The report of the IPCC (Intergovernmental Panel on Climate Change) published in August 2021 is the first part of a study based on over 140,000 research efforts. Two other reports will be published over the coming quarters on the conditions of adapting to climate change and mitigation solutions. This final report will certainly be the most interesting, as it should provide an overview of promising and pertinent technologies in order to respond effectively to the challenge of climate disruption in all its dimensions.

We would also again note that these three reports echo the initial observations of the IPCC published in 2014, which had established the framework for the COP21 discussions and the Paris Agreement. This update additionally reiterates a number of the earlier conclusions while going further into certain measures or dimensions of climate disruption.

Key highlights

According to the IPCC, global warming currently equals 1.1°C based on cumulative emissions of 2,390 Gt of CO2 since 1850. Limiting global warming to an increase of less than 1.5°C would require that cumulative future emissions remain in the range of 400 and 500 Gt. Given current emissions of around 40 Gt per year, we will consume the carbon budget in around 10-12 years at the current rhythm. The IPCC has in the manner brought forward by 20 years¹ the date at which humanity must reach carbon neutrality in order to limit global warming to 2°C and is estimating that warming will exceed 1.5°C ten years earlier than previously forecast².

The report additionally establishes with almost total certainty the role of human influence in global warming: warming is at levels unseen over thousands of years before us and is already affecting all the regions of the world. This warming is manifesting itself not only in the form of rising temperatures but also extreme climate events such as droughts, very heavy precipitation and hurricanes.

More precisely, the report focuses on the physical consequences of climate change, pointing to numerous tipping points:

The already observed increase in ocean temperatures reduces their ability to capture CO2 and therefore leads to an acceleration in its concentration in the atmosphere. As the oceans capture 91% of the increase in temperatures, this creates a vicious circle for the climate.
The Arctic is heating up 3x more rapidly than land areas, leading to ice melting that is already visible and occurred 4x more rapidly over the last decade compared to the previous one. The rise in ocean levels is estimated at between 2-6 meters if the increase in temperature is limited to 2°C. However, it could go to 22 meters is emissions are not controlled and the temperature increases by 5°C.
Concerning droughts, assuming the 2°C scenario, droughts should occur 2.4x more frequently on average every ten years and up to 4.1x if the scenario goes to 4°C. These drastic increases for each degree Celsius can also be seen in extreme precipitations, which will increase from 1.7x every ten years using a 2°C scenario to 2.8x in a 4°C scenario.

The IPCC also detailed, for the first time, the impact of other greenhouse gases, with a focus on methane. Even if it is less abundant than CO2 and remains in the atmosphere for less time, methane is 80x more powerful than CO2 in terms of capturing heat. As agriculture, fossil fuels and waste are the principal sources of anthropogenic methane production, limiting its emission could be a major source of leverage.

Finally, we would note that even if the immediate effect of an acceleration of de-carbonisation plans would be an improvement in air quality, it would take 20 to 30 years to have an effect on temperatures. Our planet and our lifestyles will be affected on a lasting basis.

Reference scenarios and objectives

At the current pace, the Paris Agreement objective of limiting global warming to 1.5°C will not be reached. The IPCC report assumes a 2°C rise as of 2050.

Under the difference scenarios evaluated by the IPCC, limiting the increase in temperatures to less than 2°C requires reducing global CO2 emissions from 40Gt at present to 20Gt in 2050 and “Net Zero” in 2077. In order to limit warming to 1.5°C, it would be necessary to be even more ambitious and reach “Net Zero” as of 2057.

This analysis is coherent with the sustainable development scenario of the International Energy Agency (IEA), under which warming would be limited to 1.65°C if CO2 emissions are limited to 10Gt in 2050 and zero in 2070.

In contrast, combining the neutrality plans already announced by governments, annual emissions should remain at 22Gt of CO2 in 2050 without reaching carbon neutrality quickly enough. This corresponds to a temperature increase above 2°C. Even more, these hypotheses are based on the plans envisaged by the different countries, leading to substantial uncertainty and a high probability that these objectives will not be successfully met in practice.

What consequences on the energy and ecological transition from the point of view of investors?

The urgency of the situation will lead to intensified efforts in favour of carbon neutrality by governments and economies. On the government level, the upward revision in objectives will involve more direct investments in low carbon energies but also favourable regulatory support, as we have seen with electric vehicles. Another source of leverage will be a more rapid reduction in the allocation of carbon credits in order to incentivise companies to invest more in order to avoid having to buy these credits, whose price will inevitable trend upward. We also hope that economic stimulus efforts focusing on the transition will be used to an increasing extent, along the lines of the Green Recovery Plan announced by Europe or Joe Biden’s infrastructure plan. The COP26, which will be held in Glasgow in November, should be able to make use of these analyses in order to announce coordinated and pertinent advances.

Above all, this report once again reminds us of the degree to which it is urgent for all players to accelerate their efforts in the ecological transition and de-carbonisation of the world economy. This would lead to accelerated growth on the underlying markets of the companies that we finance and accompany through Mandarine Global Transition. Each economic sector has its solutions that we analyse and monitor, such as the circular economy, the adoption of clean energies and efficient means of production. Taking into account the related issues such as methane, CO2 capture, mitigation efforts and the preservation of ecosystems is necessary and complementary in order to obtain a more exhaustive view of the subject.

Without waiting for the mitigation solutions that will be proposed by the IPCC in its 2022 report and in order to add a new dimension to the characterisation of the climate disruption, we are moving ahead with the establishment of a tool for the monitoring the impact on biodiversity of companies in the Mandarine Global Transition investment universe. The fight again climate disruption and the collapse of biodiversity are effectively “inextricably connected”, as emphasised in another report (Biodiversity and Climate workshop report) published in June by the IPCC and the IPBES, a group of international experts devoted to biodiversity.

Underpinned by the urgency of the situation, which is threatening populations and economies throughout the world, we must continue to increase our level of requirements. It is with this in mind that pragmatism and a dynamic vision remain at the heart of our approach as committed investors.

IPCC report: time is running out

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