Morningstar experts warn that relaxing climate ambitions risks undermining the urgency and “sending the wrong signals” to investors.
Speakers at a Morningstar COP28 media roundtable emphasized that if the “goalposts” of a 1.5°C temperature rise are moved, it could jeopardize investors’ efforts to achieve the goals of the Paris Agreement.
Climate change experts have done just that warned 2023 is on track to be the hottest year on record, according to a BBC analysis last month found it there was a record number of days in which the global warming limit of 1.5°C was exceeded.
Hortense Bioy, Global Director of Sustainability Research at Morningstar, said at the roundtable on the implications of missing the 1.5°C target for investors that there is a “growing consensus” ahead of COP28 that the world is “in the race” losing is’. “to secure the goal of the Paris Agreement and mitigate the “most devastating impacts of climate change.”
Almost a year ago, the Inevitable Policy Response (IPR) found that current policies from global governments meant that the target of limiting the increase in global temperatures to 1.5°C was likely to be missed.
A IPR prediction of global climate policy commissioned by the UN-convened Principles for Responsible Investment (PRI) predicted that while temperatures are expected to remain “well below 2°C”, they are likely to peak between 1.7°C and 1.8 °C.
According to IPR is only 3% of global policy currently in motion towards a minimum of 1.5°C or no exceedance.
Morningstar Sustainalytics suggest data that up to 87% of companies are on track to a global temperature rise of 2.1°C.
Bioy noted that changing the goalposts risks undermining the urgency of emissions reductions and “sending the wrong signals” to investors.
“Worse still, highly polluting companies could see that change as an opportunity to increase emissions,” she said, adding that it could also lead to “more complacency” among governments and policymakers.
Costs of doing nothing
The International Energy Agency (IEA) recently published an updated Net Zero Roadmap, which called for ambitious action to limit global warming to 1.5°C.
Under the net-zero trajectory, global clean energy spending must rise from $1.8 trillion in 2023 to $4.5 trillion per year by the early 2030s.
By 2030, the roadmap envisions tripling global renewable energy capacity, doubling annual energy efficiency improvements, increasing sales of electric vehicles and heat pumps, and reducing methane emissions from the energy sector by 75 %.
Bioy said changes to the 1.5°C target could reduce investment in companies making plans, or would benefit from it, a faster transition.
In August, ESG investor reported that the possibility of limiting global warming to 1.5°C is increasing rapidly fall out of reachdespite most net-zero pledges from governments, investors and companies targeting a 1.5°C trajectory.
It also emphasized that the failure to mitigate climate change will be catastrophic in human and financial terms, leading to estimated damages and losses exceeding $20 trillion annually by 2100.
“It may be tempting to wonder whether it is time to stop pretending we can limit the rise to 1.5°C, but shifting the target could lead to the private sector delaying necessary investments to decarbonize their businesses faster,” Bioy said.
The “cost of inaction” will be higher than the “cost of transition,” she added.
Lindsey Stewart, director of Investment Stewardship Research at Morningstar, said that even if 1.5°C is considered a ‘safe level’, the effects of a 1.2°C world have already had significant consequences, including droughts And forest fires.
“At COP26 the message was: let’s keep 1.5°C alive. At COP27 it was 1.5°C on life support,” Bioy said. “What will be the slogan this year?”
Dangers of Withdrawal
According to the United Nations Development Program (UNDP) 2023 Manufacturing Shortage Reportgovernments plan to produce as much as 110% more fossil fuels by 2030 than would be consistent with limiting warming to 1.5°C, and 69% more than would be consistent with 2°C.
The report states that many major fossil fuel governments are still planning for short-term increases in coal production and long-term increases in oil and gas production. It noted that oil and gas companies have increased their upstream investments by 39% to nearly $500 billion globally by 2022, the highest level since 2014.
The UNDP urged governments to be “more transparent” in their plans, projections and support for fossil fuel production and how this aligns with national and international climate goals.
The report also underlined the “central role” that governments play in “determining the direction” of future fossil fuel production, as well as the influence they can have on the decision-making of private fossil fuel companies and investors through their regulatory approach.
a report released by the UN-convened Net Zero Asset Owner Alliance (NZAOA) in September suggested that emerging technologies, such as carbon capture and storage (CCS) and sustainable fuels, could be the “biggest opportunities”.
Mark Fulton, founder of IPR, told earlier ESG investor That direct airborne carbon capture and storage (DACCS) could be a “game changer” for tackling climate change with a “significant impact” on carbon removal.
“It is important that we do not succumb to doomism,” Bioy said. “Doomism leads to disengagement, which only benefits bad actors who favor a business-as-usual approach.”
The first Global Stocktake will take place at COP28, which aims to assess the global response to the climate crisis every five years.
a synthesis report released in September outlining key findings of the United Nations Framework Convention on Climate Change (UNFCCC) ahead of the summit said that global emissions are not in line with modeled global mitigation pathways consistent with the Paris Agreement temperature target, citing a “rapidly shrinking window” to implement existing commitments.
It was also said that if stronger action is not taken ahead of the second Global Stocktake in 2028, there may be a “devastating reality” of global temperatures well above 1.5°C.
Anya Solovieva, Global Head of Climate Solutions at Morningstar Sustainalytics, called the Global Stocktake “one of the most important conversations” at COP28.
“The global stocktake will show whether we are on track to deliver 1.5°C,” she added, noting that 1.5 would likely be the best-case scenario. This would likely cause the conversation to “shift to minimizing the overrun,” Solovieva said.