The IPCC Working Group III report provides the clearest statement yet on the accelerated changes necessary from investors, business and policy-makers.
Rapid changes across the economy, especially energy, transport, and real estate, have the greatest likelihood of limiting global warming, thereby protecting the financial interests of investors beneficiaries.
The science compiled in the report shows that companies and governments will need to support broad and rapid mitigation efforts, meeting short- and medium-term targets in almost every sector of the economy.
At least 18 countries have shown that such economic and climate reforms are possible, delivering sustained emission reductions for longer than 10 years. Their reductions were linked to energy supply decarbonisation, energy efficiency gains, and energy demand reduction, which resulted from both policies and changes in economic structure.
The findings of the report have been endorsed by 195 governments and may therefore provide a signal to potential policy settings in many of Australia’s most important trading partners.
The IPCC report shows that a crucial near-term mitigation is rapidly electrifying the energy system with generation powered by renewable sources.
However, in Australia, there remains significant barriers to investment in clean energy infrastructure. That effectively redirects capital investment overseas.
IGCC members have reported that poor and unstable energy policy is discouraging their investment in renewables in the local market. Australian investors who are investing in local renewable energy infrastructure are investing 200-300% more in overseas clean energy projects where policy settings are more stable and favourable.
Fossil fuel use needs to decline dramatically, according to the science in the report.
New fossil fuel projects, including gas projects planned in Australia, contribute to systemic risk and are themselves at increased risk of losing value if more assets become stranded by market and policy changes.
The report found that it is only feasible to use offsets and carbon capture technologies in limited circumstances, and only alongside the rapid acceleration of renewable energy deployment, and withdrawal of fossil fuel-based power generation.
Portfolio allocation strategies that help directly mitigate warming will need to be complemented, reinforced and enabled by action from policy-makers and corporate decision-makers.
Quotes attributable to CEO Rebecca Mikula-Wright
“Australia’s investors are very aware of the rapid economic changes that are necessary to protect their beneficiaries’ financial interests.
“This latest report emphasises that companies across almost every sector of the economy need to accelerate their plans to reach net zero emissions and align their capital expenditure with their published plans.
“The fastest progress towards a net zero economy is going to be electrifying our energy systems from renewable sources and closing coal-fired generators by 2040.
“Companies should expect hard questions when capital is being spent on new coal or gas projects, where there will be increasing risk of stranded assets.
“Plans that rely on carbon offsets and carbon capture to reach net zero can also expect very close scrutiny.”