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climate emergency ARCHIVE

Tag Archive for: climate emergency

Flood

IPCC 6AR Report: Our Analysis

August 10, 2021/in Insights/by Jessica Moore

The UN Intergovernmental Panel on Climate Change (IPCC) published the first part of its Sixth Assessment Report (6AR) today on the physical science of climate change.  Further reports on adaptation and mitigation are due in Q1 2022.

6AR’s findings are arresting – more so when we appreciate that it represents wording moderated by what 60 countries could all agree.  Each of the past four decades has been warmer than its predecessor.  By 2020 we were already at 1.09°C of warming, and even in the best case scenario, the iconic 1.5°C will be reached by 2040 – and most likely around 2034.  The Arctic is likely to be practically ice-free before 2050; already polar ice loss and glacial melting have caused a near tripling in the rate of sea level rise.  Some changes are now irreversible, particularly those to the oceans, such as ice cap depletion, sea level rise, and the acidification and deoxygenation of the seas.

The restrained scientific language sounds apocalyptic, but the consequences – on which 6AR is largely silent – are more so.  6AR limits itself to physical science and does not expand on the impact on life.  The changes to the oceans, chronicled by 6AR, imperil humanity by threatening the marine plants which produce over half the oxygen we breathe and by collapsing the ecosystems which support our fisheries.  The unavoidable sea level rise to which “in the longer term” 6AR warns we are “committed”, means our least-bad outcome sees major cities such as Miami and Bangkok under water, and whole countries wiped off the map as oceans swallow island nations.  Sea level rise alone will cause political turmoil and mass migrations, even before other aspects of the changing climate such as conflicts over water and other resources are considered.

Already we have seen extreme weather which scientists agree would have been “virtually impossible” without climate change: distortions to the jet stream, caused by the Arctic heating 3 times faster than the global average, have brought record-breaking and fatal extremes across the northern hemisphere, from heavy snow in southern Texas, to heatwaves and wildfires in northernmost latitudes, and flooding in Europe and China.  These billion-dollar climate-driven impacts did not inform 6AR’s conclusions, as the data deadline was 1 January 2021 – but they ensure an attentive audience.  With increases in the frequency and severity of unprecedented weather “virtually certain”, 6AR offers particularised regional information on climate’s impacts.

We do still have a chance to avert the worst impacts on the planetary systems on which our lives depend.  “Immediate, rapid and large-scale reductions” in emissions are imperative, as natural carbon sinks become less effective and feedback loops intensify.  This includes urgent cuts to methane (a by-product of decay, released both by human activities such as extractive industries and agriculture, and also through the impacts of global warming, such as melting permafrost and drying wetlands).  The arithmetic is stark: a further 300 gigatonnes of carbon emissions is all that 6AR estimates we can afford to add to have a good chance of  avoiding 1.5°C – for context, even 2020’s global industrial pause emitted 32 gigatonnes.  At 500 gigatonnes, our odds are 50-50.  Concerningly, such climate models were being re-appraised shortly before 6AR’s publication, as evidence mounted of impacts in 2021 which scientists had not expected to witness before 2090.  Reassessments suggest that only modest warming takes us closer than we had realised to tipping points beyond which no amount of intervention can be effective.

The global consensus on the problem, as articulated in 6AR, is not reflected in agreement on the solutions.  In a year in which both the Amazon and the Arctic tipped from carbon sinks to net sources, the “last chance” climate forum COP26 increasingly looks incapable of braking the nosedive.  Coal is a key sticking point, as the single largest source of carbon dioxide emissions, and its consumption has “surged above pre-Covid levels” according to the IEA, “driven by Asia”.  China’s consumption of coal increased in 2021, causing the price of Australian thermal coal to rise.  India maintains that it is entitled to continue to burn coal to fuel its development, just as the wealthy nations did in causing the bulk of the problem; its delegation did not even attend preliminary talks recently, saying it had made its position clear at the G20.  And while said wealthy nations are reducing their coal usage, it remains a non-negotiable part of the US economy and its significance to Poland holds back the EU’s wider green programme.

So often in negotiations, money is the infinitely flexible element that can bridge gaps between parties.  However, developed nations have failed to mobilise the $100bn annual investment promised to poorer states by 2020.  Three quarters of the $78.9bn provided is in the form of lending; the IMF was warning of spiralling debt in the developing world even before 2020’s “debt pandemic”.  The Biden administration has noisily stormed the sliver of moral high ground exposed by China overtaking the US as the world’s greatest emitter.  However, it has only promised $5.7bn – and in 2024, casting doubt on whether it will indeed emerge from the shadow of the presidential election.  By contrast, the EU provided $24.5bn in 2019.  The greater contrast, however, is between such public finance, and private: on a single day in July, two asset managers raised nearly $12.5bn for climate investments.

Averting systemic collapse will require levels of leadership, resourcing and agility which appear beyond the compromises of international relations, but corporates are already filling the vacuum.  The IPCC explicitly called on investors and businesses, as well as governments, in launching 6AR.  Private finance is increasingly the universal lubricant easing the sticking points which immobilise public policy.  Companies across the developed world are leading climate initiatives; globalisation extends innovations into even carbon-wedded countries, and corporate networks of relationships amplify their impact across value chains.  Financiers are engaging with shifting market forces away from incentivising consuming finite resources, destroying planetarily-critical habitats and emitting carbon.

Straddling the gap can be uncomfortable for commercial entities.  Danone’s CEO was axed when its shareholders did not consider the company’s exemplary sustainability efforts to be supporting an ailing share price.  However, the tide of shareholder sentiment has turned, with 2021 boardroom revolutions demanding more climate action, not less.  Headline instances at ExxonMobil, Chevron and others are echoed in shareholder engagements amongst our own clients.  The costs of inaction are increasingly apparent and must be reflected in corporate risk-management to protect shareholder capital.

Yet there are historic opportunities for companies which develop the technologies underpinning the largest industrial revolution since mechanisation.  This too is evident in our advisory work, with individual clients investing over $100m in the transition, undeterred by governmental hesitancy.  Regulation inevitably trails innovation: companies which do not allow their ambitions to be limited by the political context have always been those which have profited most.  Never let a good crisis go to waste.

https://www.hillbreak.com/wp-content/uploads/2021/08/flood.jpeg 600 900 Jessica Moore https://www.hillbreak.com/wp-content/uploads/2021/02/hillbreak-green.png Jessica Moore2021-08-10 12:28:252021-09-08 09:19:03IPCC 6AR Report: Our Analysis
Pipes 4161383 640

Are your investments climate proof?

January 21, 2020/in Insights/by Amie Shuttleworth

We are currently in the midst of a climate emergency. The latest intergovernmental report released by the IPCC (SR15) states that the world is on course for a disastrous 3 degrees temperature rise, based on the current level of government commitments. On the 15th of January, The World Economic Forum released their Global Risks report for 2020 and climate now tops the risk agenda – dominating the top 5 long term risks in terms of likelihood. This is because climate change is striking harder and more rapidly than anyone had expected. In 2019 we saw extreme flooding in Mozambique, a super typhoon rip through Japan during the Rugby World Cup and of course the fires that still rage today in Australia. Insurance companies estimate these increased climate related disasters have cost $150 billion USD, during 2019.

Long Term Risk Outlook Multistakeholders Likelihood

Long Term Risk Outlook Multistakeholders Impact

Risks to assets and business continuity

As the global population becomes more urbanized, there is an acute need for climate resilient buildings and infrastructure in order to ensure they (and we) are protected from the physical and transitional risks posed by the expected increase in extreme weather. Unsurprisingly, there is a developing concept, supported by academic research, that an asset which is climate resilient will also have an associated increased value, and a discount applied to those without – so if you haven’t got a climate resilient asset, it is probably going to become stranded in the future.

One of the key issues is that, even though many businesses have been considering the environmental, social and governance (ESG) impacts of their businesses or assets, until recently the vulnerability or resilience of a building or infrastructure to cope with or mitigate against the impacts of a changing climate have often have not been considered.

So, what needs to change in order for resilient assets and developments to be the new norm? In the UK, for example, perhaps local authorities will introduce climate adaptation conditions attached to planning consents, above and beyond the commonly applied requirement for a Flood Risk Assessment to be undertaken. Perhaps insurers and lenders will become more discerning and explicit about the future climate risk exposure of the assets they are underwriting and reflect that in their premiums, loan rates and covenants. And perhaps asset owners and managers will find it harder to transact without clear evidence of the resilience of assets and portfolios. Whilst there are signs that many of these things are beginning to happen, future climate risk remains an under-stated consideration in strategies and appraisals.

Unfortunately, there is currently a lack of appropriate methods or metrics available for measuring climate resilience at the building or asset level. The current practice of ESG reporting does not reflect how well a building or company is prepared for the risks posed by a changing climate, as the focus has been on mitigating their contribution to exacerbating climate change – greenhouse gas emission reporting / carbon foot-printing. The TCFD, chaired by Michael Bloomberg for the Financial Stability Board, has been an evident catalyst for change, with an increasing number of companies and funds beginning to assess and explain the resilience of their assets under a changing climate, with scenario analysis being undertaken by a small but growing number of real estate organisations. However, when it gets to the more ‘street level’ questions of “which of our assets are at risk to which climate perils and by what magnitude?”, “how might that impact on the returns they generate?” and “to what extent have the measures we’ve undertaken to improve resilience protected our portfolio from downside risk?”, TCFD does not provide such a framework.

Indeed, ask several climate risk modelling vendors to provide a quantified assessment of risk exposure at the individual asset and portfolio level, and you are likely to get several (sometimes very) different answers. This makes the ambition of the TCFD to encourage the issuance of comparable, decision-useful intelligence for investors and lenders across the market something of a stretch, and also means that individual companies and fund managers will need to be confident about the assumptions, data models and methodologies used for any assessments they commission.

Meanwhile, design codes and related modelling conventions are no longer fit-for-purpose, as they are based on historical weather patterns.  In addition, sustainable design standards such as BREEAM and LEED, do not make it mandatory to account for exposure to future changes to climate to achieving any certification level – meaning you could be investing in a BREEAM ‘Outstanding’ or LEED ‘Platinum’ building, but it may not be designed to cope with what the future may hold. This makes it very difficult for investors or developers to know that their asset will be fit-for-purpose, both immediately and in the future.

What is the solution?

At Hillbreak, we believe that the industry needs to develop, collaboratively, a unifying climate resilience framework for real assets, that can help to address the ‘street level’ challenges of climate risk – particularly from a physical risk perspective. This tool would enable a clear understanding of whether an office building, for example, has enough capacity to provide cooling in a hotter summer, or if it could be subjected to regular flooding due to more intense rainfall predicted, or if the wind loading is sufficient to withstand predicted future hurricane, typhoon and storm intensity.

In order to make it simpler for investors and developers alike, the logical solution would be to integrate it into existing sustainable assessment tools, making it a mandatory, pre-conditional element to secure any form of rating. However, if these existing tools are not able to change fast enough (history suggests that would be highly probable!), a standalone ‘climate resilience’ certification may have to be most transparent way to communicate and facilitate this, at least in the short-term, applicable to both new and existing assets.

We would be really interested to get your views on this, so please do comment or email us if you have any observations, questions or suggestions.

https://www.hillbreak.com/wp-content/uploads/2020/01/pipes-4161383_640.jpg 425 640 Amie Shuttleworth https://www.hillbreak.com/wp-content/uploads/2021/02/hillbreak-green.png Amie Shuttleworth2020-01-21 10:31:322020-02-24 06:53:46Are your investments climate proof?

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