Some numbers matter more than others. At this moment, 1.5°C might be the most important number in the world. Our ability to focus on that number today, and in the decade ahead, will have a dramatic and lasting impact on every living thing on the planet (e.g. people, plants, crops, trees, animals). In turn, those impacts will affect all aspects of our society, the economy, and yes, our investment portfolios.
What is the significance of 1.5°C?
It is the consensus amongst climate scientists that we must strive to limit our planet’s atmospheric temperature rise to 1.5°C if we are to stave off the worst impacts of climate change. It is also the preferred maximum temperature rise agreed to by global leaders under the Paris Agreement of 2015.
To put this number in perspective, 2020 was the second hottest year ever recorded by NOAA—0.98°C (1.76°F) warmer than the average global temperature for the twentieth century of 13.9°C (57.0°F), and 1.19°C (2.14°F) warmer than the pre-industrial 1880-1900 period. Already, 85% of the global population feels the impacts of global temperature change in the form of more severe weather patterns: heat storms, fires, flooding, and drought (Nature Climate Change 2021). These changes, and their negative economic and human costs, will continue to increase the more temperatures rise.
How can we limit global temperature rise to 1.5°C?
We must reduce greenhouse gas (GHG) emissions by at least 80% before 2050. Most importantly, we need nearly a 50% reduction in emissions by 2030. This requires more action by governments in the form of regulatory and fiscal policy. We also need more leadership by the corporate sector, both in the form of support for climate policy and operational changes to rapidly transition to a low-carbon economy. Finally, we need all participants in the capital markets—including asset owners, asset managers, and advisors/consultants—to do their part.
There are positive indications of progress in both the corporate and investor communities. In 2021, we have seen a surge of commitments toward a net-zero economy. There are now more than 3,200 corporations reporting to CDP (the leading repository of corporate carbon emissions data), and more than 628 corporations have set science-based targets for their GHG emissions that are aligned with a 1.5°C degree trajectory, with many more having recently committed to that goal. More than 128 asset managers have made a commitment to net-zero investing. These commitments and targets are commendable, but now real action is imperative. We need to demand that entities making net-zero commitments develop and articulate how they will achieve the targets they have set. And, we need to see real progress toward a low-carbon economy.
We, as stewards of large pools of investment assets, must focus on 1.5°C today if we are going to achieve the needed 50% GHG reductions by 2030. We must recognize that failure to act on climate change now will ultimately multiply the challenges we all seek to address in our philanthropic work, while systematically damaging our economy and the value of our investments.
So what can/should we all do right now?
All asset owners, asset managers, and advisors/consultants can serve their own, and their clients, long-term interests by committing to align their portfolios with a 1.5°C trajectory. Such a goal can be publicly stated by becoming a signatory of the Net Zero Asset Managers initiative, the Net Zero Asset Owner Alliance, or the Net Zero Investment Consultants initiative. Then we all need to develop our own plans to achieve alignment with the most important number in the world.
Note: Terra Alpha Investments is a signatory to the Net Zero Asset Managers initiative and has committed to the Science Based Targets initiative’s Business Ambition for 1.5°C.
- Tim Dunn, CFA Founder and CIO, Terra Alpha Investments
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