From finance to adaptation: Five ways the IPCC report could impact businesses

The Intergovernmental Panel on Climate Change's (IPCC) Synthesis Report states there are “multiple, feasible and effective options” to reduce emissions in line with the Paris Agreement, but that the world is currently well off track. So just how can businesses respond to this latest scientific report?

From finance to adaptation: Five ways the IPCC report could impact businesses

The IPCC warns that the window to create a sustainable future is closing quickly

The IPCC has today (20 March) the fourth and final installment of the sixth assessment report (AR6). The body of the world’s leading climate scientists’ latest workings combines the key findings of the preceding three main sections. Read edie’s coverage here.

The IPCC’s report today reiterates that the world is not on track to achieve either of the Paris Agreement’s temperature pathways – 1.5C and 2C –  with stated policies likely to result in a 2.8C trajectory even if delivered in full. At this level of warming, many places will not be “liveable”, the IPCC has stated, warning of increasing risks such as coastal flooding and food and water insecurity that would put up to 3.3 billion livelihoods at risk.

However, the report also notes that the methods and measures to reduce greenhouse gas emissions to deliver the 1.5C pathway “are available now”, but that the pace and scale of what has been delivered so far are “insufficient”.

With “every increment of warming” causing “rapidly escalating hazards”, including wildfires, flooding and severe drought, the report warns that the climate crisis will continue to drive food and water insecurity and conflicts.

Also reiterated is the fact that action permitted by the private sector is likely to undermine national commitments. The IPCC has stated, once again, that the current pipeline of fossil fuel infrastructure alone would result in a likely temperature pathway of 2.8C – 4C.

While the formation of effective and coherent policy can take months, if not years, to implement, businesses proved when responding to the pandemic that they can pivot quickly. The report has been labeled as a “final warning” on the climate crisis but green groups have stated that it can also act as a “how-to guide to defuse the climate time bomb”.

With this in mind, edie outlines some of the key warnings issued in the report and how businesses can begin to respond in order to accelerate decarbonisation and improve long-term resiliency against a changing climate.

1) Businesses should revisit decarbonisation targets

Responding to the IPCC report, UN secretary-general Antonio Guterres said a “quantum leap” in climate action and that countries, particularly wealthier ones, should seriously look at pushing net-zero targets forward to 2040.

If nations do start to revisit the deadlines for their own climate targets many businesses may well start to look at how their decarbonisation strategies align with the regions that they operate.

We’ve already seen the Science Based Targets initiative update its guidance and launch a new standard following the ripple effect created by previous IPCC reports and it could well be that businesses with leading climate targets now, need to revisit and raise targets in the coming years.

The IPCC report could act as a well-timed springboard for many companies that have set net-zero commitments, but are yet to flesh out the steps to meet short and medium-term science-based targets.

The United Nation’s Race to Zero initiative, for example, commits non-state actors including corporates to commit to achieving net zero carbon emissions. As of September 2022, 11,309 non-State actors including 8,307 companies, 595 financial institutions, 1,136 cities, 52 states and regions, 1,125 educational institutions and 65 healthcare institutions have signed up to the Race to Zero.

However, not all corporates have set net-zero targets that account for the value chain. The latest analysis from Net-Zero Tracker, published in November 2022, warns that most targets “suffer from an overall deficit of credibility”. Of the 2,000+ companies analysed by the Tracker, “only a minority of companies include the full scope of their emissions within their net zero targets”.

Indeed, research published by South Pole last year revealed a trend towards greenhushing around corporate climate targets. Covering 1,200 large businesses with net-zero targets, that research found that one in four (26%) of the companies who had applied to the Science Based Targets Initiative had not published information about the new targets on their own websites or reports.

2) Businesses need to think about damage and adaptation

Loss, damage and adaptation all received crucial breakthroughs at COP27 in Egypt last year, but the IPCC report warns that action is required to “close the gap” on what little has been delivered on adaptation and what is required to adapt to the climate crisis.

The IPCC notes that many climate solutions reside in the theme of “resilient development” and that nations, regions and organisations need to “integrate measures” to adapt to climate change while still reducing emissions and delivering wider benefits such as cleaner air and healthier communities.

The report does place a major focus on solutions that can draw down carbon, including nature-based solutions like soil restoration and tree planting, and man-made solutions including direct air capture (DAC). It recommends that, in the long-term, the world should strive to go beyond net-zero and looking to net-negative emissions.

The IPCC also notes that climate, ecosystems and society are all interconnected. The report states that equitable conservation of approximately 30-50% of the Earth’s land, freshwater and ocean would create a healthier planet.

While adaptation is becoming a key focal point for climate policy, examples of businesses enshrining it into the way they operate are still rare. Currently, businesses with combined annual revenues of more than $3trn, spanning a range of the global economy’s biggest sectors, are part of a new network aimed at helping the private sector work with cities and governments to build climate resilience.  However, a WWF analysis outlined how the global economy could lost $8trn per year to environment-related shocks by 2050, suggesting more private sector involvement and investment is required.

3) Private finance needs to be unlocked at a greater pace

Speaking of investment, the IPCC is calling for at least a six-fold increase in finance provided to emissions reduction projects by 2030. This will need to come from a mix of public and private finance.

There will need to be a particular focus on directing finance to the global south, the IPCC states, and finance will need to be spent in line with scientific, local and indigenous knowledge rather than in line with the solutions that are most politically popular.

The private sector will argue that it needs political clarity as to what areas can and should be prioritised and the UK’s own government watchdog recently criticised policymakers for failing to create stable market certainty for investment in climate adaptation.

The UK is working to develop a green finance taxonomy. Such a tool can be used by investors, corporates and others to define which activities are ‘green’ and can be supported and reported as such. Nuclear was most recently listed as environmentally sustainable under this taxonomy, but private sector investment still remains short of what is required. Indeed, the UN Environment Programme notes that the “public sector alone cannot finance transformation” and that mobilising the required $3-6trn each year to transition to net-zero-emissions and climate-resilient economies by 2050 will need “private finance to align with these efforts”.

Businesses should explore how their finance is being used, and indeed where it comes from.

As well as stepping up efforts to funnel investments into green solutions, businesses will likely need to improve climate-related disclosures to help the investor community decide what companies should be supported and invested in.

The UK Government mandated Taskforce on Climate-Related Disclosures (TCFD)-aligned annual reporting for around 1,300 large organisations back in April, in a global first.

Of the 170 large businesses whose reports were assessed by the Financial Conduct Authority (FCA), the vast majority claimed their reporting was consistent with the TCFD’s requirements on risk management (88%) and improving corporate governance (98%).

These findings chime with the TCFD’s last annual status report from October 2021, which assessed levels of support and reporting gaps globally. The TCFD revealed a 9% increase year-on-year in reporting quality, despite the number of organisations voicing support increasing by a third.

4) Businesses should advocate for ambitious government policy support

One of the overarching recommendations from the IPCC report is for nations and governments to step up, whether that be through mobilising more climate finance and innovation or setting stronger, more ambitious net-zero targets.

Historically, policy has been swayed by anti-climate lobbying from high-carbon sectors including fossil fuels – which became even more active against the backdrop of Covid-19. Indeed, InfluenceMap found that large oil companies in the US collectively deployed 38% of their lobbying resources on climate issues in 2020 and that major social media and technology firms are allocating a minuscule portion of their lobbying resources on climate issues.

If and when nations step up and revisit national contributions to the Paris Agreement, they may well face resistance from some sectors. It will be important that the business community uses the findings from the IPCC to influence policy decisions for the better.

Businesses are stronger when they have a collective voice on climate issues. Late last year, for example, the Action Declaration on Climate Policy Engagement was launched. Coordinated by Corporate Knights, a US-based media and research organisation specialising in corporate sustainability. It was, upon its launch, supported by more than 50 firms which collectively represent some $900bn of annual revenue.

The overarching commitment is for the companies to use all of their influence to speed up, rather than stall, climate-related policy. This covers direct engagement with policymakers and indirect engagement.

Additionally, investor networks that collectively represent more than 3,800 members with more than $130trn (£866bn) of assets under management launched a new standard designed to stop corporates from lobbying to “delay, dilute and block” action in line with climate science.

The ‘Global Standard on Responsible Climate Lobbying’ requires investors to publicly disclose all alliances and coalitions they participate in or collaborate with on climate-related lobbying. As well as providing names, they must disclose how much they pay them annually and whether members are represented on their boards and committees.

5) This report will lay the foundations for future climate action

The point of the new paper is to condense thousands of pages of science into something that is easier to digest for policymakers ahead of COP28. It also provides an opportunity for the IPCC to make bolder calls to action, updating recommendations in line with the newest science and global trends.

It is also worth pointing out that the next big research report from the IPCC isn’t expected until around 2030 so what is detailed in this report is essentially the final warning on how to stay within the 1.5C limit of the Paris Agreement.

The report was also published as Environment Ministers met for the first round of pre-COP28 talks this week in Copenhagen and will likely be one of the key talking points. As such, this IPCC report will inform the next round of negotiations at COP28 in Dubai later this year.

The key warnings and findings of this report will shape climate policies and discussions over the coming years. Guterres likened it to a “how-to guide” to respond to the climate crisis and it would serve businesses well to save a copy of the report and digest the research. Not only will policy likely change off the back of this – the IPCC report from 2018 kickstarted the rise in national net-zero targets – but the warnings and estimates can be used to help sustainability professionals gain buy-in. This isn’t just a how-to guide for humanity, but for businesses also.

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