CEFMonthlyResearchDigestAugust2019Anexecutivebriefingonnew¬ablecorporatesustainabilityresearchEditors:DanMitler,CEFResearchFellowandP.J.Simmons,CEFChair
InThisIssue
1. CircularEconomy
§ OurThrowawayPlanet:CanWeEndtheScourgeofSingleUse?………..………………….……….……….2EthicalCorporation
2. ClimateChange
§ Pathwaysto2050:AlternativeScenariosforDecarbonizingtheUSEconomy……….…….…………..6C2ES
§ SpecialReportonClimateChangeandLand……….…….…………………………………………………………….10IPCC
3. CorporateStrategy
§ MajorRiskorRosyOpportunity:AreCompaniesReadyforClimateChange?…………….………….17CDP
4. Finance
§ ChangingCourse:AComprehensiveInvestorGuidetoScenario-BasedMethodsforClimateRiskAssessment,inResponsetotheTCFD…….…………..……………………………………………………………22UNEP-FI
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1.CircularEconomyOurThrowawayPlanet:CanWeEndtheScourgeofSingleUse?ByEthicalCorporation,May2019
Objective• Toofferabriefingofthecurrentstateofaffairswithcirculareconomy.
Findings
• Wearecurrentlyonly9%ofthewaytoacirculareconomy.• Abigdentinglobalemissionscouldbemadebytransitioningtoacirculareconomy.• Thecirculareconomy’saimistoeliminatewasteandkeepresourcesinuseforaslongas
possible,withmaterialsrecoveredandreusedattheendoflife.• CompaniessuchasRenaulthavediscoveredthatsuchastrategyboostssalesandcutsresource
use.• Wehavetostopextracting,stopwasting,optimizewhatwealreadyhave,andrecyclemore
andbetter.• Thecirculareconomyissaidtooffer€500billioninbenefitsinEuropealoneovertenyears.• AmorecirculareconomyisestimatedtoreduceCO2emissionsfromtheplastics,steel,
aluminum,andcementindustriesby40%globally,andby56%indevelopedeconomieslikeEuropeby2050.
• Newtechnologies,business,andfinancialmodelsareurgentlyneededtokeepthingsinuseforlonger.
• Renaulthasasubsidiarythatcollectsautomotivewastematerialsandparts.Aplantrefurbishestensofthousandsofenginesandgear-boxeseachyear,deliveringenergy,water,andchemicalsavingsof80%andgeneratingmorethan$500millioninannualrevenuesforthecompany.
• Applehasagoaltoeventuallyminenoneoftheearth’sresources,andispioneeringnewrecyclingprocessestoenablevaluablematerialstogobackintoitsproducts.
• INGandpublicandprivatesectorpartnersareworkingtodevelopaEuropeanacceleratortohelpmakethebusinesscaseforcircularityandconnectsupplychainpartners.
• TheEU’scirculareconomypackageincludesrevisedtargetsonrecyclingupwards;abindinglandfilltarget;andanEU-widestrategyforplastics,includingmostrecently,atargettoeliminatesingle-useplastics.
o Aneco-designdirectivemeanscircularityprinciplesmustbeembeddedinproductdesign.
• Therearechallengesforthefinancialsector:thenotionofaproductasaservicewillhavecash-flowimplicationsandcreditrisks.
• ING,ABNAmro,Rabobank,andothermembersoftheFinanCEworkinggrouphavedevelopedasetofguidelinesonwhatconstitutescircularity.
• Abroadswatheofbusinesshassigneduptocommitmentsthatwillseeanendtosingle-useplastics,andinEuropethatwillbeunderpinnedbylegislationfrom2021.
o Aglobalcommitmenttoeliminateplasticswasteby2025byensuringallpackagingcanbereused,recycled,orcompostedhasbeensignedby250organizations.
• FrancehasbecomethesecondnationaftertheUKtolaunchaplasticspact,andhascommittedtohaveanaverageof30%recycledplasticinpackagingby2025.
• Cranswick,afoodproducer,believesthatthenumberofpolymersshouldbesimplified,andisurgingtherestofthefoodindustrytohelp.
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• TheUKgovernment’sdraftwasteandresourcesstrategywantstoincentivizeproducerstomakebetterpackagingdesignchoices.
o Anapprovedpackaginglistwouldformthebasisforclearlabelingofwhatpackagingisorisnotrecyclable.
• SinceChina’sbanontheimportofwaste,theUKhasfoundothertakers.Malaysiaisoneofthebiggest,butthecountry’sinfrastructureisoverwhelmedanddumpingandburningareincreasing.
• TheEnergyTransitionsCommissionrecommendsthatcarbontaxesatleastashighaslandfilltaxesshouldbeimposedonplasticsincinerationtodriverecycling.
• AnewrecyclingplantinOhiowillgoonlinenextyearandwillproducerecycledpolypropylenewithnearidenticalperformancetothevirginmaterial,thankstoaninnovationfromProcter&Gamble.
o Theplantalreadyhasitstotalproductionbookedforthenext20years.• DutchcompanyIoniqaTechnologiesannouncedithasraisedcapitaltobuilditsfirst10,000ton
planet,whichwillrecyclePETwasteintotherawmaterialsneededtomakefood-gradePET.o ThePETwillbeinfinitelyrecyclable.
• P&GandUnilever,amongotherbrandsandretailers,arepilotingLoop–anew,waste-freeplatformbasedaroundreusablepackaging.
o EarlystudiessuggesttheLoopsystemismoresustainablethansingleuseafterfivecyclesofrefilling.
o Consumersneedtoorderaminimumofthreeitemstomaketheserviceviable.• Theconceptof“powerbythehour”waspioneeredbyRollsRoycein1962,andisamodelthat
continuestoday.o Philipsoffers“lightasaservice,”withcustomersnotowningthelightbulbsand
receivingpromisesofefficiencysavings.• Sharingitemsbetweenpeersmaximizestheusefullifeofaproduct.
o Theaveragepowerdrillgetsusedfor13minutesduringitslife.o Theaveragecarisinusejust4%ofthetime.
• IKEAhaspledgeditsbusinesswillbecircularby2030,withallproductsmadefromrenewableandrecycledmaterials,usingrenewableenergyacrossitsoperations.
• AstartupcalledBioCellectionhasdevelopedaprocesstobreakdownflexibleplasticfilmsintovaluablechemicalintermediariesusedtomakemedicines,electricalcomponents,lubricants,andcosmetics.
o Lastyeartheytreated1-2kgofplasticfilmeverythreehours.Thisyearthey’repilotingaprogramtoconvert100tonsofwaste.By2021,BioCellectionwantstobeatscale,processingover36,000tonsofwaste.
• UKconsumersbuymorethanonemilliontonsofclothingeveryyear.o Around300,000tonsgoestolandfillorisincinerated,andlessthan1%offibersused
tomakegarmentsarerecycledintonewclothing.• Thenumberoftimesclothesgetusedbeforebeingdiscardedhasfallen36%since2012.
o InChina,thefigureis70%.• Itisestimatedthatclothingcompaniescouldcutcarbon,water,andwasteimpactby3%ifthey
madeclothesthatlastthreemonthslonger,orupto10%fornineadditionalmonthsoflife.o Still,pressureremainsfromretailersandconsumersforrapidturnover.
• Theusedclothesmarketisgrowing,thankstoplatformslikeeBay.• Rentingclothesandtakebackschemesareincreasinglypopular.
o BuyersofNetherlands-basedMudJeanscontracttoreturnthemattheendofuse,orleasethem.
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• Recyclingtechnologiesarepromising:H&MFoundationisfundinga€5.8millionpartnershipwithHKRITA,whichhasdevelopedaprocesstoturnthreetonsofunwantedtextilesintoyarneachday.
• TheUK’sEnvironmentalAuditCommitteehassuggestedbrandsandretailerspayonepencepergarmenttheycreate,whichwouldraise£35milliontoinvestinclothingcollection.
o Italsowantsthegovernmenttoinvestigatewhethertextileproductscontaininglessthan50%recycledPETshouldbetaxed,andforaconsultationonanextendedproducerresponsibility(EPR)schemefortextilesbytheendofthecurrentparliament.
• FrancehasanEPRschemefor19differentwastestreams,includingtextiles:anyoneputtingtextilesonthemarkethastocontributetorecyclingandtreatmentoftheresultingtextilewaste.
• In2016,wegeneratednearly45milliontonsofe-wasteglobally,withamaterialvalueof€55billion.
• E-wastecontainspreciousmetalslikegold,silver,andplatinum;however,just20%isproperlyrecycled.
o We’regenerating3-4%moree-wasteeveryyear.• Persuadingconsumerstorecyclethe100millionolddevicestheystillowniskey.• Somecompaniesarepartneringwiththirdpartiestorecycleusedhardware,andotherswill
refurbisholddevices.o IntheUS,HylaMobilepredictsthesecondarymobiledevicemarketwillreach$38.9
billionin2025.• From2021,EUpolicywillrequireproductdesignerstothinkaboutdisassemblyandrepair.
o DutchcompanyFairphonehasdevelopedaphonecustomerscanrepairthemselves.o FrenchdesignershaveinventedtheL’Increvablewashingmachine,whichcanbe
repairedandupgraded.• Dataiscrucial.ResearchershavedevelopedanEU-wideurbanmineplatformthatreveals
materialflows.o Itestimatesthereare450milliontonsofbatteries,electricaldevices,andcarsintheEU
thatcontainvaluableproductsforre-use.• Today’splasticvaluechainisfundamentallylinear,with95%ofthematerialvalueofplastic
packaging($80-120billionannually)beinglostafterasingleuse.• Worldproductionofplasticshasincreasedexponentially,from2.3milliontonsin1950to162
millionin1993,andto448by2015.• Consumersaremovingawayfromsingle-usepackagingandhavethepotentialtodisruptthe
linearbusinessmodelsthattraditionalfast-movingconsumergoods(FMCG)relyupon.• Totrulyachievecircularity,FMCGsmustengageinmoretransformative,systemicinnovationto
drivemorefundamentalshiftsinbusinessmodels.o UnileverpartneredtodevelopabreakthroughchemicalprocesscalledCreaSolv,which
itsayswillallowhigh-qualityrecyclingofplasticsachetwaste.o Henkelhaspartneredonthedevelopmentofaninnovativesolvent-basedprocesscalled
Newcycling,whichenablestherecoveryofhighquality,cleangradematerialsfromcomplex,multi-layerpackaging.
• Danonehasconductedamappingexercisetodeterminewhichofthemarketsintowhichitsellshavethelowestrecyclingrates.
o Itthendesignedlocalprograms,workingwithmunicipalgovernments,toimproverecyclingratesintheseareas.
• ABInBevisworkinginBrazilonreverselogisticstocollectandtransportmorerecycledglass.o IntheUS,itco-investedininfrastructuretocleanandcrushglass.
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o InMexico,itpartneredwithalocalNGOtohelpcollectbrokenglassandinvestedinanewglassprocessoratoneplant.
• Anothersolutionforovercomingtheselogisticalbarriersisestablishingtake-backschemes.• Themarketforrecycledplasticsisstillsmall.
o Thisisinpartduetoalackofdemandforrecycledplastics,whichinhibitsinvestmentinmaterial-recoveryactivities.
o Theeconomicfeasibilityofusingrecycledplasticsdependsonitscostadvantageovervirginalternatives.
o Manufacturerscangenerallyachievelowerinputcostsbyapplyingrecycledresins,butlowoilpricescanremovethecostadvantage.
• Danone,Coca-Cola,Unilever,andProcter&Gamblehavesetspecifictargetstoincreasethepercentageofrecycledcontentintheirpackaging.
o Thissignalsthatdemandforrecycledmaterialsislikelytoriseinthefuture,whichcouldgivewaytomorefavorableeconomics.
• Householdrecyclingratesareconstrainedbyalackofknowledge.o InasurveyofUKhouseholds,just48%understood“verywell”whattheyaresupposed
tousetheirrecyclingcontainersfor,andathirdsaidtheywouldrecyclemoreiftheyhadbetterinformationaboutlocalrecyclingservices.
FullReport(registrationrequired):https://eloqua.ethicalcorp.com/e/f2?LP=24346
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2.ClimateChangePathwaysto2050:AlternativeScenariosforDecarbonizingtheUSEconomyByC2ES,May2019
Objective• Toreviewtheresultsofadecarbonizationscenarioplanningexerciseandidentifyrelated
insightsandlessonslearned.Background
• Climatechangeisamongthemostprofoundchallengesofalltime.• C2ESledagroupofcompaniesinacollaborativeexerciseexaminingpotentialscenariosfor
achievingmid-centurydecarbonizationgoals.• Forthisexercise,an80%reductionfrom2005levelsineconomy-wideemissionsby2050was
usedasthebenchmarkcorrespondingtotheParisAgreement’sgoals.• Achievingclimateneutralityrequiressystemicsocial,economic,andtechnological
transformations.• Previousanalysespointtofivecoreimperatives:
o Decarbonizingtheworld’spowersupply;o Switchingtoelectricityandotherlow-carbonfuelsinthetransportation,industry,and
buildingssectors;o Increasingenergyefficiencyineachofthesesectors;o Increasingcarbonsequestration;ando Reducingemissionsofnon-carbonclimatepollutants.
• ThisreportandconnectedexercisesengagedawiderangeofleadingcompaniesandexpertsintheresearchcommunitytoapplyascenariosapproachinordertoenvisionplausiblepathwaystodecarbonizingtheUSeconomy.
• Throughaniterativeprocess,afinalsetofthreescenariosweredeveloped,eachleadingtoan80%reductioninUSGHGemissionsby2050:
o ACompetitiveClimate:Stronginternationalpressure(carbontariffs)andgrowingrecognitionofthecompetitivebenefitsoflow-carboninnovationleadtoastrong,earlyUSfederalresponse,includinganeconomy-widepriceoncarbon.
o ClimateFederalism:Respondingtoeconomicopportunitiesandintensifyingclimate-relatedisasters,agrowingnumberofUSstatesimplementambitiousclimatepolicies,leadingtocallsforaharmonizednationalresponse.
o Low-CarbonLifestyles:Increasedurbanization,generationalshifts,andtechnologicalbreakthroughsleadtostrongmarketdemandforlow-carbonproductsandservices,alongwiththeemergenceofinnovativelow-carbonbusinessmodels.
• Allthreescenariosassumethatothercountriesachievethe2050GHGreductiontargetsoutlinedinIEA’sSustainableDevelopmentscenario.
Findings
• DecarbonizingtheUSeconomyrequiresfundamentalshiftsinthewayswegenerateenergy,producegoods,deliverservices,andmanagelands.
• Thesefundamentalshiftscanbeachievedthroughahostofalternativepathwaysreflectingdifferentdrivers,differentcontingencies,anddifferentsocietalchoices.
o TheUScandecarbonizebyfollowinganyoneofanumberoftechnologyandpolicytrajectories.
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o Theinabilitytoreachconsensusregardingonepathway(e.g.atop-downfederalpricesignal)wouldnotprecludesuccessfuldecarbonizationalongotherroutes.
o Thewiderangeofpotentialpathwaysmeansthereissignificantuncertaintyaboutwhichpoliciesortechnologiesarebesttopursue,andwhichwillprovemostsuccessful.
• Decarbonizationrequiresthatactionacceleratesquicklyandthateveryoneplaystheirpart:policy-makersateverylevel,investors,entrepreneurs,consumers,voters,andcompaniesacrosskeysectorsoftheeconomy.
o Anypathwaythatreliestooheavilyonasingleactororsetofactors(e.g.thefederalgovernment,climate-progressivestates,oraminorityofcompanies)isunlikelytosucceed.
o Allleversmustbeengaged:policyatmultiplelevels,privateinnovationandinvestment,businessleadership,andthepublicatlarge.
o Allthreescenariosincludesomeformofcarbonprice–eitheranactualcarbonpricesetbypolicyorashadowpricesetbysocietalpreferences.
o Allscenariosimplysignificantinvestmentininnovationtoacceleratetechnologicalchange.
• Thesuccessofanypathwayhingesonhighlevelsofpublicsupport,expressedthroughstrongerdemandforeffectivepoliciesand/orlow-carbongoodsandservices.
o Itisimportanttoexplorehowdifferentpolicyframingsandincentivescangeneratepublicsupport.
§ Someco-benefitsofclimatepolicymaybeperceivedashavingahighervaluetosocietythanthedirectbenefitsofavoidedemissions.
• Decarbonizationrequiresabroadsuiteofpoliciesthatdriveinvestmentandactionbysettinggoals,targetingresources,providingincentives,andensuringalevelplayingfield.
o Amongpolicyoptions,atop-downmechanismsuchascarbonpricingstandsaloneinitsabilitytoorientanddriveeffortsacrosssectorsandsociety.
o Apatchworkofpoliciescanleadtoemissionsleakagebetweensectorsand/orstates.o InLow-CarbonLifestyles,thelackofaneconomy-widecarbonpriceleadstoincreases
inbuildingandindustryemissions,asrisingdemandforelectricitydrivesupelectricitypricesrelativetodirectfossil-fuelcombustion.
o Policieswillbeneededtoassistindustriesandcommunitiesthatwillbeeconomicallydisadvantagedinthelow-carbontransition.
• Technologicalinnovationcangreatlyfacilitatedecarbonizationbut,withoutadequatepolicydrivers,isnotsufficienttoachieveit.
o Somesectors(e.g.powerandbuildings)alreadyhaveawidevarietyoftechnologyandpolicyoptions,whileothers(e.g.transportationandindustry)requiremorerapidinnovationanddeployment.
o Sometechnologiesinherentlyreduceemissions(e.g.carboncaptureandstorage),whileothersdonotandmustbecombinedwithproperincentives(e.g.autonomousvehicles).
o Intheabsenceofmarketdrivers,translatinglow-carboninnovationintotechnologydeploymentiscontingentonsufficientpolicysupportanddemand.
• Theprivatesectorisanessentialpartnerinanydecarbonizationpathway,andtimelybusinessleadershipcanhelpensurechoicesthatarebeneficialforbothcompaniesandsocietyasawhole.
o Earlyinterventionsbybusinesscanhelpgeneratesupportforpolicyframeworksthatincludeflexible,cost-effectivestrategiesforachievingclimateneutrality.
• Sectoralresponsesarehighlyinterdependent–thepathwaychosenbyonesectormayenhanceorconstrainthedecarbonizationoptionsofothers.
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o Addressingeachsectorinisolationislikelytoresultininefficiencies,emissionsleakage,andhigheroverallcosts.
o Forexample,alargeincreaseintheuseofbiofuelsmayhavesignificantimplicationsforlanduse,foodproduction,andfoodimportsandexports.
• Sectoraltakeaways:Power:o Othersectorswillleanheavilyontheelectricpowersectorasasourceofzero-orlow-
carbonpower.o Greaterrelianceonelectricity,combinedwithpopulationandeconomicgrowth,could
resultingreatlyincreasedpowerdemand.o Gainsinefficiencycouldmoderatethisgrowingdemand.o Thepowersectorhasawiderangeoflow-carbontechnologyoptions,fromrenewables
tonucleartocoalandnaturalgaswithcarboncapture.o Thesesolutionscanbeadvancedthroughanynumberofpolicyoptions,suchascarbon
priceandacleanenergystandardincentivizingthefullrangeoftechnologyoptions.• Sectoraltakeaways:Transportation:
o Decarbonizingthissectornecessitatesmovingbeyondincrementalimprovementsinfuelefficiencytolarge-scalefuelswitching.
o Currenttrendspointtowardbattery-electricvehicles,butothertechnologies,suchashydrogenandbiofuels,mayalsoproveimportant.
o Whetherautomationandothernewmobilityoptionsincreaseorreduceemissionsremainsuncertain.
§ Policywillplayanimportantroleinshapinghowthesenewtransportationtechnologiesandmobilityparadigmsevolve,andtheircontributionstodecarbonization.
• Sectoraltakeaways:Industry:o Themanysubsectorsofindustryemployawiderangeofindustrialprocesses,manyof
themhighlyenergy-intensive,heavilyreliantonhigh-carbonfeedstocks,orrequiringalarge,steadysupplyofthermalenergy.
o Industrieswhoseproductsareinternationallytradedfacetheadditionalchallengeofmaintainingtheirglobalcompetitiveness.
o Keydecarbonizationstrategiescouldincludegreaterelectrification,carboncapture,andtheuseofrenewableenergywherepossibleforthermalneeds.
o Targetedpoliciesandinvestmentswillbeneededtogeneratetheparticulartechnologyadvancesthatcanenabledeeperemissionsreductions.
o MeasurestohelpshelterUSindustryfromoverseascompetitionmaybeanessentialpoliticalingredientofacomprehensiveclimatepolicy.
• Sectoraltakeaways:Buildings:o Theslowturnoverofbuildingstockandtherelativelyhighrateofexisting
electrificationreducesopportunitiesforrapidlyreducingemissionsacrossthesectorasawhole.
o Economicandpopulationgrowthmaydrivesubstantialincreasesintotalbuildingstock.
o Reducingemissionsfrombothexistingandnewbuildingstockfacessignificantupfrontcosthurdlesthatwillneedtobeaddressed.
o Policiesandconsumerchoicesfavoringfuelswitchingandelectrification,aswellastheintegrationofsmartefficiencytechnologiescanmakesignificantcontributions.
• Sectoraltakeaways:Landuse:o Landuse(i.e.agricultureandforestry)canbebothasourceofemissionsorasinkto
absorbcarbonfromtheatmosphere.
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o Allthreescenariosrelyonenhancedcarbonsequestrationtoproducenegativeemissions.
§ Thisisachievedpartlythroughincentivesforafforestation/reforestationandcarbonfarmingpracticestoincreasesoilsequestration,andpartlythroughtheproductionofcellulosicbiofuelslinkedwithcarboncapture.
o Agriculturehassignificantnon-CO2emissionsfromfertilizeruseandlivestockproduction.
o Innovationssuchasfeedadditivestoreduceanimalmethaneemissionsandcarbon-sequesteringfibercropsthatreplacesyntheticfiberscouldhelp.
o Dietarychangessuchaslowermeatanddairyconsumptioncouldreducethelandnecessarytosupportlivestockproduction.
FullReport(PDF):https://www.c2es.org/site/assets/uploads/2019/05/pathways-to-2050-scenarios-for-decarbonizing-the-us-economy-final.pdf
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SpecialReportonClimateChangeandLandByIPCC,August2019
Objective• ToprovideanupdatedassessmentonGHGfluxesinland-basedecosystems,landuseand
sustainablelandmanagementinrelationtoclimatechangeadaptationandmitigation,desertification,landdegradation,andfoodsecurity.
Background
• SustainableLandManagementisdefinedas“thestewardshipanduseoflandresources,includingsoils,water,animalsandplants,tomeetchanginghumanneeds,whilesimultaneouslyensuringthelong-termproductivepotentialoftheseresourcesandthemaintenanceoftheirenvironmentalfunctions.”
• Desertificationisdefinedas“landdegradationinarid,semi-arid,anddrysub-humidareasresultingfrommanyfactors,includingclimaticvariationsandhumanactivities.”
• Landdegradationisdefinedas“anegativetrendinlandcondition,causedbydirectorindirecthumaninducedprocesses,includinganthropogenicclimatechange,expressedaslong-termreductionandaslossofatleastoneofthefollowing:biologicalproductivity,ecologicalintegrity,orvaluetohumans.”
• Foodsecurityisdefinedas“asituationthatexistswhenallpeople,atalltimes,havephysical,social,andeconomicaccesstosufficient,safeandnutritiousfoodthatmeetstheirdietaryneedsandfoodpreferencesforanactiveandhealthylife.”
Findings
• People,land,andclimateinawarmingworld.o Landprovidestheprincipalbasisforhumanlivelihoodsandwell-beingincludingthe
supplyoffood,freshwater,andmultipleotherecosystemservices,aswellasbiodiversity.
§ Humanusedirectlyaffectsmorethan70%oftheglobal,ice-freelandsurface.§ Landalsoplaysanimportantroleintheclimatesystem.§ Peoplecurrentlyuseonequartertoonethirdofland’spotentialnetprimary
productionforfood,feed,fiber,timber,andenergy.§ Landprovidesthebasisformanyotherecosystemfunctionsandservices,
includingculturalandregulatingservices,thatareessentialforhumanity.§ LandisbothasourceandasinkofGHGsandplaysakeyroleintheexchangeof
energy,water,andaerosolsbetweenthelandsurfaceandatmosphere.§ Sustainablelandmanagementcancontributetoreducingthenegativeimpacts
ofmultiplestressors,includingclimatechange,onecosystemsandsocieties.§ Globalpopulationgrowthandchangesinpercapitaconsumptionoffood,
feed,fiber,timber,andenergyhavecausedunprecedentedratesoflandandfreshwateruse.
• Agriculturecurrentlyaccountsforroughly70%ofglobalfreshwateruse.
§ Expansionofareasunderagricultureandforestryhavesupportedconsumptionandfoodavailabilityforagrowingpopulation.
§ Withlargeregionalvariation,thesechangeshavecontributedtoincreasingnetGHGemissions,lossofnaturalecosystems,anddecliningbiodiversity.
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§ Thepercapitasupplyofvegetableoilsandmeathasmorethandoubledandthesupplyoffoodcaloriespercapitahasincreasedbyaboutonethirdsince1961.
§ Currently,25-30%oftotalfoodproducedislostorwasted.• ThisisassociatedwithadditionalGHGemissions.
§ Worldwide,thereareabout2billionadultsthatareoverweightorobeseandanestimated821millionpeoplewhoareundernourished.
§ AboutonequarteroftheEarth’sice-freelandareaissubjecttohuman-induceddegradation.
§ Therateofsoilerosionfromagriculturalfieldsisroughly10-20times(notillage)tomorethan100times(conventionaltillage)higherthanthesoilformationrate.
§ Climatechangeexacerbateslanddegradation,particularlyinlow-lyingcoastalareas,riverdeltas,drylands,andinpermafrostareas.
§ In2015,about500millionpeoplelivedwithinareaswhichexperienceddesertificationbetweenthe1980sand2000s.
• ThehighestnumbersofpeopleaffectedareinSouthandEastAsia,alongwiththeSahararegion.
o Sincethepre-industrialperiod,thelandsurfaceairtemperaturehasrisennearlytwiceasmuchastheglobalaveragetemperature.
o Climatechange,includingincreasesinfrequencyandintensityofextremes,hasadverselyimpactedfoodsecurityandterrestrialecosystemsaswellascontributedtodesertificationandlanddegradationinmanyregions.
§ Warminghasresultedinanincreasedfrequency,intensity,anddurationofheat-relatedevents,includingheatwavesinmostlandregions.
§ Frequencyandintensityofdroughtshasincreasedinsomeregions(i.e.theMediterranean,westAsia,SouthAmerica,Africa,andNortheasternAsia).
§ Therehasbeenanincreaseintheintensityofheavyprecipitationeventsataglobalscale.
§ Satelliteobservationshaveshownbothvegetationgreeningandbrowningindifferentglobalregions,withgreeningoccurringoveralargerareathanbrowning.
§ Thefrequencyandintensityofduststormshaveincreasedoverthelastfewdecadesduetolanduseandlandcoverchangesandclimate-relatedfactors,resultinginnegativeimpactsonhumanhealth.
§ InareassuchasSub-SaharanAfrica,partsofEastandCentralAsia,andAustralia,desertificationhasincreased.
§ Globalwarminghasledtoshiftsofclimatezonesinmanyworldregions,includingexpansionofaridclimatezonesandcontractionofpolarclimatezones.
§ Climatechangecanexacerbatelanddegradationprocesses,includingthroughincreasesinrainfallintensity,flooding,droughtfrequencyandseverity,heatstress,dryspells,wind,sea-levelriseandwaveaction,andpermafrostthaw.
§ Climatechangehasalreadyaffectedfoodsecurityduetowarming,changingprecipitationpatterns,andgreaterfrequencyofsomeextremeevents.
§ Inmanylower-latituderegions,yieldsofsomecrops(e.g.maizeandwheat)havedeclined,whileinmanyhigher-latituderegions,yieldsofsomecrops(e.g.maize,wheat,andsugarbeets)haveincreased.
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§ ClimatechangehasresultedinloweranimalgrowthratesandproductivityinpastoralsystemsinAfrica.
§ Thereisrobustevidencethatagriculturalpestsanddiseaseshavealreadyrespondedtoclimatechangeresultinginbothincreasesanddecreasesininfestations.
o Agriculture,Forestry,andOtherLandUse(AFOLU)activitiesaccountedforaround13%ofCO2,44%ofmethane,and82%ofnitrousoxideemissionsfromhumanactivitiesgloballyduring2007-2016,representing23%oftotalnetanthropogenicGHGemissions.
§ Netemissionsfromlanduseandlandusechangearemostlyduetodeforestation,partlyoffsetbyafforestation/reforestation,andemissionsandremovalsbyotherlanduseactivities.
§ FuturenetincreasesinCO2emissionsfromvegetationandsoilsduetoclimatechangeareprojectedtocounteractincreasedremovalsduetoCO2fertilizationandlongergrowingseasons.
• Thebalancebetweentheseprocessesisakeysourceofuncertaintyfordeterminingthefutureofthelandcarbonsink.
• Permafrostthawingisexpectedtoincreasethelossofsoilcarbon.§ Globalatmosphericmethaneconcentrationssteadilyincreasedbetweenthe
mid-1980sandearly1990s,withslowergrowthuntil1999,nogrowthbetween1999-2006,andthenaresumptionofgrowthin2007.
• Biogenicsourcesmakeupalargerproportionofemissionsthantheydidbefore2000.
• Ruminantsandtheexpansionofricecultivationareimportantcontributorstotherisingconcentration.
§ AnthropogenicAFOLUnitrousoxideemissionsarerising.• Emissionsfromsoilsareprimarilyduetonitrogenapplication
inefficiencies.• Therehasbeenamajorgrowthinemissionsfrommanagedpastures
duetoincreasedmanuredeposition.• Livestockonmanagedpasturesandrangelandsaccountedformore
thanonehalfoftotalanthropogenicN2Oemissionsfromagriculturein2014.
§ TotalnetGHGemissionsfromAFOLUrepresent23%oftotalnetanthropogenicemissions.
§ Emissionswithinfarmgateandfromagriculturallandexpansioncontributingtotheglobalfoodsystemrepresent16-27%oftotalanthropogenicemissions.
§ Emissionsoutsidethefarmgaterepresent5-10%oftotalanthropogenicemissions.
§ Emissionsfromagriculturalproductionareprojectedtoincrease,drivenbypopulationandincomegrowthandchangesinconsumptionpatterns.
o Changesinlandconditions,eitherfromlanduseorclimatechange,affectglobalandregionalclimate.
o Attheregionalscale,changinglandconditionscanreduceoraccentuatewarmingandaffecttheintensity,frequency,anddurationofextremeevents.
§ ChangesinlandcoverduetohumanactivitieshaveledtoanetreleaseofCO2(contributingtoglobalwarming)andanincreaseingloballandalbedo(causingsurfacecooling).
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§ Theresultingneteffectonglobalaveragesurfacetemperaturesisestimatedtobesmall.
§ Changesinlandconditionscanaffecttemperatureandrainfallinregionsasfarashundredsofkilometersaway.
§ Insomeborealregions,winterwarmingwillbeenhancedduetodecreasedsnowcoverandalbedowhilewarmingwillbereducedduringthegrowingseasonbecauseofincreasedevapotranspiration.
§ Insometropicalareas,increasedvegetationgrowthwillreduceregionalwarming.
§ Driersoilconditionsresultingfromclimatechangecanincreasetheseverityofheatwaves,whilewettersoilconditionshavetheoppositeeffect.
§ DesertificationincreasesglobalwarmingthroughthereleaseofCO2linkedwithdecreasesinvegetation.
• Thedecreaseinvegetationtendstoincreaselocalalbedo,leadingtosurfacecooling.
§ Changesinforestcoverdirectlyaffectregionalsurfacetemperaturethroughexchangesofwaterandenergy.
• Whereforestcoverincreasesintropicalregions,coolingresultsfromenhancedevapotranspiration,andcanleadtocoolerdaysduringthegrowingseasonandreducetheamplitudeofheatevents.
• Inregionswithseasonalsnowcover,increasedtreeandshrubcoverhasawintertimewarminginfluenceduetoreducedsurfacealbedo.
§ Globalwarmingandurbanizationcanenhancewarmingincitiesandtheirsurroundings.
• Increasedurbanizationcanalsointensifyextremerainfalleventsoverthecityordownwind.
o Climatechangecreatesadditionalstressesonland,exacerbatingexistingriskstolivelihoods,biodiversity,humanandecosystemhealth,infrastructure,andfoodsystems.
o IncreasingimpactsonlandareprojectedunderallfutureGHGemissionscenarios.o Someregionswillfacehigherrisks,andsomeregionswillfacerisksnotpreviously
anticipated.§ Thefrequency,intensity,anddurationofheatrelatedeventsareprojectedto
continuethroughthe21stcentury.§ Thefrequencyandintensityofdroughtsareprojectedtoincreaseparticularly
intheMediterraneanregionandsouthernAfrica.§ Thefrequencyandintensityofextremerainfalleventsareprojectedto
increaseinmanyregions.§ Currentlevelsofglobalwarmingareassociatedwithmoderaterisksfrom
increaseddrylandwaterscarcity,soilerosion,vegetationloss,wildfiredamage,permafrostthawing,coastaldegradationandtropicalcropyielddecline.
§ Ataround1.5°Cofwarming,therisksfromdrylandwaterscarcity,wildfiredamage,permafrostdegradation,andfoodsupplyinstabilitiesareprojectedtobehigh.
§ Ataround2°Cofwarming,theriskfrompermafrostdegradationandfoodsupplyinstabilitiesareprojectedtobeveryhigh.
§ Ataround3°Cofwarming,riskfromvegetationloss,wildfiredamage,anddrylandwaterscarcityarealsoprojectedtobeveryhigh.
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§ Thestabilityoffoodsupplyisprojectedtodecreaseasthemagnitudeandfrequencyofextremeweathereventsthatdisruptfoodchainsincreases.
• IncreasedatmosphericCO2canalsolowerthenutritionalvalueofcrops.
§ AsiaandAfricaareprojectedtohavethehighestnumberofpeoplevulnerabletoincreaseddesertification.
§ N.America,S.America,Mediterranean,SouthernAfrica,andCentralAsiamaybeincreasinglyaffectedbywildfire.
§ Thetropicsandsubtropicsareprojectedtobemostvulnerabletocropyielddecline.
§ Landdegradationfromsealevelriseandmoreintensecyclonesisprojectedtojeopardizelivesandlivelihoodsincycloneproneareas.
§ Climatechangecanamplifyenvironmentallyinducedmigrationwithinandbetweencountries.
§ Extremeweatherandclimateorslow-onseteventsmayleadtoincreaseddisplacement,disruptedfoodchains,threatenedlivelihoods,andcontributetoexacerbatedstressesforconflict.
o Thelevelofriskposedbyclimatechangedependsonthelevelofwarmingandonhowpopulation,consumption,production,technologicaldevelopment,andlandmanagementpatternsevolve.
o Pathwayswithhigherdemandforfood,feed,andwater,moreresource-intensiveconsumptionandproduction,andmorelimitedtechnologicalimprovementsinagriculturalyieldsresultinhigherrisksfromwaterscarcityindrylands,landdegradation,andfoodinsecurity.
• Adaptationandmitigationresponseoptions:o Manyland-relatedresponsesthatcontributetoclimatechangeadaptationand
mitigationcanalsocombatdesertificationandlanddegradationandenhancefoodsecurity.
o Whileland-relatedresponseoptionscanmakeimportantcontributionstoadaptationandmitigation,therearesomebarrierstoadaptationandlimitstotheircontributiontoglobalmitigation.
§ Someland-relatedresponsesinclude:sustainablefoodproduction,improvedandsustainableforestmanagement,soilorganiccarbonmanagement,ecosystemconservationandlandrestoration,reduceddeforestationanddegradation,andreducedfoodlossandwaste.
§ Examplesofresponseswithimmediateimpactsincludetheconservationofhigh-carbonecosystemssuchaspeatlands,wetlands,rangelands,mangroves,andforests.
§ Examplesofresponsesprovidingmultipleecosystemservicesbutthattakemoretimetodeliverincludeafforestationandreforestationaswellastherestorationofhigh-carbonecosystems,agroforestry,andthereclamationofdegradedsoils.
§ Landbasedoptionsthatdelivercarbonsequestrationinsoilorvegetationdonotcontinuetosequestercarbonindefinitely.
• Peatlandscancontinuetosequestercarbonforcenturies.• Whenvegetationand/orsoilmaturesorreachessaturation,removalof
atmosphericCO2declinestowardszero,whilecarbonstockscanbemaintained.
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• Accumulatedcarboninvegetationandsoilsisatriskfromfuturelossorsinkreversaltriggeredbydisturbancessuchasflood,drought,fire,pestoutbreaks,orfuturepoormanagement.
o Mostresponseoptionsevaluatedcontributepositivelytosustainabledevelopmentandothersocietalgoals.
o Manyresponseoptionscanbeappliedwithoutcompetingforlandandcouldprovidemultipleco-benefits.
§ Improvedmanagementofcroplandandgrazinglands,improvedandsustainableforestmanagement,andincreasedsoilorganiccarboncontentdonotrequirelandusechangeanddonotcreatedemandformorelandconversion.
§ Increasedfoodproductivity,dietarychoices,andfoodlossandwastereductioncanreducedemandforlandconversion,potentiallyfreeinglandforotherresponseoptions.
§ Preservingandrestoringnaturalecosystemssuchaspeatland,coastallandsandforests,biodiversityconservation,reducingcompetitionforland,firemanagement,andsoilmanagementcouldcontributetosustainabledevelopmentandenhanceecosystemfunctionsandservices.
§ Ecosystem-basedadaptationcan,insomecontexts,promotenatureconservationwhilealleviatingpovertyandprovidingco-benefitsforremovingGHGsandprotectinglivelihoods(e.g.mangroves).
o Mostresponseoptionscanbeappliedwithoutcompetingforavailableland,butsomecanincreasedemandforlandconversion.
§ Thisincreaseddemandforlandconversioncouldleadtoadversesideeffectsforadaptation,desertification,landdegradation,andfoodsecurity.
§ Examplesoftheseresponseoptionsincludeafforestation,reforestation,andtheuseoflandtoprovidefeedstockforbioenergywithorwithoutcarboncaptureandstorage,orforbiochar.
§ Ifappliedonalimitedshareoftotallandandintegratedintosustainablymanagedlandscapes,therewillbefeweradverseside-effectsandsomepositiveco-benefitscanberealized.
§ Theproductionanduseofbiomassforbioenergycanhaveco-benefits,adversesideeffects,andrisksforlanddegradation,foodinsecurity,GHGemissions,andotherenvironmentalandsustainabledevelopmentgoals.
• Theuseofresiduesandorganicwasteasbioenergyfeedstockcanmitigatelandusechangepressuresassociatedwithbioenergydeployment.
o Manyactivitiesforcombatingdesertificationcancontributetoclimateadaptationwithmitigationco-benefits,aswellastohaltingbiodiversitylosswithsustainabledevelopmentco-benefitstosociety.
§ Forexample:waterharvestingandmicro-irrigation,restoringdegradedlandsusingdrought-resilientecologicallyappropriateplants,andagroforestry.
o Avoiding,reducing,andreversingdesertificationwouldenhancesoilfertility,increasecarbonstorageinsoilsandbiomass,whilebenefittingagriculturalproductivityandfoodsecurity.
o Preventingdesertificationispreferabletoattemptingtorestoredegradedland,duetothepotentialforresidualrisksandmaladaptiveoutcomes.
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o Cleanerenergysourcescancontributetoadaptationandmitigatingclimatechange,whilecombatingdesertificationandforestdegradation,throughdecreasingtheuseoftraditionalbiomassforenergy.
§ Thiscanalsohavesocioeconomicandhealthbenefits,inparticularforwomenandchildren.
o Sustainablelandmanagement,includingsustainableforestmanagement,canpreventandreducelanddegradation,maintainlandproductivity,andsometimesreversetheadverseimpactsofclimatechangeonlanddegradation.
§ Itcanalsocontributetomitigationandadaptation.§ Reducingandreversinglanddegradation,atscalesfromindividualfarmsto
entirewatersheds,canprovidecosteffective,immediate,andlong-termbenefitstocommunitiesandsupportseveralSDGswithco-benefitsforadaptationandmitigation.
§ Climatechangecanleadtolanddegradation,evenwithmeasuresintendedtoavoid,reduce,orreverselanddegradation.
• Examplesincludecoastalerosionexacerbatedbysealevelrisewherelanddisappears,thawingofpermafrostaffectinginfrastructureandlivelihoods,andextremesoilerosioncausinglossofproductivecapacity.
o Responseoptionsthroughoutthefoodsystem,fromproductiontoconsumption,includingfoodlossandwaste,canbedeployedandscaleduptoadvanceadaptationandmitigation.
§ Thetotalmitigationpotentialfromcropandlivestockactivitiesandagroforestryisestimatedat2.3-9.6GtCO2e/yearby2050.
§ Thetotalmitigationpotentialofdietarychangesisestimatedat0.7-8GtCO2e/yearby2050.
§ Balanceddiets,featuringplant-basedfoods,suchasthosebasedoncoarsegrains,legumes,fruitsandvegetables,nutsandseeds,andanimal-sourcedfoodproducedinresilient,sustainableandlow-GHGemissionsystems,presentmajoropportunitiesforadaptationandmitigationwhilegeneratingsignificantco-benefitsforhumanhealth.
§ ReductionoffoodlossandwastecanlowerGHGemissionsandcontributetoadaptationthroughreductioninthelandareaneededforfoodproduction.
o Allclimatepathwaysthatlimitwarmingto1.5°Corwellbelow2°Crequireland-basedmitigationandland-usechange(mostincludecombinationsofreforestation,afforestation,reduceddeforestation,andbioenergy).
o Afewmodeledpathwaysachieve1.5°Cwithreducedlandconversion(andthereforereducedconsequencesfordesertification,landdegradation,andfoodsecurity).
• Enablingresponseoptions:o Appropriatedesignofpolicies,institutions,andgovernancesystemsatallscalescan
contributetoland-relatedadaptationandmitigationwhilefacilitatingthepursuitofclimate-adaptivedevelopmentpathways.
o Mutuallysupportiveclimateandlandpolicieshavethepotentialtosaveresources,amplifysocialresilience,supportecologicalrestoration,andfosterengagementandcollaborationbetweenstakeholders.
o Policiesthatoperateacrossthefoodsystem,includingthosethatreducefoodlossandwasteandinfluencedietarychoices,enablemoresustainableland-usemanagement,enhancedfoodsecurity,andlowemissionstrajectories.
o Theadoptionofsustainablelandmanagementandpovertyeradicationcanbeenabledbyimprovingaccesstomarkets,securinglandtenure,factoringenvironmentalcosts
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intofood,makingpaymentsforecosystemservices,andenhancinglocalcollectiveaction.
o Acknowledgingco-benefitsandtrade-offswhendesigninglandandfoodpoliciescanovercomebarrierstoimplementation.
o Theeffectivenessofdecision-makingandgovernanceisenhancedbytheinvolvementoflocalstakeholdersintheselection,evaluation,implementation,andmonitoringofpoliciesforland-basedclimateadaptationandmitigation.
• Near-termaction:o Actioncanbetakeninthenear-termtoaddressdesertification,landdegradation,and
foodsecurity,whilesupportinglonger-termresponsesthatenableadaptationandmitigationtoclimatechange.
§ Forinstance,actionstobuildindividualandinstitutionalcapacity,accelerateknowledgetransfer,enhancetechnologytransferanddeployment,enablefinancialmechanisms,implementearlywarningsystems,undertakeriskmanagement,andaddressgapsinimplementationandupscaling.
o Delayingclimatemitigationandadaptationresponsesacrosssectorswouldleadtoincreasinglynegativeimpactsonlandandreducetheprospectofsustainabledevelopment.
FullReport(PDF):https://www.ipcc.ch/site/assets/uploads/2019/08/4.-SPM_Approved_Microsite_FINAL.pdf
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3.CorporateStrategyMajorRiskorRosyOpportunity:AreCompaniesReadyforClimateChange?ByCDP,June2019
Objective• ToanalyzeresponsestoCDP’sannualclimatechangereportingsurvey.
Background
• CDPhascommittedtoalignitsinformationrequestswiththeTCFD,alongsideintroducingasectoralfocusandadoptingaforward-lookingapproachtoclimate-riskdisclosure.
• Thismeansagreateremphasisonelementssuchasboardoversight,thepotentialimpactsofclimate-relatedrisksandopportunitiesonstrategy,theuseofforward-lookingscenarioanalysis,andtheappropriatemetricsandtargetstomanagetherisks.
• Atotalof6,707ofthe6,937(97%)ofcompaniesreportingtoCDPin2018disclosedwhethertheyconsidertheirbusinesstobeexposedtosubstantiveclimate-relatedrisksandopportunities.
o Almosthalfidentifiedbothrisksandopportunitieswhichcouldhaveasubstantiveimpactontheirbusiness.
o 32%reportedtheydidnotidentifyrisksoropportunitieswhichwouldhaveastrategicimpactontheirbusiness.
o 14%ofcompaniesidentifiedopportunitiesbutnorisks.Findings
• Companiesareidentifyingsignificantrisksbutneedtoexpandtheiranalysis.o 53%ofrespondingcompaniesreportclimate-relatedriskswiththepotentialtohavea
substantivefinancialorstrategicbusinessimpact.o Therewerenearlytwiceasmanytransitionrisksreportedoverallcomparedwith
physicalrisks.o Transitionrisksprimarilyincludedpolicyandlegalchallenges,withthemostfrequently
reportedriskbeingtheincreasedpricingofGHGemissions.o Roughly25%ofthecompaniesthatidentifiedtransitionrisksonlyfocusedonpolicyand
legalrisksanddidnotidentifyclimate-relatedmarket,reputation,ortechnologyrisksassubstantive.
o Mostcompaniesareidentifyingonlypotentialphysicalandtransitionrisksthatwouldimpacttheirdirectoperationsandnotreportingrisksimpactingtheirsupplychainsorcustomers.
§ Thispointstoaverynarrowfocusonthetypesofrisksbeingexplored.o Duetothecomplexityofglobalsupplychains,adisruptioninonepartoftheworldcan
havesignificantimpactselsewhere.o Investorsandcompaniesshouldbroadentheirclimateriskassessmentpracticesifthey
aretoremainprofitableinthefuture.• Thebiggestcompaniesreportmajorfinancialimplications.
o Thetoptwoidentifiedcausesoffinancialimpactareincreasedoperatingcosts(e.g.highercompliancecosts),oftenlinkedtocarbonpricing;andreducedrevenuefromdecreasedproductioncapacityduetothephysicalimpactsofclimatechange.
o Theworld’slargestcompaniesidentifyhigherratesofrisksandopportunitiesthanothers,reporting:
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§ Higherratesofboardoversightofclimate-relatedissues;§ Increasingstakeholderscrutinyonclimate-relatedissues;and§ Higherratesofpotentialreputationalrisks.
o Whenlookingat500oftheworld’sbiggestcompaniesbymarketcapitalization(G500),215companies(representingnearly$17trillioninmarketcap)providedestimatesofthepotentialfinancialimplicationsforaproportionoftheirreportedrisks.
§ CDPfoundjustunderatrilliondollars(approximately$970billion)atrisk.§ Overhalfoftheseriskswerereportedas‘likely/verylikely/virtuallycertain’
andarelikelytomaterializewithinfiveyears.§ Approximately$250billionofthisfigureislinkedtoassetimpairmentsor
write-offs(strandedassets)asaresultofbothtransitionandphysicalrisks.• Theopportunitiesarebiggerthantherisks.
o 51%ofreportingcompaniesidentifiedpotentialopportunitiesthatcouldhaveasubstantiveorstrategicimpactontheirbusiness.
o Themajorityoftheseopportunitiesarelinkedtonewproductsandservicesaffectingboththecustomeranddirectoperationalpartsofthesupplychain.
o Resourceefficienciesandalternativeenergysourceswerethenextmostfrequentlyidentifiedmoneysavers.
o 225oftheworld’s500biggestcompaniesreportedclimate-relatedopportunitiesrepresentingpotentialfinancialimpactstotalingover$2.1trillion.
o Themajorityofthiscomesfromthepotentialincreaseinrevenueduetodemandforlowemissionsproductsandservices,aswellasthepotentialforabettercompetitivepositionagainstshiftingconsumerpreferences.
o Almostalloftheseopportunitiesarereportedtobelikely,verylikely,orvirtuallycertain,withthemajoritymaterializingintheshort-tomedium-term.
• Therearesignificantdifferencesacrosscountriesandregions.o CompaniesheadquarteredintheUS,Brazil,Mexico,Argentina,andChilearelesslikely
thanotherregionstoreportsubstantiverisksoropportunities.o AnalysisoftheG500companiesshowsthatthoseheadquarteredintheUSareonly
reportingapotentialfinancialimpactofjustover$110billionfromclimaterisks. § ThisislowerthanexpectedconsideringUScompaniesarethelargestnational
groupintheG500sample,yetthetotalreportedhererepresentsjust10%ofthetotalfinancialriskreported.
§ LowerfiguresofphysicalrisksreportedbyUScompaniesissurprisinggiventhesignificantlossesincurredin2017duetoextremeweatherandnaturaldisasters.
§ Thispointstoaneedtoimproveclimate-relatedriskassessmentsatUScompanies.
o UScompaniesintheG500doreportasignificant$450billioninpotentialopportunities,justunderaquarterofthetotal$2.1trillionreported.
§ ThisisstilllessthanhalfofwhatEUcompaniesarereporting.§ Aclearerfederalpolicyframeworkwithacommitmenttoacceleratethe
transitioncouldunlockmoreopportunitiesforthesecompanies.o Chinesecompaniesarebehindtheaverageresponserateforidentifyingopportunities.
§ TheproportionofcompanieswhoidentifyopportunitiesbutareunabletorealizethemishigherinChinathanelsewhere.
o SouthAfricancompaniesmakeupthehighestproportionofcompaniesidentifyingbothsubstantiverisksandopportunities.
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o Japanesecompaniesidentifyahigherthanaveragenumberofrisksandopportunities,withnearlyallJapanesecompaniesintheG500identifyingsubstantiveopportunities.
o Roughly60%ofEuropeancompaniesidentifysubstantiveclimate-relatedrisksandopportunities.
§ MostpotentialfinancialimplicationsfromtransitionandphysicalrisksintheG500werereportedbycompaniesinEurope,ataround$640billion,withtransitionrisksaccountingforalmost$400billion.
§ OverhalfofthereportedopportunitiescomefromEuropeancompanies,ataround$1.3trillion,with$1trillionlinkedtoproductsandservices.
• Thefinancesectorisseeingmoreimplicationsthantherealeconomy.o 80%ofcompaniesoperatinginthefinancialservices,fossilfuels,andpowerindustries
identifysubstantiverisksandopportunities–thehighestproportionincomparisontootherindustries.
o Themajorityoffinancialimplicationsreportedareconcentratedinthefinancialservicesindustry–itisthebiggestsectorrepresentedintheG500anditisdisclosingrisksmorereadilythanothers.
o Ifthefinancesectorisidentifyingmorerisksfortheirclientsthanthecompaniesreportthemselves,regulatorsandinvestorsshouldbeaskingastowhoisactuallymanagingtheserisks.
o Whilethefinancesectorisprolificinidentifyingphysicalrisksforclients,itispotentiallymissingasignificantnumberoftransitionrisksintherealeconomy,
o Whenthefinancesectorisaskedaboutitsowntransitionrisks,companiesreportrisknarrowlyfocusedonthepotentialriskstoowndirectoperations.
o Overhalfofthetotalfinancialvaluefromincreasingopportunitiesisalsoidentifiedbythefinancesector,whererelatedopportunitiestotaledover$1.2trillion.
§ Thenexthighestpotentialfinancialreturnsofclimate-relatedopportunitiesarereportedbycompaniesinthemanufacturing($338billion),services($149billion),fossilfuels($141billion),andfood,beverage,andagricultural($106billion)industries.
o OnlyhalfofthefossilfuelcompaniesintheG500reportedanyfinancialdataforrisksandopportunitiestheyidentified.
§ Surprisingly,fossilfuelcompaniesarereportingmoreopportunitiesthanrisksfromclimatechange.
§ Thesecompaniesidentifyopportunitiesfromthelow-carbontransitionintermsofnewproductsandservicestheycouldbringtomarket.
§ Themajorityoftheirreportedrisksarelinkedtoincreasingregulation,especiallycarbonpricing.
§ Thesecompaniesdonotreportmanysignificantrisksasaresultofthelow-carbontransition,whichtheyinsteadhighlightasanopportunity.
§ Thelow-carbontransitioncouldresultinreduceddemandfortheirproductsduetoregulation,marketchanges,andchangingconsumerpreferences.
• Thewinsfaroutweighthecostsofmanagement.o Ofthe192G500companiesdisclosingfinancialimplicationfiguresalongsidethecostto
managetheimpacts,themajorityreportmuchlowercoststomanagetherisksthantheirpotentialimplications.
§ Themanufacturing,power,andservicesindustriesaretheexceptiontothis.§ Thefinancialservicesindustryaccountsfor72%ofthetotalpotentialfinancial
impact($677billion)anddwarfsthecosttomanagethesamerisks($2.2billion).
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o Inalmostallindustries,thecoststorealizereportedopportunitiesaresignificantlysmallerthanthetotalvalueoftheopportunity.
§ Thepotentialvalueoftheopportunitiesarenearlyseventimesthecostsestimatedtorealize($312billionincostsvs.$2.1trillioninopportunities).
o Economistshavebeenhighlightingforoveradecadethatthepotentialnegativeimpactsofclimatechangeoutweighthecoststomitigatethem,andthattherearesignificantopportunitiesinthistransition.
o Investorsandstakeholdersshouldexpecttoseecompaniesinvestingmoreheavilyinthetransition–andiftheyarenot,theyshouldbeaskingwhy.
• Companiesandinvestorsneedtolearnlessonsfromthepowersector.o Companiesinthepowersectoraretheonlyonesreportinghighercoststomanage
risksandrealizeopportunitiesthantheimplicationsoftherisksandopportunitiesthemselves.
o Assetsinthissectorarelong-livedandrequiresignificantcapitalinvestment.o Coststomanageclimate-relatedrisks–whetheritbeinvestmentsinresilience,retiring
assetsearly,orinvestinginnewassets–areproportionallyhigherthanmanyothersectors.
o Companiesinthissectorthatdidnotmoveforanearlyintegrationoftheserisksintotheirstrategiesarefacinghigherrisksthaninitiallyplannedfor.
FullReport(PDF):https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/004/588/original/CDP_Climate_Change_report_2019.pdf
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4.FinanceChangingCourse:AComprehensiveInvestorGuidetoScenario-BasedMethodsforClimateRiskAssessment,InResponsetotheTCFDByUNEP-FI,May2019
Objective• TodetailtheresultsoftheUNEnvironmentProgramFinanceInitiative(UNEP-FI)InvestorPilot
onTCFDAdoption,acollaborativeefforttoexplore,enhance,andapplyamethodologyforassessingtheimpactofphysicalandtransitionrisksandopportunitiesontheportfoliosofinstitutionalinvestors.
Background
• Toappropriatelypriceclimateriskandtorewardinnovation,investorsneedtherightinformation.
• MomentumbehindTCFD’svoluntarydisclosurerecommendationiscreatingavirtuouscirclebyencouraginglearningbydoing.
• Climatechange(about1°Cofwarmingsofar)isalreadyhavingdisruptiveeffectsonglobaleconomies,throughitsphysicalmanifestationsandthemitigationactionsaimedatavoidingthese.
o Extremeweathereventsareincreasinginfrequencyandintensity.o Theseareresultinginsevererepercussionsforlivelihoods,communities,and
companies(throughimpactstooperations,supplychains,andcustomers).o Policyandtechnologyshiftshavebeguntoaffectthecompetitivepositionsof
emissions-intensivecompaniesrelativetoprovidersoflow-carbonalternatives.o Continuedphysicalimpactsandrapidpolicyactionstolimitclimatechangepresent
investorswithpotentiallyunprecedentedanduncertainfinancialimpactsthattheywillneedtomanage.
• TheTCFDrecommendationsoutlinetheneedforcorporateandfinancialinstitutionstoconductforward-lookingscenario-basedassessmentsoftheseclimate-relatedrisksandopportunities.
o Usingscenario-basedanalysestoassessthelong-termeffectsofclimatechangeaimstoensurethatcorporateandfinancialinstitutionsincorporatetheseeffectsintostrategicdecisions.
• TheInvestorPilotGroupfromthisreportismadeupof20institutionalinvestorsfromacrosstheglobe.
o TheultimateobjectiveoftheInvestorPilot,includingthisreport,isto1)boostinvestorsavviness,and2)supportindustry-wideharmonization.
Findings
• Therearealargenumberofscenarioanalysismethodologiesandprovidersthatofferdiverseandcontinuallyimprovinganalyses.
o ThisstudyfoundmanyavailablemethodologiesandathrivingmarketofserviceproviderstosupportTCFD-compliantscenarioanalysis.
o Therearemanysimilaritiesbetweenmethodologies,aswellassignificantdifferences.o Therearealargesetofmethodologiestochoosefrom,dependingondesiredscope,
depth,andfocusofanalysis.
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o Thisreportevaluatedmethodologiesonthebasisofscenariosused,physicalandtransitionhazardsexamined,impactassessmentmethodologydeveloped,outputsproduced,andfinally,theresolutionofanalysis.
• TheUNEP-FIInvestorPilotexplored,enhanced,andappliedamethodologycreatedbyCarbonDelta,road-testinga‘ClimateValueatRisk’(CVaR)forlistedequities,corporatedebt,andrealestateunderseveralfuturescenarios.
o Themethodologyexaminesthephysicalimpactsfromchronicchangesintheclimateandacuteweathereventsoncompanies’operationsusingbusinessinterruptionasaproxy.
o Onthetransitionside,itexplorespolicyriskthroughcostsformeetingnationalemissionsreductiontargets.
• Themethodology,whichincludednumerousgapsandassumptions,wasappliedtoa‘MarketPortfolio’thatincluded30,000equallyweightedcompanies,representingtheinvestablemarketuniverse.
o Investorsfaceasmuchas13.16%ofriskfromtherequiredtransitiontoalow-carboneconomy.
§ A1.5°Cscenarioexposescompaniestoasignificantleveloftransitionrisk,affectingasmuchas13.16%ofoverallportfoliovalue.
§ Thiswouldrepresentavaluelossof$10.7trillion,basedonthecurrent$81.2trillionAUMofthelargest500globalinvestmentmanagers.
o Climate-relatedrisks,includingrisksfromthetransitiontoalow-carboneconomy,becomeacutelyapparentatthesectorlevel.
§ Utilities,transportation,agriculture,mining,andpetroleumrefiningsectorsstandoutashavinghighpolicyrisk.
§ Undera1.5°Cscenario,theutilitysectorismoststronglyexposedtopolicyrisk(-50.6%atrisk),althoughthesectorcontributeslessthan10%overalltotheportfolio’sclimaterisks.
§ Manufacturinghasamuchlowerriskof-16.5%,butgetsthehighestportfoliocontributionof46.7%
§ Thereissignificantvariationinclimaterisklevelsbetweensectors,anddiversificationcanhelptoreducetheserisks.
o ‘Green’profitsina2°Cworldaresignificant,representingapproximately$2.1trillion.§ Greenrevenuesgeneratedfromthesaleoflow-carbontechnologieswillhelp
companiesoffsetcostsfromcomplyingwithGHGreductionpolicies.§ Strongerclimatepolicythereforetranslatesintoanincreasedpotentialfor
companiestogenerate‘green’profits.o Lowcarbontechnologyopportunitieshelpoffsetrisk.
§ Aggregatedtechnologyopportunitiesacrossaportfoliowillalleviatelossesgeneratedunderthe3°C(+3.21%ofportfoliobenefits),2°C(+6.94%),and1.5°C(+10.74%)policyscenarios.
o Companiesfaceincreasedcostsandinvestorsfaceincreasedriskifgovernmentsactlate.
§ The30,000companiesintheuniversefaceafurthercostof$1.2trillionifgovernmentsdelayactiontoenactclimatepoliciestoreduceGHGemissions.
§ Delayedactionnotonlyincreasespolicyrisk,butalsoresultsinmuchgreaterphysicalclimateriskduetotheincreasedatmosphericGHGlevels.
FullReport(PDF):https://www.unepfi.org/wordpress/wp-content/uploads/2019/05/TCFD-Changing-Course.pdf