Climate change is the largest long-term systemic risk in client portfolios today. The world is continuing to heat up and countries and companies will need to drastically reduce global carbon emissions by 2050 to keep global warming below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the increase even further to a 1.5°C increase, as set out by the Paris Agreement. Most government and companies are now focusing on the 1.5°C ambition as recommended by the Intergovernmental Panel on Climate Change (IPCC).
To achieve this, we need to see a 50 per cent reduction in emissions every decade out to 2050, or more than a seven per cent reduction in emissions per year. The later the start date, the more severe the required rate of decline in emissions.
The scale and pace of change needed to transition to a low-carbon and climate-resilient world will impact every company around the globe. Many are already experiencing physical and environmental impacts from climate change as well as the effects of government policy. We are also seeing an acceleration in the ambitions of governments to decarbonise their economies with strong commitments to invest trillions of dollars into renewable energy, cleaner transport and building efficiency projects.
Given the challenge ahead, our climate transition strategies aim to support the implications and ambitions of the Paris Agreement and to deliver a sustainable investment outcome in line with the United Nations Sustainable Development Goals 7 and 13, to limit the increase in global temperatures this century to 1.5°C, provide universal access to modern energy and significantly reduce carbon-based energy.
Navigating the current climate investment landscape
There are numerous climate investment approaches, but investors are unclear as to how many of these address the climate change problem and align with the 1.5°C warming objective.
First-generation climate strategies focused on decarbonisation, either through fossil fuel exclusion or by looking at emissions intensity, or on green solutions companies, such as those in renewable energy and energy efficiency. Today, the landscape is a veritable mixed bag of active and passive approaches covering a broad spectrum of investment universes and objectives.