- Orientate your climate ambition around 1.5C: From July 2022, the Science Based Targets initiative (SBTi) is increasing the minimum ambition in corporate target setting from “well below 2C” to “1.5C” above pre-industrial levels.
- Create a reporting roadmap which informs your business strategy: Conduct a rigorous materiality assessment to get an initial steer, then incrementally build your data capabilities to learn as you go.
- Map climate-related risks to your existing risk categories: Amalgamating climate risks into your broader risk framework will be essential preparation as sustainability disclosure standards become increasingly standardised in the coming years.
Last month, the Intergovernmental Panel on Climate Change (IPCC) released another major report (the second of three).
The latest report focuses on three key themes: impacts, adaptation, and vulnerability.
It provides a comprehensive examination of the impacts of climate change, particularly for resource-poor countries and marginalised communities.
The report also details which climate adaptation approaches are most effective and feasible, as well as which groups of people and ecosystems are most vulnerable.
Underneath the detailed technical analysis, one thing is clear – the effects of a changing climate are already here. This report shows Australian agriculture is already suffering from the impacts of climate change. For example, national farm profits have decreased by 22 percent at only 1C above pre-industrial global temperatures.
The insights from this latest report have been covered at length by the World Resources Institute. But how will this IPCC report influence your upcoming climate and broader ESG reporting?
Three things stand out.
1. Orientate your climate ambition around 1.5C
The 1.5C target has taken on a life of its own. “Keep 1.5C alive” was the refrain of COP26 in Glasgow. In response, there was a whirlwind of net zero pledges made by governments and the private sector.
However, even if all Glasgow pledges are fulfilled, we are still facing a temperature overshoot – global warming rising to approximately 2C. In the more likely scenario of not all pledges being fulfilled, warming could be more like 3C.
Doused by this cold reality, why do we still hold on to 1.5C? The simple fact is that limiting warming to 1.5C, if achievable, will be better than limiting warming to 2C (see figure below).
This has big implications for companies setting and reporting on their climate targets, because the Science Based Targets initiative (SBTi) is increasing the minimum ambition in corporate target setting from ‘well below 2C’ to ‘1.5C’ above pre-industrial levels. This means that from July 2022, they will only accept corporate targets which align to 1.5.
2. Create a reporting roadmap which informs your business strategy
Analysis of more than 300 initiatives for coping with climate change cited in the IPCC report found that one third may have unintended and negative consequences.
The word for this has now been brought to our collective attention: maladaptation. Broadly defined, maladaptation is when climate change adaptation actions backfire – increasing vulnerability rather than decreasing it.
The diagram below helps to illustrate how this can occur. Think building a dam to prevent urban flooding, which creates ‘an illusion of no risk’ and encourages development on a floodplain.
The concept of maladaptation underscores the need for two additions to your corporate reporting efforts: better data and integrated thinking.
First, collect holistic data – you can only adapt to what you know. Sophisticated companies like Solvay are adopting an integrated dashboard to measure and share progress.
Second, learn more about the concept of integrated thinking. In the Value Reporting Foundation’s latest report ‘Integrated Thinking: A Virtuous Loop’, companies are pushed to set themselves on a continuous journey. In other words, use your report to evaluate how you delivered against your business strategy. Where did you perform well? Where did you fall short? Being able to answer these questions will enable you to make continuous enhancements.
To manage this, develop a reporting roadmap with regular ‘check-points’ to evaluate your progress and avoid maladaptation. Conduct a rigorous materiality assessment to get an initial steer, then incrementally build your data capabilities to learn as you go.
3. Map climate-related risks to your existing risk categories
The IPCC projects that climate risks will worsen with every 0.1C of additional warming. What’s more, they will compound one another as multiple hazards occur at the same time and in the same regions.
For example, in tropical regions, the combined effects of heat and drought may trigger sudden and significant losses in agricultural yields. At the same time, heat-related mortality will increase while labour productivity decreases, so people will not be able to work harder to overcome drought-related losses.
Together, these impacts will lower families’ incomes while raising food prices — a devastating combination that jeopardises food security and exacerbates health risks like malnutrition.
The Task Force on Climate-related Financial Disclosures believes that, in most situations, climate-related risks are drivers of existing risks. So all companies benefit from mapping climate-related risks to their existing risk categories (see guidance below).
For instance, physical climate risks, such as storms, can disrupt supply chains or operations. Amalgamating climate risks into your broader risk framework will be essential preparation as sustainability disclosure standards become increasingly standardised in the coming years.