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UN’s IPCC report tightens focus on climate risks for business: What executives need to know

Our news feeds have been filled with headlines from the August 2021 Intergovernmental Panel on Climate Change (IPCC)’s sixth Assessment Report, which the UN Secretary General called a “code red for humanity.” In short, the report confirms that the impacts of climate change have been caused by human activity, and that the physical impacts are now expected to be worse than was previously thought—and will become much worse if we do not act now to make changes to our lifestyles and to the global economy.

What do business leaders need to know about the IPCC’s latest report, and what actions should they take in response to the findings?

What you need to know about the IPCC Assessment Report 6 (AR6)

Physical impacts of climate change are projected to be worse than anticipated in AR5

The sixth assessment report (published 8/9/21) features the results from the newest climate models. Using these models, scientists have refined the range for the atmosphere's temperature sensitivity to greenhouse gas emissions. The models now predict that if the level of CO₂ doubles from preindustrial values, we will see a 2.5–4°C increase in average global temperature. This is more precise—and more dire—than the prior range, which predicted an increase of 1.5–4.5°C. The reporting expanded the number of potential climate emissions scenarios that we may see in the future. This is important because the new models now predict the minimum increase in global average temperature will be 1°C more than the prior lower-bound estimate from 2013—an unfortunate and troublesome development.  

  • The report found that the last decade was hotter than any period in 125,000 years: atmospheric CO₂ is now at a two-million-year peak, and the current global average temperature is about 1.1°C higher than it was at the end of the 19th century. 
  • The report concludes that human-induced climate change is affecting many weather and climate extremes. For instance, the frequency and severity of heavy rainfalls experienced in recent years is increasing, as is the frequency of concurrent heatwaves and droughts.
  • Societal actions can make a big difference in the long term, but regardless of the changes made today, the upward trend in the average temperature and in the extreme weather events is likely to persist for at least 30 years. 
  • There is some thought that the report may be too optimistic. And there is concern in the scientific community that this estimate range is conservative and the actual impacts of climate change could be worse. Business leaders should know that climate sensitivity to greenhouse gas emissions in some models is predictive of even warmer temperatures.

Read the full report here.

Backdrop for climate risk and mitigation planning

While climate change predictions tend to employ a long-range view of 30, 40 or 50 years into the future, the IPCC report makes clear that the time for action is now. The world—and regulators—will be seeking to change the trajectory. This will happen via a patchwork of commitments made at the national and regional level and will cascade down, through regulation, subsidies and shifts in energy prices. 

At the same time, the report makes clear: even in the best-case scenario, conditions will worsen—and climate-related impacts will increasingly cause business and societal disruption. Against that backdrop, companies should form an actionable understanding of the risks they face and develop a full mitigation plan. They should also capture and report data, examine direct and indirect emissions effects and supply chains and innovate to move to renewable energy sources. 

Corporate leaders are beginning to understand this is not an issue for their grandchildren to figure out. Publicly traded companies will be incentivized or pressured to meet the emissions-reduction goals, while managing expectations for profitable growth and risk exposure. At the same time, some investors stand by with divestiture daggers in hand, ready to cut the carbon out of their portfolios, whether from an idealistic mindset or simply to reduce risk.

What actions can you take today?

Understand the potential impacts of these findings on your business

Review the report, including summaries and regional fact sheets. Understanding the scope of impacts can help leaders better communicate the “why” of actions that will need to be taken. This scientific analysis will underpin commitments to be made at COP26, the 2021 United Nations Climate Change Conference this fall, which will carry implications for all parts of the global economy. Informed leaders are prepared leaders, and prepared leaders can be part of the solution.

Watch for the next IPCC reports to come, focused on the adaptation to climate change (February 2022) and another on mitigation (March 2022).

Focus on enhancing resilience to physical events

Business leaders should begin to look at how to enhance their own physical resilience against extreme weather events. Assess how siting decisions, property and infrastructure can be improved cost-effectively, as prices for services will likely increase along with demand. You may consider revisiting insurance policies once your assessment of exposures to extreme weather is complete. 

Leaders should look to elevate their entire business ecosystem by addressing physical risks from extreme weather events on supply chains, explaining to partners the imminent dangers of climate change. For instance, if a supplier’s physical plant gets flooded, it cannot conduct business as usual, potentially leading to a chain reaction of disruptions across the entire supply chain. Focused attention today can potentially prevent an incident or disaster from spiraling into a large-scale crisis that could threaten the entire organization. Being attuned to potential threats could help create competitive advantage. 

Seek ongoing ways to decarbonize the business

You can also move the needle by monitoring legislation encouraging emissions-reduction, such as using electric vehicles and charging stations, choosing alternative, renewable energy sources and considering the potential for deploying carbon capture or related technologies. By increasing awareness among employees of a company-wide, proactive stance against climate change, buy-in may be more likely, impacting the way individuals consider their own contributions. This may also benefit your talent recruitment efforts.

Calls for enhanced disclosures about emissions are increasing in volume and prominence. As part of its focus on potential new climate-related disclosures, the SEC is considering how companies can report their Scope 1 emissions (generated by their own activities) and Scope 2 emissions (indirect emissions from energy sources such as electricity used in production). The agency is also considering whether companies should disclose Scope 3 emissions and if so, under what circumstances. Scope 3 includes emissions from tertiary sources such as supply chains.

The surge toward increased emissions disclosure is undeniable. There is much that investors and other stakeholders want to know. If a company doesn’t have a methodology in place to capture that data, and to benchmark performance within their region and industry, it will want to move quickly.

Consider impacts on your risk assessments and physical risk modelling

The report's tightened estimate range for global temperature changes and the implications for resultant physical risks will factor into private sector assessments. How does the latest analysis by the IPCC affect your assumptions about exposure to extreme weather events, demand shifts and/or opportunities in your business and industry?

The updated models and implicit warnings in the latest IPCC report are meant to guide the world's policymakers ahead of the COP26 conference in November. Executives should take the opportunity to form a deeper understanding of the assessments that will likely bolster regulatory initiatives toward slowing the effects of climate change, as well as risks businesses face from extreme weather events. Businesses that act accordingly can capture a virtuous circle through taking leadership on climate initiatives for the environment, as well as managing the economic uncertainty to come.

PwC has a large team of professionals with deep experience in the standards, methodologies and technologies that can help your company move from ambition to action in the decarbonization transition.

About the IPCC

The IPCC is an international body for the study of the science of climate change, set up in 1988 by the World Meteorological Organization and the United Nations Environment Programme. Its role is to provide policymakers with regular assessments of the scientific basis of climate change, its impacts, future risks and options for adaptation and mitigation.

Understanding the contents of these reports gives businesses a view of the data that can help to inform regulation—potentially providing more time to adjust.

Contact us

Casey Herman

Casey Herman

US ESG Leader, PwC US

Graham Hall

Graham Hall

Director, Actuarial Services Group, PwC US

Steve Bochanski

Steve Bochanski

Climate Risk Modeling Leader, PwC US

Brigham McNaughton

Brigham McNaughton

Director, Sustainability Services, PwC US

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