to reach climate change goals. However, it also noted that there are signals from governments and the investment community that steps are being taken.
So, as an individual investor, what can you do to reflect climate action in your investment decisions?
While your own portfolio may seem insignificant when you look at how much money is needed to transform economies to become more environmentally friendly, the decisions made by individual investors are having an effect.
As more people start to consider climate change and other important issues, it can build up to encourage businesses and governments to act.
If you’re concerned about climate change and want to reflect this in your investment decisions, there are several ways to do so, such as:
- Divest from fossil fuel companies and others that contribute to climate change
- Invest in companies supporting energy-efficient or renewable industries
- Invest through funds that have an environmental criteria
- Choose a sustainable investment fund for your pension.
While you may want your investments to reflect warnings about climate change and your personal views, it’s important that you don’t overlook things like your risk profile or diversification.
As with any investment, you should consider if the decisions you’re making are appropriate for you and your goals. Balancing your goals with your views on issues like climate change is possible.
We can work with you to create a portfolio that suits you and reflects your priorities. If you’d like to arrange a meeting to discuss your investments, please contact us.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
