Unabated emissions place us, our planet, and businesses at risk.
Our banks and financial institutions
There is increasing international recognition that climate change will affect the financial system. The failure of climate change mitigation and adaptation is among the top five risks in terms of likelihood of impact according to the World Economic Forum.
Risks to loan portfolios, which have increased into 2019 driven by notable defaults in the construction and manufacturing sectors3, will be exacerbated by climate change and could lead to financial crises.
South Africa is particularly at risk of drought and heatwaves which have already affected our water and food supply.
At global warming of 1.5°C, the average length of droughts will increase by four months. If the planet warms by 2°, the average drought will increase by six months.
Climate change will lead to damaging physical, environmental, and economic consequences which could disrupt supply chains and impact companies’ ability to access resources. Non-physical impacts of climate change are manifesting today as external factors drive the transition towards a low-carbon economy.
According to the TCFD, “organizations with significant emissions are likely to be impacted more significantly by transition risk than other organizations. In addition, current or future constraints on emissions, either directly by emission restrictions or indirectly through carbon budgets, may impact organizations financially”.
- Technological innovation
- Shifts to renewable energy
- Increasing relative costs of fossil fuels
- Increasing costs of credit and finance
- More stringent regulation
- Higher costs of insurance and guarantees
- Shifting market supply and demand
- Mounting international pressure
- Taxes on emissions
Adapting to these changes affect a company’s revenues, expenditures, assets and liabilities, and capital and financing budgets. Companies that do not have a strategy to mitigate the financial impacts place their shareholders, investors, and financiers at risk.
Global greenhouse gas emissions must peak in 2020 and then decline rapidly to keep global warming within 1.5°C above pre-industrial levels, according to the UN Environmental Program. To avoid overshooting 1.5°C, emissions must decline by 45% from 2010 levels and reach net-zero around 2050, according to the IPCC.
Despite this, only two of the ten emitters assessed in Full Disclosure 5 use a 2° or lower scenario to inform their strategy for mitigating climate impacts and set absolute long- and short-term targets to reduce their greenhouse gas emissions. Only South32 has a target of net-zero emissions by 2050.