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Key takeaways
The Intergovernmental Panel on Climate Change (IPCC) shared the Sixth Assessment Report (AR6) earlier this week with a mix of grim forecats and messages of hope.
Temperatures are 1.1°C above pre-industrial levels. The consequences of human-caused climate change are already affecting many weather and climate extremes in every region across the globe.
The AR6 describes the scale of the challenge required to keep warming to 1.5°C as “unprecedented”. “Emissions should be decreasing by now and will need to be cut by almost half by 2030, if warming is to be limited to 1.5°C”. The report goes on to explain that the pace and scale of what has been done so far, and current plans, are insufficient to tackle climate change.
The climate change challenge has become even greater in the past few years due to a continued increase in greenhouse gas emissions.
Despite the message of urgency, the IPCC emphasizes that there is hope. “There are multiple, feasible and effective options to reduce greenhouse gas emissions and adapt to human-caused climate change, and they are available now”, highlights IPCC’s team.
The issue of financial resources
ICPP argues that one of the key steps forward is to increase financing for climate action. “Accelerated climate action will only come about if there is a many-fold increase in finance. Insufficient and misaligned finance is holding back progress”.
The report estimates that it would be needed between 3 and 6 times more financial investment in climate mitigating initiatives. And it argues that options are already available to scale up financing.
How can financial market participants contribute to mitigating climate change?
The financial sector is increasingly recognizing the need to shift toward sustainable investing practices. That is the motivation behind the flow of new regulations and sustainable reporting frameworks in the past few years in Europe - SFDR, MiFID II, and CSRD, to name a few.
At Datia, we speak with asset and fund managers about their role in sustainable finance on a daily basis. From our experience specifically with investment in equity, we learned that the first steps asset and fund managers can take are:
1. Diveste from polluting companies
2. Identify sustainable projects and companies where to allocate their capital
3. Engage in active ownership of your portfolio and drive conversations about companies’ action plan to reduce emissions.
But we also understand that embracing sustainable finance has its own challenges.
The EU Taxonomy is one framework helping the financial sector take these steps. Large European companies are in the process of publishing their first EU Taxonomy reports in 2023 (reflecting the year of 2022).
You do not have to wait for the official EU Taxonomy reports. Data about public companies’ greenhouse gas emissions might be scattered, but is widely available and you can incorporate it in your investment screening criteria right now.
About the IPCC's Sixth Assessment Report (AR6)
The AR6 is an analysis of the current state of climate change and its impacts on natural systems and human societies. The report was written by over 200 authors and reviewed by more than 4,000 experts, making it the most authoritative and up-to-date assessment of climate change available to date.
The IPCC publishes this scientific assessment every few years. The previous one, the Fifth Assessment Report, was completed in 2014.
More resources
The official summary of the AR6
The full Sixth Assessment Report (AR6)
Get an overview of the EU Taxonomy for the financial market
Reach out to Datia’s team to understand how we can help you integrate sustainability metrics into your investment strategy and improve your stewardship practices.
