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IPCC publishes report flagged as “Code Red for Humanity”
The Intergovernmental Panel on Climate Change (IPCC) published the first section of its Sixth Assessment Report on Climate Change, ‘The Physical Science Basis’, hailed by the UN Secretary General as “Code Red for Humanity”. The report declared it is “unequivocal that human influence has warmed the atmosphere, ocean and land”, and said that even in a best-case scenario of significant reductions in greenhouse gas emissions, the world will temporarily reach 1.5ºC of warming within 20 years.1
Key implicationsThe IPCC report provides yet more scientific backing for efforts to reduce greenhouse gas emissions, by policymakers, regulators and investors. However, it does emphasise that wide-ranging and long-term change is necessary: “it is only after a few decades of reducing CO2 emissions that we would clearly see global temperatures starting to stabilise...Only sustained emission reductions over decades would have a widespread effect across the climate system”.2 For investors seeking to encourage reduced emissions, seeking greater transparency from companies and institutions on carbon emissions must be a priority. |
Insight Investment plus other financial institutions with over $29 trillion in assets call for companies to set science-based emissions targets
220 financial institutions across 26 countries are pressing 1,600 companies to set emissions reduction targets through the Science Based Targets initiative (SBTi). This aims “to ensure that corporate ambition is independently verified against the de-facto industry standard for robust and credible climate targets”. The letter was sent to over 1,600 companies worldwide, including Anhui Conch Cement, China’s biggest cement manufacturer; Hyundai Motor Company; Associated British Foods; Nippon Steel; Tata Steel; Lufthansa and Samsung. The initiative was coordinated by CDP, which runs a disclosure system for investors, companies and other stakeholders to manage environmental impacts.3
Key implicationsInsight was one of the signatories to the campaign. Since a similar campaign in 2020, 154 companies have joined the SBTi, with emissions equivalent to Germany’s annual total. Over half cited the 2020 campaign as having a direct influence on their decision to join. This initiative is the latest in a string of high-profile efforts by investors to put pressure on companies to disclose more on their climate risks and how they seek to manage them. As part of Insight’s stewardship programme, we encourage issuers to set aggressive and verifiable decarbonisation targets with the SBTi. |
Carbon markets and pricing mechanisms remain in focus
New initiatives, by policymakers and other stakeholders, focused on efforts to price carbon – thereby encouraging reduced carbon emissions. The Organization for Economic Co-operation and Development (OECD) called on the European Commission to back a global plan for carbon prices, according to reports , as the EU continues with its plan to apply carbon pricing to emitters within the EU, and to apply a carbon border tax on imported goods (see Europe news section). Also in the quarter, China launched the world’s largest carbon market, allowing greenhouse gas allowances to be bought and sold in a national emissions trading scheme. The market only includes China’s energy sector for now, and has been deemed relatively limited and cautious, relative to more established emissions trading schemes such as in the EU.5
Separately, there was progress on initiatives focused on voluntary carbon markets. The high-profile Taskforce on Scaling Voluntary Carbon Markets (TSVCM), an effort initiative by Mark Carney, UN Special Envoy for Climate Action and Finance, released its proposals for a new governance board and new standards for trading carbon offsets.6
Similarly, the Voluntary Carbon Markets Integrity Initiative (VCMI) was launched in July with co-funding from the UK Government and Children’s Investment Fund Foundation; it is also supported by the COP26 Presidency and United Nations Development Programme. The VCMI is specifically focused on addressing credibility concerns “by working on a number of critical gaps in voluntary carbon market integrity”.7
Key implicationsOne of the key mechanisms through which emissions might be reduced is through establishing markets, and pricing mechanisms, for carbon emissions. However, significant disagreements remain over the best approach, with some jurisdictions favouring policies and regulations that directly reduce emissions. |
