CEFMonthlyResearchDigestAugust2019Anexecutivebriefingonnew&notablecorporatesustainabilityresearchEditors:DanMitler,CEFResearchFellowandP.J.Simmons,CEFChair

InThisIssue

1. CircularEconomy

§ OurThrowawayPlanet:CanWeEndtheScourgeofSingleUse?………..………………….……….……….2EthicalCorporation

2. ClimateChange

§ Pathwaysto2050:AlternativeScenariosforDecarbonizingtheUSEconomy……….…….…………..6C2ES

§ SpecialReportonClimateChangeandLand……….…….…………………………………………………………….10IPCC

3. CorporateStrategy

§ MajorRiskorRosyOpportunity:AreCompaniesReadyforClimateChange?…………….………….17CDP

4. Finance

§ ChangingCourse:AComprehensiveInvestorGuidetoScenario-BasedMethodsforClimateRiskAssessment,inResponsetotheTCFD…….…………..……………………………………………………………22UNEP-FI

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1.CircularEconomyOurThrowawayPlanet:CanWeEndtheScourgeofSingleUse?ByEthicalCorporation,May2019

Objective• Toofferabriefingofthecurrentstateofaffairswithcirculareconomy.

Findings

• Wearecurrentlyonly9%ofthewaytoacirculareconomy.• Abigdentinglobalemissionscouldbemadebytransitioningtoacirculareconomy.• Thecirculareconomy’saimistoeliminatewasteandkeepresourcesinuseforaslongas

possible,withmaterialsrecoveredandreusedattheendoflife.• CompaniessuchasRenaulthavediscoveredthatsuchastrategyboostssalesandcutsresource

use.• Wehavetostopextracting,stopwasting,optimizewhatwealreadyhave,andrecyclemore

andbetter.• Thecirculareconomyissaidtooffer€500billioninbenefitsinEuropealoneovertenyears.• AmorecirculareconomyisestimatedtoreduceCO2emissionsfromtheplastics,steel,

aluminum,andcementindustriesby40%globally,andby56%indevelopedeconomieslikeEuropeby2050.

• Newtechnologies,business,andfinancialmodelsareurgentlyneededtokeepthingsinuseforlonger.

• Renaulthasasubsidiarythatcollectsautomotivewastematerialsandparts.Aplantrefurbishestensofthousandsofenginesandgear-boxeseachyear,deliveringenergy,water,andchemicalsavingsof80%andgeneratingmorethan$500millioninannualrevenuesforthecompany.

• Applehasagoaltoeventuallyminenoneoftheearth’sresources,andispioneeringnewrecyclingprocessestoenablevaluablematerialstogobackintoitsproducts.

• INGandpublicandprivatesectorpartnersareworkingtodevelopaEuropeanacceleratortohelpmakethebusinesscaseforcircularityandconnectsupplychainpartners.

• TheEU’scirculareconomypackageincludesrevisedtargetsonrecyclingupwards;abindinglandfilltarget;andanEU-widestrategyforplastics,includingmostrecently,atargettoeliminatesingle-useplastics.

o Aneco-designdirectivemeanscircularityprinciplesmustbeembeddedinproductdesign.

• Therearechallengesforthefinancialsector:thenotionofaproductasaservicewillhavecash-flowimplicationsandcreditrisks.

• ING,ABNAmro,Rabobank,andothermembersoftheFinanCEworkinggrouphavedevelopedasetofguidelinesonwhatconstitutescircularity.

• Abroadswatheofbusinesshassigneduptocommitmentsthatwillseeanendtosingle-useplastics,andinEuropethatwillbeunderpinnedbylegislationfrom2021.

o Aglobalcommitmenttoeliminateplasticswasteby2025byensuringallpackagingcanbereused,recycled,orcompostedhasbeensignedby250organizations.

• FrancehasbecomethesecondnationaftertheUKtolaunchaplasticspact,andhascommittedtohaveanaverageof30%recycledplasticinpackagingby2025.

• Cranswick,afoodproducer,believesthatthenumberofpolymersshouldbesimplified,andisurgingtherestofthefoodindustrytohelp.

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• TheUKgovernment’sdraftwasteandresourcesstrategywantstoincentivizeproducerstomakebetterpackagingdesignchoices.

o Anapprovedpackaginglistwouldformthebasisforclearlabelingofwhatpackagingisorisnotrecyclable.

• SinceChina’sbanontheimportofwaste,theUKhasfoundothertakers.Malaysiaisoneofthebiggest,butthecountry’sinfrastructureisoverwhelmedanddumpingandburningareincreasing.

• TheEnergyTransitionsCommissionrecommendsthatcarbontaxesatleastashighaslandfilltaxesshouldbeimposedonplasticsincinerationtodriverecycling.

• AnewrecyclingplantinOhiowillgoonlinenextyearandwillproducerecycledpolypropylenewithnearidenticalperformancetothevirginmaterial,thankstoaninnovationfromProcter&Gamble.

o Theplantalreadyhasitstotalproductionbookedforthenext20years.• DutchcompanyIoniqaTechnologiesannouncedithasraisedcapitaltobuilditsfirst10,000ton

planet,whichwillrecyclePETwasteintotherawmaterialsneededtomakefood-gradePET.o ThePETwillbeinfinitelyrecyclable.

• P&GandUnilever,amongotherbrandsandretailers,arepilotingLoop–anew,waste-freeplatformbasedaroundreusablepackaging.

o EarlystudiessuggesttheLoopsystemismoresustainablethansingleuseafterfivecyclesofrefilling.

o Consumersneedtoorderaminimumofthreeitemstomaketheserviceviable.• Theconceptof“powerbythehour”waspioneeredbyRollsRoycein1962,andisamodelthat

continuestoday.o Philipsoffers“lightasaservice,”withcustomersnotowningthelightbulbsand

receivingpromisesofefficiencysavings.• Sharingitemsbetweenpeersmaximizestheusefullifeofaproduct.

o Theaveragepowerdrillgetsusedfor13minutesduringitslife.o Theaveragecarisinusejust4%ofthetime.

• IKEAhaspledgeditsbusinesswillbecircularby2030,withallproductsmadefromrenewableandrecycledmaterials,usingrenewableenergyacrossitsoperations.

• AstartupcalledBioCellectionhasdevelopedaprocesstobreakdownflexibleplasticfilmsintovaluablechemicalintermediariesusedtomakemedicines,electricalcomponents,lubricants,andcosmetics.

o Lastyeartheytreated1-2kgofplasticfilmeverythreehours.Thisyearthey’repilotingaprogramtoconvert100tonsofwaste.By2021,BioCellectionwantstobeatscale,processingover36,000tonsofwaste.

• UKconsumersbuymorethanonemilliontonsofclothingeveryyear.o Around300,000tonsgoestolandfillorisincinerated,andlessthan1%offibersused

tomakegarmentsarerecycledintonewclothing.• Thenumberoftimesclothesgetusedbeforebeingdiscardedhasfallen36%since2012.

o InChina,thefigureis70%.• Itisestimatedthatclothingcompaniescouldcutcarbon,water,andwasteimpactby3%ifthey

madeclothesthatlastthreemonthslonger,orupto10%fornineadditionalmonthsoflife.o Still,pressureremainsfromretailersandconsumersforrapidturnover.

• Theusedclothesmarketisgrowing,thankstoplatformslikeeBay.• Rentingclothesandtakebackschemesareincreasinglypopular.

o BuyersofNetherlands-basedMudJeanscontracttoreturnthemattheendofuse,orleasethem.

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• Recyclingtechnologiesarepromising:H&MFoundationisfundinga€5.8millionpartnershipwithHKRITA,whichhasdevelopedaprocesstoturnthreetonsofunwantedtextilesintoyarneachday.

• TheUK’sEnvironmentalAuditCommitteehassuggestedbrandsandretailerspayonepencepergarmenttheycreate,whichwouldraise£35milliontoinvestinclothingcollection.

o Italsowantsthegovernmenttoinvestigatewhethertextileproductscontaininglessthan50%recycledPETshouldbetaxed,andforaconsultationonanextendedproducerresponsibility(EPR)schemefortextilesbytheendofthecurrentparliament.

• FrancehasanEPRschemefor19differentwastestreams,includingtextiles:anyoneputtingtextilesonthemarkethastocontributetorecyclingandtreatmentoftheresultingtextilewaste.

• In2016,wegeneratednearly45milliontonsofe-wasteglobally,withamaterialvalueof€55billion.

• E-wastecontainspreciousmetalslikegold,silver,andplatinum;however,just20%isproperlyrecycled.

o We’regenerating3-4%moree-wasteeveryyear.• Persuadingconsumerstorecyclethe100millionolddevicestheystillowniskey.• Somecompaniesarepartneringwiththirdpartiestorecycleusedhardware,andotherswill

refurbisholddevices.o IntheUS,HylaMobilepredictsthesecondarymobiledevicemarketwillreach$38.9

billionin2025.• From2021,EUpolicywillrequireproductdesignerstothinkaboutdisassemblyandrepair.

o DutchcompanyFairphonehasdevelopedaphonecustomerscanrepairthemselves.o FrenchdesignershaveinventedtheL’Increvablewashingmachine,whichcanbe

repairedandupgraded.• Dataiscrucial.ResearchershavedevelopedanEU-wideurbanmineplatformthatreveals

materialflows.o Itestimatesthereare450milliontonsofbatteries,electricaldevices,andcarsintheEU

thatcontainvaluableproductsforre-use.• Today’splasticvaluechainisfundamentallylinear,with95%ofthematerialvalueofplastic

packaging($80-120billionannually)beinglostafterasingleuse.• Worldproductionofplasticshasincreasedexponentially,from2.3milliontonsin1950to162

millionin1993,andto448by2015.• Consumersaremovingawayfromsingle-usepackagingandhavethepotentialtodisruptthe

linearbusinessmodelsthattraditionalfast-movingconsumergoods(FMCG)relyupon.• Totrulyachievecircularity,FMCGsmustengageinmoretransformative,systemicinnovationto

drivemorefundamentalshiftsinbusinessmodels.o UnileverpartneredtodevelopabreakthroughchemicalprocesscalledCreaSolv,which

itsayswillallowhigh-qualityrecyclingofplasticsachetwaste.o Henkelhaspartneredonthedevelopmentofaninnovativesolvent-basedprocesscalled

Newcycling,whichenablestherecoveryofhighquality,cleangradematerialsfromcomplex,multi-layerpackaging.

• Danonehasconductedamappingexercisetodeterminewhichofthemarketsintowhichitsellshavethelowestrecyclingrates.

o Itthendesignedlocalprograms,workingwithmunicipalgovernments,toimproverecyclingratesintheseareas.

• ABInBevisworkinginBrazilonreverselogisticstocollectandtransportmorerecycledglass.o IntheUS,itco-investedininfrastructuretocleanandcrushglass.

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o InMexico,itpartneredwithalocalNGOtohelpcollectbrokenglassandinvestedinanewglassprocessoratoneplant.

• Anothersolutionforovercomingtheselogisticalbarriersisestablishingtake-backschemes.• Themarketforrecycledplasticsisstillsmall.

o Thisisinpartduetoalackofdemandforrecycledplastics,whichinhibitsinvestmentinmaterial-recoveryactivities.

o Theeconomicfeasibilityofusingrecycledplasticsdependsonitscostadvantageovervirginalternatives.

o Manufacturerscangenerallyachievelowerinputcostsbyapplyingrecycledresins,butlowoilpricescanremovethecostadvantage.

• Danone,Coca-Cola,Unilever,andProcter&Gamblehavesetspecifictargetstoincreasethepercentageofrecycledcontentintheirpackaging.

o Thissignalsthatdemandforrecycledmaterialsislikelytoriseinthefuture,whichcouldgivewaytomorefavorableeconomics.

• Householdrecyclingratesareconstrainedbyalackofknowledge.o InasurveyofUKhouseholds,just48%understood“verywell”whattheyaresupposed

tousetheirrecyclingcontainersfor,andathirdsaidtheywouldrecyclemoreiftheyhadbetterinformationaboutlocalrecyclingservices.

FullReport(registrationrequired):https://eloqua.ethicalcorp.com/e/f2?LP=24346

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2.ClimateChangePathwaysto2050:AlternativeScenariosforDecarbonizingtheUSEconomyByC2ES,May2019

Objective• Toreviewtheresultsofadecarbonizationscenarioplanningexerciseandidentifyrelated

insightsandlessonslearned.Background

• Climatechangeisamongthemostprofoundchallengesofalltime.• C2ESledagroupofcompaniesinacollaborativeexerciseexaminingpotentialscenariosfor

achievingmid-centurydecarbonizationgoals.• Forthisexercise,an80%reductionfrom2005levelsineconomy-wideemissionsby2050was

usedasthebenchmarkcorrespondingtotheParisAgreement’sgoals.• Achievingclimateneutralityrequiressystemicsocial,economic,andtechnological

transformations.• Previousanalysespointtofivecoreimperatives:

o Decarbonizingtheworld’spowersupply;o Switchingtoelectricityandotherlow-carbonfuelsinthetransportation,industry,and

buildingssectors;o Increasingenergyefficiencyineachofthesesectors;o Increasingcarbonsequestration;ando Reducingemissionsofnon-carbonclimatepollutants.

• ThisreportandconnectedexercisesengagedawiderangeofleadingcompaniesandexpertsintheresearchcommunitytoapplyascenariosapproachinordertoenvisionplausiblepathwaystodecarbonizingtheUSeconomy.

• Throughaniterativeprocess,afinalsetofthreescenariosweredeveloped,eachleadingtoan80%reductioninUSGHGemissionsby2050:

o ACompetitiveClimate:Stronginternationalpressure(carbontariffs)andgrowingrecognitionofthecompetitivebenefitsoflow-carboninnovationleadtoastrong,earlyUSfederalresponse,includinganeconomy-widepriceoncarbon.

o ClimateFederalism:Respondingtoeconomicopportunitiesandintensifyingclimate-relatedisasters,agrowingnumberofUSstatesimplementambitiousclimatepolicies,leadingtocallsforaharmonizednationalresponse.

o Low-CarbonLifestyles:Increasedurbanization,generationalshifts,andtechnologicalbreakthroughsleadtostrongmarketdemandforlow-carbonproductsandservices,alongwiththeemergenceofinnovativelow-carbonbusinessmodels.

• Allthreescenariosassumethatothercountriesachievethe2050GHGreductiontargetsoutlinedinIEA’sSustainableDevelopmentscenario.

Findings

• DecarbonizingtheUSeconomyrequiresfundamentalshiftsinthewayswegenerateenergy,producegoods,deliverservices,andmanagelands.

• Thesefundamentalshiftscanbeachievedthroughahostofalternativepathwaysreflectingdifferentdrivers,differentcontingencies,anddifferentsocietalchoices.

o TheUScandecarbonizebyfollowinganyoneofanumberoftechnologyandpolicytrajectories.

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o Theinabilitytoreachconsensusregardingonepathway(e.g.atop-downfederalpricesignal)wouldnotprecludesuccessfuldecarbonizationalongotherroutes.

o Thewiderangeofpotentialpathwaysmeansthereissignificantuncertaintyaboutwhichpoliciesortechnologiesarebesttopursue,andwhichwillprovemostsuccessful.

• Decarbonizationrequiresthatactionacceleratesquicklyandthateveryoneplaystheirpart:policy-makersateverylevel,investors,entrepreneurs,consumers,voters,andcompaniesacrosskeysectorsoftheeconomy.

o Anypathwaythatreliestooheavilyonasingleactororsetofactors(e.g.thefederalgovernment,climate-progressivestates,oraminorityofcompanies)isunlikelytosucceed.

o Allleversmustbeengaged:policyatmultiplelevels,privateinnovationandinvestment,businessleadership,andthepublicatlarge.

o Allthreescenariosincludesomeformofcarbonprice–eitheranactualcarbonpricesetbypolicyorashadowpricesetbysocietalpreferences.

o Allscenariosimplysignificantinvestmentininnovationtoacceleratetechnologicalchange.

• Thesuccessofanypathwayhingesonhighlevelsofpublicsupport,expressedthroughstrongerdemandforeffectivepoliciesand/orlow-carbongoodsandservices.

o Itisimportanttoexplorehowdifferentpolicyframingsandincentivescangeneratepublicsupport.

§ Someco-benefitsofclimatepolicymaybeperceivedashavingahighervaluetosocietythanthedirectbenefitsofavoidedemissions.

• Decarbonizationrequiresabroadsuiteofpoliciesthatdriveinvestmentandactionbysettinggoals,targetingresources,providingincentives,andensuringalevelplayingfield.

o Amongpolicyoptions,atop-downmechanismsuchascarbonpricingstandsaloneinitsabilitytoorientanddriveeffortsacrosssectorsandsociety.

o Apatchworkofpoliciescanleadtoemissionsleakagebetweensectorsand/orstates.o InLow-CarbonLifestyles,thelackofaneconomy-widecarbonpriceleadstoincreases

inbuildingandindustryemissions,asrisingdemandforelectricitydrivesupelectricitypricesrelativetodirectfossil-fuelcombustion.

o Policieswillbeneededtoassistindustriesandcommunitiesthatwillbeeconomicallydisadvantagedinthelow-carbontransition.

• Technologicalinnovationcangreatlyfacilitatedecarbonizationbut,withoutadequatepolicydrivers,isnotsufficienttoachieveit.

o Somesectors(e.g.powerandbuildings)alreadyhaveawidevarietyoftechnologyandpolicyoptions,whileothers(e.g.transportationandindustry)requiremorerapidinnovationanddeployment.

o Sometechnologiesinherentlyreduceemissions(e.g.carboncaptureandstorage),whileothersdonotandmustbecombinedwithproperincentives(e.g.autonomousvehicles).

o Intheabsenceofmarketdrivers,translatinglow-carboninnovationintotechnologydeploymentiscontingentonsufficientpolicysupportanddemand.

• Theprivatesectorisanessentialpartnerinanydecarbonizationpathway,andtimelybusinessleadershipcanhelpensurechoicesthatarebeneficialforbothcompaniesandsocietyasawhole.

o Earlyinterventionsbybusinesscanhelpgeneratesupportforpolicyframeworksthatincludeflexible,cost-effectivestrategiesforachievingclimateneutrality.

• Sectoralresponsesarehighlyinterdependent–thepathwaychosenbyonesectormayenhanceorconstrainthedecarbonizationoptionsofothers.

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o Addressingeachsectorinisolationislikelytoresultininefficiencies,emissionsleakage,andhigheroverallcosts.

o Forexample,alargeincreaseintheuseofbiofuelsmayhavesignificantimplicationsforlanduse,foodproduction,andfoodimportsandexports.

• Sectoraltakeaways:Power:o Othersectorswillleanheavilyontheelectricpowersectorasasourceofzero-orlow-

carbonpower.o Greaterrelianceonelectricity,combinedwithpopulationandeconomicgrowth,could

resultingreatlyincreasedpowerdemand.o Gainsinefficiencycouldmoderatethisgrowingdemand.o Thepowersectorhasawiderangeoflow-carbontechnologyoptions,fromrenewables

tonucleartocoalandnaturalgaswithcarboncapture.o Thesesolutionscanbeadvancedthroughanynumberofpolicyoptions,suchascarbon

priceandacleanenergystandardincentivizingthefullrangeoftechnologyoptions.• Sectoraltakeaways:Transportation:

o Decarbonizingthissectornecessitatesmovingbeyondincrementalimprovementsinfuelefficiencytolarge-scalefuelswitching.

o Currenttrendspointtowardbattery-electricvehicles,butothertechnologies,suchashydrogenandbiofuels,mayalsoproveimportant.

o Whetherautomationandothernewmobilityoptionsincreaseorreduceemissionsremainsuncertain.

§ Policywillplayanimportantroleinshapinghowthesenewtransportationtechnologiesandmobilityparadigmsevolve,andtheircontributionstodecarbonization.

• Sectoraltakeaways:Industry:o Themanysubsectorsofindustryemployawiderangeofindustrialprocesses,manyof

themhighlyenergy-intensive,heavilyreliantonhigh-carbonfeedstocks,orrequiringalarge,steadysupplyofthermalenergy.

o Industrieswhoseproductsareinternationallytradedfacetheadditionalchallengeofmaintainingtheirglobalcompetitiveness.

o Keydecarbonizationstrategiescouldincludegreaterelectrification,carboncapture,andtheuseofrenewableenergywherepossibleforthermalneeds.

o Targetedpoliciesandinvestmentswillbeneededtogeneratetheparticulartechnologyadvancesthatcanenabledeeperemissionsreductions.

o MeasurestohelpshelterUSindustryfromoverseascompetitionmaybeanessentialpoliticalingredientofacomprehensiveclimatepolicy.

• Sectoraltakeaways:Buildings:o Theslowturnoverofbuildingstockandtherelativelyhighrateofexisting

electrificationreducesopportunitiesforrapidlyreducingemissionsacrossthesectorasawhole.

o Economicandpopulationgrowthmaydrivesubstantialincreasesintotalbuildingstock.

o Reducingemissionsfrombothexistingandnewbuildingstockfacessignificantupfrontcosthurdlesthatwillneedtobeaddressed.

o Policiesandconsumerchoicesfavoringfuelswitchingandelectrification,aswellastheintegrationofsmartefficiencytechnologiescanmakesignificantcontributions.

• Sectoraltakeaways:Landuse:o Landuse(i.e.agricultureandforestry)canbebothasourceofemissionsorasinkto

absorbcarbonfromtheatmosphere.

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o Allthreescenariosrelyonenhancedcarbonsequestrationtoproducenegativeemissions.

§ Thisisachievedpartlythroughincentivesforafforestation/reforestationandcarbonfarmingpracticestoincreasesoilsequestration,andpartlythroughtheproductionofcellulosicbiofuelslinkedwithcarboncapture.

o Agriculturehassignificantnon-CO2emissionsfromfertilizeruseandlivestockproduction.

o Innovationssuchasfeedadditivestoreduceanimalmethaneemissionsandcarbon-sequesteringfibercropsthatreplacesyntheticfiberscouldhelp.

o Dietarychangessuchaslowermeatanddairyconsumptioncouldreducethelandnecessarytosupportlivestockproduction.

FullReport(PDF):https://www.c2es.org/site/assets/uploads/2019/05/pathways-to-2050-scenarios-for-decarbonizing-the-us-economy-final.pdf

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SpecialReportonClimateChangeandLandByIPCC,August2019

Objective• ToprovideanupdatedassessmentonGHGfluxesinland-basedecosystems,landuseand

sustainablelandmanagementinrelationtoclimatechangeadaptationandmitigation,desertification,landdegradation,andfoodsecurity.

Background

• SustainableLandManagementisdefinedas“thestewardshipanduseoflandresources,includingsoils,water,animalsandplants,tomeetchanginghumanneeds,whilesimultaneouslyensuringthelong-termproductivepotentialoftheseresourcesandthemaintenanceoftheirenvironmentalfunctions.”

• Desertificationisdefinedas“landdegradationinarid,semi-arid,anddrysub-humidareasresultingfrommanyfactors,includingclimaticvariationsandhumanactivities.”

• Landdegradationisdefinedas“anegativetrendinlandcondition,causedbydirectorindirecthumaninducedprocesses,includinganthropogenicclimatechange,expressedaslong-termreductionandaslossofatleastoneofthefollowing:biologicalproductivity,ecologicalintegrity,orvaluetohumans.”

• Foodsecurityisdefinedas“asituationthatexistswhenallpeople,atalltimes,havephysical,social,andeconomicaccesstosufficient,safeandnutritiousfoodthatmeetstheirdietaryneedsandfoodpreferencesforanactiveandhealthylife.”

Findings

• People,land,andclimateinawarmingworld.o Landprovidestheprincipalbasisforhumanlivelihoodsandwell-beingincludingthe

supplyoffood,freshwater,andmultipleotherecosystemservices,aswellasbiodiversity.

§ Humanusedirectlyaffectsmorethan70%oftheglobal,ice-freelandsurface.§ Landalsoplaysanimportantroleintheclimatesystem.§ Peoplecurrentlyuseonequartertoonethirdofland’spotentialnetprimary

productionforfood,feed,fiber,timber,andenergy.§ Landprovidesthebasisformanyotherecosystemfunctionsandservices,

includingculturalandregulatingservices,thatareessentialforhumanity.§ LandisbothasourceandasinkofGHGsandplaysakeyroleintheexchangeof

energy,water,andaerosolsbetweenthelandsurfaceandatmosphere.§ Sustainablelandmanagementcancontributetoreducingthenegativeimpacts

ofmultiplestressors,includingclimatechange,onecosystemsandsocieties.§ Globalpopulationgrowthandchangesinpercapitaconsumptionoffood,

feed,fiber,timber,andenergyhavecausedunprecedentedratesoflandandfreshwateruse.

• Agriculturecurrentlyaccountsforroughly70%ofglobalfreshwateruse.

§ Expansionofareasunderagricultureandforestryhavesupportedconsumptionandfoodavailabilityforagrowingpopulation.

§ Withlargeregionalvariation,thesechangeshavecontributedtoincreasingnetGHGemissions,lossofnaturalecosystems,anddecliningbiodiversity.

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§ Thepercapitasupplyofvegetableoilsandmeathasmorethandoubledandthesupplyoffoodcaloriespercapitahasincreasedbyaboutonethirdsince1961.

§ Currently,25-30%oftotalfoodproducedislostorwasted.• ThisisassociatedwithadditionalGHGemissions.

§ Worldwide,thereareabout2billionadultsthatareoverweightorobeseandanestimated821millionpeoplewhoareundernourished.

§ AboutonequarteroftheEarth’sice-freelandareaissubjecttohuman-induceddegradation.

§ Therateofsoilerosionfromagriculturalfieldsisroughly10-20times(notillage)tomorethan100times(conventionaltillage)higherthanthesoilformationrate.

§ Climatechangeexacerbateslanddegradation,particularlyinlow-lyingcoastalareas,riverdeltas,drylands,andinpermafrostareas.

§ In2015,about500millionpeoplelivedwithinareaswhichexperienceddesertificationbetweenthe1980sand2000s.

• ThehighestnumbersofpeopleaffectedareinSouthandEastAsia,alongwiththeSahararegion.

o Sincethepre-industrialperiod,thelandsurfaceairtemperaturehasrisennearlytwiceasmuchastheglobalaveragetemperature.

o Climatechange,includingincreasesinfrequencyandintensityofextremes,hasadverselyimpactedfoodsecurityandterrestrialecosystemsaswellascontributedtodesertificationandlanddegradationinmanyregions.

§ Warminghasresultedinanincreasedfrequency,intensity,anddurationofheat-relatedevents,includingheatwavesinmostlandregions.

§ Frequencyandintensityofdroughtshasincreasedinsomeregions(i.e.theMediterranean,westAsia,SouthAmerica,Africa,andNortheasternAsia).

§ Therehasbeenanincreaseintheintensityofheavyprecipitationeventsataglobalscale.

§ Satelliteobservationshaveshownbothvegetationgreeningandbrowningindifferentglobalregions,withgreeningoccurringoveralargerareathanbrowning.

§ Thefrequencyandintensityofduststormshaveincreasedoverthelastfewdecadesduetolanduseandlandcoverchangesandclimate-relatedfactors,resultinginnegativeimpactsonhumanhealth.

§ InareassuchasSub-SaharanAfrica,partsofEastandCentralAsia,andAustralia,desertificationhasincreased.

§ Globalwarminghasledtoshiftsofclimatezonesinmanyworldregions,includingexpansionofaridclimatezonesandcontractionofpolarclimatezones.

§ Climatechangecanexacerbatelanddegradationprocesses,includingthroughincreasesinrainfallintensity,flooding,droughtfrequencyandseverity,heatstress,dryspells,wind,sea-levelriseandwaveaction,andpermafrostthaw.

§ Climatechangehasalreadyaffectedfoodsecurityduetowarming,changingprecipitationpatterns,andgreaterfrequencyofsomeextremeevents.

§ Inmanylower-latituderegions,yieldsofsomecrops(e.g.maizeandwheat)havedeclined,whileinmanyhigher-latituderegions,yieldsofsomecrops(e.g.maize,wheat,andsugarbeets)haveincreased.

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§ ClimatechangehasresultedinloweranimalgrowthratesandproductivityinpastoralsystemsinAfrica.

§ Thereisrobustevidencethatagriculturalpestsanddiseaseshavealreadyrespondedtoclimatechangeresultinginbothincreasesanddecreasesininfestations.

o Agriculture,Forestry,andOtherLandUse(AFOLU)activitiesaccountedforaround13%ofCO2,44%ofmethane,and82%ofnitrousoxideemissionsfromhumanactivitiesgloballyduring2007-2016,representing23%oftotalnetanthropogenicGHGemissions.

§ Netemissionsfromlanduseandlandusechangearemostlyduetodeforestation,partlyoffsetbyafforestation/reforestation,andemissionsandremovalsbyotherlanduseactivities.

§ FuturenetincreasesinCO2emissionsfromvegetationandsoilsduetoclimatechangeareprojectedtocounteractincreasedremovalsduetoCO2fertilizationandlongergrowingseasons.

• Thebalancebetweentheseprocessesisakeysourceofuncertaintyfordeterminingthefutureofthelandcarbonsink.

• Permafrostthawingisexpectedtoincreasethelossofsoilcarbon.§ Globalatmosphericmethaneconcentrationssteadilyincreasedbetweenthe

mid-1980sandearly1990s,withslowergrowthuntil1999,nogrowthbetween1999-2006,andthenaresumptionofgrowthin2007.

• Biogenicsourcesmakeupalargerproportionofemissionsthantheydidbefore2000.

• Ruminantsandtheexpansionofricecultivationareimportantcontributorstotherisingconcentration.

§ AnthropogenicAFOLUnitrousoxideemissionsarerising.• Emissionsfromsoilsareprimarilyduetonitrogenapplication

inefficiencies.• Therehasbeenamajorgrowthinemissionsfrommanagedpastures

duetoincreasedmanuredeposition.• Livestockonmanagedpasturesandrangelandsaccountedformore

thanonehalfoftotalanthropogenicN2Oemissionsfromagriculturein2014.

§ TotalnetGHGemissionsfromAFOLUrepresent23%oftotalnetanthropogenicemissions.

§ Emissionswithinfarmgateandfromagriculturallandexpansioncontributingtotheglobalfoodsystemrepresent16-27%oftotalanthropogenicemissions.

§ Emissionsoutsidethefarmgaterepresent5-10%oftotalanthropogenicemissions.

§ Emissionsfromagriculturalproductionareprojectedtoincrease,drivenbypopulationandincomegrowthandchangesinconsumptionpatterns.

o Changesinlandconditions,eitherfromlanduseorclimatechange,affectglobalandregionalclimate.

o Attheregionalscale,changinglandconditionscanreduceoraccentuatewarmingandaffecttheintensity,frequency,anddurationofextremeevents.

§ ChangesinlandcoverduetohumanactivitieshaveledtoanetreleaseofCO2(contributingtoglobalwarming)andanincreaseingloballandalbedo(causingsurfacecooling).

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§ Theresultingneteffectonglobalaveragesurfacetemperaturesisestimatedtobesmall.

§ Changesinlandconditionscanaffecttemperatureandrainfallinregionsasfarashundredsofkilometersaway.

§ Insomeborealregions,winterwarmingwillbeenhancedduetodecreasedsnowcoverandalbedowhilewarmingwillbereducedduringthegrowingseasonbecauseofincreasedevapotranspiration.

§ Insometropicalareas,increasedvegetationgrowthwillreduceregionalwarming.

§ Driersoilconditionsresultingfromclimatechangecanincreasetheseverityofheatwaves,whilewettersoilconditionshavetheoppositeeffect.

§ DesertificationincreasesglobalwarmingthroughthereleaseofCO2linkedwithdecreasesinvegetation.

• Thedecreaseinvegetationtendstoincreaselocalalbedo,leadingtosurfacecooling.

§ Changesinforestcoverdirectlyaffectregionalsurfacetemperaturethroughexchangesofwaterandenergy.

• Whereforestcoverincreasesintropicalregions,coolingresultsfromenhancedevapotranspiration,andcanleadtocoolerdaysduringthegrowingseasonandreducetheamplitudeofheatevents.

• Inregionswithseasonalsnowcover,increasedtreeandshrubcoverhasawintertimewarminginfluenceduetoreducedsurfacealbedo.

§ Globalwarmingandurbanizationcanenhancewarmingincitiesandtheirsurroundings.

• Increasedurbanizationcanalsointensifyextremerainfalleventsoverthecityordownwind.

o Climatechangecreatesadditionalstressesonland,exacerbatingexistingriskstolivelihoods,biodiversity,humanandecosystemhealth,infrastructure,andfoodsystems.

o IncreasingimpactsonlandareprojectedunderallfutureGHGemissionscenarios.o Someregionswillfacehigherrisks,andsomeregionswillfacerisksnotpreviously

anticipated.§ Thefrequency,intensity,anddurationofheatrelatedeventsareprojectedto

continuethroughthe21stcentury.§ Thefrequencyandintensityofdroughtsareprojectedtoincreaseparticularly

intheMediterraneanregionandsouthernAfrica.§ Thefrequencyandintensityofextremerainfalleventsareprojectedto

increaseinmanyregions.§ Currentlevelsofglobalwarmingareassociatedwithmoderaterisksfrom

increaseddrylandwaterscarcity,soilerosion,vegetationloss,wildfiredamage,permafrostthawing,coastaldegradationandtropicalcropyielddecline.

§ Ataround1.5°Cofwarming,therisksfromdrylandwaterscarcity,wildfiredamage,permafrostdegradation,andfoodsupplyinstabilitiesareprojectedtobehigh.

§ Ataround2°Cofwarming,theriskfrompermafrostdegradationandfoodsupplyinstabilitiesareprojectedtobeveryhigh.

§ Ataround3°Cofwarming,riskfromvegetationloss,wildfiredamage,anddrylandwaterscarcityarealsoprojectedtobeveryhigh.

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§ Thestabilityoffoodsupplyisprojectedtodecreaseasthemagnitudeandfrequencyofextremeweathereventsthatdisruptfoodchainsincreases.

• IncreasedatmosphericCO2canalsolowerthenutritionalvalueofcrops.

§ AsiaandAfricaareprojectedtohavethehighestnumberofpeoplevulnerabletoincreaseddesertification.

§ N.America,S.America,Mediterranean,SouthernAfrica,andCentralAsiamaybeincreasinglyaffectedbywildfire.

§ Thetropicsandsubtropicsareprojectedtobemostvulnerabletocropyielddecline.

§ Landdegradationfromsealevelriseandmoreintensecyclonesisprojectedtojeopardizelivesandlivelihoodsincycloneproneareas.

§ Climatechangecanamplifyenvironmentallyinducedmigrationwithinandbetweencountries.

§ Extremeweatherandclimateorslow-onseteventsmayleadtoincreaseddisplacement,disruptedfoodchains,threatenedlivelihoods,andcontributetoexacerbatedstressesforconflict.

o Thelevelofriskposedbyclimatechangedependsonthelevelofwarmingandonhowpopulation,consumption,production,technologicaldevelopment,andlandmanagementpatternsevolve.

o Pathwayswithhigherdemandforfood,feed,andwater,moreresource-intensiveconsumptionandproduction,andmorelimitedtechnologicalimprovementsinagriculturalyieldsresultinhigherrisksfromwaterscarcityindrylands,landdegradation,andfoodinsecurity.

• Adaptationandmitigationresponseoptions:o Manyland-relatedresponsesthatcontributetoclimatechangeadaptationand

mitigationcanalsocombatdesertificationandlanddegradationandenhancefoodsecurity.

o Whileland-relatedresponseoptionscanmakeimportantcontributionstoadaptationandmitigation,therearesomebarrierstoadaptationandlimitstotheircontributiontoglobalmitigation.

§ Someland-relatedresponsesinclude:sustainablefoodproduction,improvedandsustainableforestmanagement,soilorganiccarbonmanagement,ecosystemconservationandlandrestoration,reduceddeforestationanddegradation,andreducedfoodlossandwaste.

§ Examplesofresponseswithimmediateimpactsincludetheconservationofhigh-carbonecosystemssuchaspeatlands,wetlands,rangelands,mangroves,andforests.

§ Examplesofresponsesprovidingmultipleecosystemservicesbutthattakemoretimetodeliverincludeafforestationandreforestationaswellastherestorationofhigh-carbonecosystems,agroforestry,andthereclamationofdegradedsoils.

§ Landbasedoptionsthatdelivercarbonsequestrationinsoilorvegetationdonotcontinuetosequestercarbonindefinitely.

• Peatlandscancontinuetosequestercarbonforcenturies.• Whenvegetationand/orsoilmaturesorreachessaturation,removalof

atmosphericCO2declinestowardszero,whilecarbonstockscanbemaintained.

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• Accumulatedcarboninvegetationandsoilsisatriskfromfuturelossorsinkreversaltriggeredbydisturbancessuchasflood,drought,fire,pestoutbreaks,orfuturepoormanagement.

o Mostresponseoptionsevaluatedcontributepositivelytosustainabledevelopmentandothersocietalgoals.

o Manyresponseoptionscanbeappliedwithoutcompetingforlandandcouldprovidemultipleco-benefits.

§ Improvedmanagementofcroplandandgrazinglands,improvedandsustainableforestmanagement,andincreasedsoilorganiccarboncontentdonotrequirelandusechangeanddonotcreatedemandformorelandconversion.

§ Increasedfoodproductivity,dietarychoices,andfoodlossandwastereductioncanreducedemandforlandconversion,potentiallyfreeinglandforotherresponseoptions.

§ Preservingandrestoringnaturalecosystemssuchaspeatland,coastallandsandforests,biodiversityconservation,reducingcompetitionforland,firemanagement,andsoilmanagementcouldcontributetosustainabledevelopmentandenhanceecosystemfunctionsandservices.

§ Ecosystem-basedadaptationcan,insomecontexts,promotenatureconservationwhilealleviatingpovertyandprovidingco-benefitsforremovingGHGsandprotectinglivelihoods(e.g.mangroves).

o Mostresponseoptionscanbeappliedwithoutcompetingforavailableland,butsomecanincreasedemandforlandconversion.

§ Thisincreaseddemandforlandconversioncouldleadtoadversesideeffectsforadaptation,desertification,landdegradation,andfoodsecurity.

§ Examplesoftheseresponseoptionsincludeafforestation,reforestation,andtheuseoflandtoprovidefeedstockforbioenergywithorwithoutcarboncaptureandstorage,orforbiochar.

§ Ifappliedonalimitedshareoftotallandandintegratedintosustainablymanagedlandscapes,therewillbefeweradverseside-effectsandsomepositiveco-benefitscanberealized.

§ Theproductionanduseofbiomassforbioenergycanhaveco-benefits,adversesideeffects,andrisksforlanddegradation,foodinsecurity,GHGemissions,andotherenvironmentalandsustainabledevelopmentgoals.

• Theuseofresiduesandorganicwasteasbioenergyfeedstockcanmitigatelandusechangepressuresassociatedwithbioenergydeployment.

o Manyactivitiesforcombatingdesertificationcancontributetoclimateadaptationwithmitigationco-benefits,aswellastohaltingbiodiversitylosswithsustainabledevelopmentco-benefitstosociety.

§ Forexample:waterharvestingandmicro-irrigation,restoringdegradedlandsusingdrought-resilientecologicallyappropriateplants,andagroforestry.

o Avoiding,reducing,andreversingdesertificationwouldenhancesoilfertility,increasecarbonstorageinsoilsandbiomass,whilebenefittingagriculturalproductivityandfoodsecurity.

o Preventingdesertificationispreferabletoattemptingtorestoredegradedland,duetothepotentialforresidualrisksandmaladaptiveoutcomes.

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o Cleanerenergysourcescancontributetoadaptationandmitigatingclimatechange,whilecombatingdesertificationandforestdegradation,throughdecreasingtheuseoftraditionalbiomassforenergy.

§ Thiscanalsohavesocioeconomicandhealthbenefits,inparticularforwomenandchildren.

o Sustainablelandmanagement,includingsustainableforestmanagement,canpreventandreducelanddegradation,maintainlandproductivity,andsometimesreversetheadverseimpactsofclimatechangeonlanddegradation.

§ Itcanalsocontributetomitigationandadaptation.§ Reducingandreversinglanddegradation,atscalesfromindividualfarmsto

entirewatersheds,canprovidecosteffective,immediate,andlong-termbenefitstocommunitiesandsupportseveralSDGswithco-benefitsforadaptationandmitigation.

§ Climatechangecanleadtolanddegradation,evenwithmeasuresintendedtoavoid,reduce,orreverselanddegradation.

• Examplesincludecoastalerosionexacerbatedbysealevelrisewherelanddisappears,thawingofpermafrostaffectinginfrastructureandlivelihoods,andextremesoilerosioncausinglossofproductivecapacity.

o Responseoptionsthroughoutthefoodsystem,fromproductiontoconsumption,includingfoodlossandwaste,canbedeployedandscaleduptoadvanceadaptationandmitigation.

§ Thetotalmitigationpotentialfromcropandlivestockactivitiesandagroforestryisestimatedat2.3-9.6GtCO2e/yearby2050.

§ Thetotalmitigationpotentialofdietarychangesisestimatedat0.7-8GtCO2e/yearby2050.

§ Balanceddiets,featuringplant-basedfoods,suchasthosebasedoncoarsegrains,legumes,fruitsandvegetables,nutsandseeds,andanimal-sourcedfoodproducedinresilient,sustainableandlow-GHGemissionsystems,presentmajoropportunitiesforadaptationandmitigationwhilegeneratingsignificantco-benefitsforhumanhealth.

§ ReductionoffoodlossandwastecanlowerGHGemissionsandcontributetoadaptationthroughreductioninthelandareaneededforfoodproduction.

o Allclimatepathwaysthatlimitwarmingto1.5°Corwellbelow2°Crequireland-basedmitigationandland-usechange(mostincludecombinationsofreforestation,afforestation,reduceddeforestation,andbioenergy).

o Afewmodeledpathwaysachieve1.5°Cwithreducedlandconversion(andthereforereducedconsequencesfordesertification,landdegradation,andfoodsecurity).

• Enablingresponseoptions:o Appropriatedesignofpolicies,institutions,andgovernancesystemsatallscalescan

contributetoland-relatedadaptationandmitigationwhilefacilitatingthepursuitofclimate-adaptivedevelopmentpathways.

o Mutuallysupportiveclimateandlandpolicieshavethepotentialtosaveresources,amplifysocialresilience,supportecologicalrestoration,andfosterengagementandcollaborationbetweenstakeholders.

o Policiesthatoperateacrossthefoodsystem,includingthosethatreducefoodlossandwasteandinfluencedietarychoices,enablemoresustainableland-usemanagement,enhancedfoodsecurity,andlowemissionstrajectories.

o Theadoptionofsustainablelandmanagementandpovertyeradicationcanbeenabledbyimprovingaccesstomarkets,securinglandtenure,factoringenvironmentalcosts

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intofood,makingpaymentsforecosystemservices,andenhancinglocalcollectiveaction.

o Acknowledgingco-benefitsandtrade-offswhendesigninglandandfoodpoliciescanovercomebarrierstoimplementation.

o Theeffectivenessofdecision-makingandgovernanceisenhancedbytheinvolvementoflocalstakeholdersintheselection,evaluation,implementation,andmonitoringofpoliciesforland-basedclimateadaptationandmitigation.

• Near-termaction:o Actioncanbetakeninthenear-termtoaddressdesertification,landdegradation,and

foodsecurity,whilesupportinglonger-termresponsesthatenableadaptationandmitigationtoclimatechange.

§ Forinstance,actionstobuildindividualandinstitutionalcapacity,accelerateknowledgetransfer,enhancetechnologytransferanddeployment,enablefinancialmechanisms,implementearlywarningsystems,undertakeriskmanagement,andaddressgapsinimplementationandupscaling.

o Delayingclimatemitigationandadaptationresponsesacrosssectorswouldleadtoincreasinglynegativeimpactsonlandandreducetheprospectofsustainabledevelopment.

FullReport(PDF):https://www.ipcc.ch/site/assets/uploads/2019/08/4.-SPM_Approved_Microsite_FINAL.pdf

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3.CorporateStrategyMajorRiskorRosyOpportunity:AreCompaniesReadyforClimateChange?ByCDP,June2019

Objective• ToanalyzeresponsestoCDP’sannualclimatechangereportingsurvey.

Background

• CDPhascommittedtoalignitsinformationrequestswiththeTCFD,alongsideintroducingasectoralfocusandadoptingaforward-lookingapproachtoclimate-riskdisclosure.

• Thismeansagreateremphasisonelementssuchasboardoversight,thepotentialimpactsofclimate-relatedrisksandopportunitiesonstrategy,theuseofforward-lookingscenarioanalysis,andtheappropriatemetricsandtargetstomanagetherisks.

• Atotalof6,707ofthe6,937(97%)ofcompaniesreportingtoCDPin2018disclosedwhethertheyconsidertheirbusinesstobeexposedtosubstantiveclimate-relatedrisksandopportunities.

o Almosthalfidentifiedbothrisksandopportunitieswhichcouldhaveasubstantiveimpactontheirbusiness.

o 32%reportedtheydidnotidentifyrisksoropportunitieswhichwouldhaveastrategicimpactontheirbusiness.

o 14%ofcompaniesidentifiedopportunitiesbutnorisks.Findings

• Companiesareidentifyingsignificantrisksbutneedtoexpandtheiranalysis.o 53%ofrespondingcompaniesreportclimate-relatedriskswiththepotentialtohavea

substantivefinancialorstrategicbusinessimpact.o Therewerenearlytwiceasmanytransitionrisksreportedoverallcomparedwith

physicalrisks.o Transitionrisksprimarilyincludedpolicyandlegalchallenges,withthemostfrequently

reportedriskbeingtheincreasedpricingofGHGemissions.o Roughly25%ofthecompaniesthatidentifiedtransitionrisksonlyfocusedonpolicyand

legalrisksanddidnotidentifyclimate-relatedmarket,reputation,ortechnologyrisksassubstantive.

o Mostcompaniesareidentifyingonlypotentialphysicalandtransitionrisksthatwouldimpacttheirdirectoperationsandnotreportingrisksimpactingtheirsupplychainsorcustomers.

§ Thispointstoaverynarrowfocusonthetypesofrisksbeingexplored.o Duetothecomplexityofglobalsupplychains,adisruptioninonepartoftheworldcan

havesignificantimpactselsewhere.o Investorsandcompaniesshouldbroadentheirclimateriskassessmentpracticesifthey

aretoremainprofitableinthefuture.• Thebiggestcompaniesreportmajorfinancialimplications.

o Thetoptwoidentifiedcausesoffinancialimpactareincreasedoperatingcosts(e.g.highercompliancecosts),oftenlinkedtocarbonpricing;andreducedrevenuefromdecreasedproductioncapacityduetothephysicalimpactsofclimatechange.

o Theworld’slargestcompaniesidentifyhigherratesofrisksandopportunitiesthanothers,reporting:

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§ Higherratesofboardoversightofclimate-relatedissues;§ Increasingstakeholderscrutinyonclimate-relatedissues;and§ Higherratesofpotentialreputationalrisks.

o Whenlookingat500oftheworld’sbiggestcompaniesbymarketcapitalization(G500),215companies(representingnearly$17trillioninmarketcap)providedestimatesofthepotentialfinancialimplicationsforaproportionoftheirreportedrisks.

§ CDPfoundjustunderatrilliondollars(approximately$970billion)atrisk.§ Overhalfoftheseriskswerereportedas‘likely/verylikely/virtuallycertain’

andarelikelytomaterializewithinfiveyears.§ Approximately$250billionofthisfigureislinkedtoassetimpairmentsor

write-offs(strandedassets)asaresultofbothtransitionandphysicalrisks.• Theopportunitiesarebiggerthantherisks.

o 51%ofreportingcompaniesidentifiedpotentialopportunitiesthatcouldhaveasubstantiveorstrategicimpactontheirbusiness.

o Themajorityoftheseopportunitiesarelinkedtonewproductsandservicesaffectingboththecustomeranddirectoperationalpartsofthesupplychain.

o Resourceefficienciesandalternativeenergysourceswerethenextmostfrequentlyidentifiedmoneysavers.

o 225oftheworld’s500biggestcompaniesreportedclimate-relatedopportunitiesrepresentingpotentialfinancialimpactstotalingover$2.1trillion.

o Themajorityofthiscomesfromthepotentialincreaseinrevenueduetodemandforlowemissionsproductsandservices,aswellasthepotentialforabettercompetitivepositionagainstshiftingconsumerpreferences.

o Almostalloftheseopportunitiesarereportedtobelikely,verylikely,orvirtuallycertain,withthemajoritymaterializingintheshort-tomedium-term.

• Therearesignificantdifferencesacrosscountriesandregions.o CompaniesheadquarteredintheUS,Brazil,Mexico,Argentina,andChilearelesslikely

thanotherregionstoreportsubstantiverisksoropportunities.o AnalysisoftheG500companiesshowsthatthoseheadquarteredintheUSareonly

reportingapotentialfinancialimpactofjustover$110billionfromclimaterisks. § ThisislowerthanexpectedconsideringUScompaniesarethelargestnational

groupintheG500sample,yetthetotalreportedhererepresentsjust10%ofthetotalfinancialriskreported.

§ LowerfiguresofphysicalrisksreportedbyUScompaniesissurprisinggiventhesignificantlossesincurredin2017duetoextremeweatherandnaturaldisasters.

§ Thispointstoaneedtoimproveclimate-relatedriskassessmentsatUScompanies.

o UScompaniesintheG500doreportasignificant$450billioninpotentialopportunities,justunderaquarterofthetotal$2.1trillionreported.

§ ThisisstilllessthanhalfofwhatEUcompaniesarereporting.§ Aclearerfederalpolicyframeworkwithacommitmenttoacceleratethe

transitioncouldunlockmoreopportunitiesforthesecompanies.o Chinesecompaniesarebehindtheaverageresponserateforidentifyingopportunities.

§ TheproportionofcompanieswhoidentifyopportunitiesbutareunabletorealizethemishigherinChinathanelsewhere.

o SouthAfricancompaniesmakeupthehighestproportionofcompaniesidentifyingbothsubstantiverisksandopportunities.

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o Japanesecompaniesidentifyahigherthanaveragenumberofrisksandopportunities,withnearlyallJapanesecompaniesintheG500identifyingsubstantiveopportunities.

o Roughly60%ofEuropeancompaniesidentifysubstantiveclimate-relatedrisksandopportunities.

§ MostpotentialfinancialimplicationsfromtransitionandphysicalrisksintheG500werereportedbycompaniesinEurope,ataround$640billion,withtransitionrisksaccountingforalmost$400billion.

§ OverhalfofthereportedopportunitiescomefromEuropeancompanies,ataround$1.3trillion,with$1trillionlinkedtoproductsandservices.

• Thefinancesectorisseeingmoreimplicationsthantherealeconomy.o 80%ofcompaniesoperatinginthefinancialservices,fossilfuels,andpowerindustries

identifysubstantiverisksandopportunities–thehighestproportionincomparisontootherindustries.

o Themajorityoffinancialimplicationsreportedareconcentratedinthefinancialservicesindustry–itisthebiggestsectorrepresentedintheG500anditisdisclosingrisksmorereadilythanothers.

o Ifthefinancesectorisidentifyingmorerisksfortheirclientsthanthecompaniesreportthemselves,regulatorsandinvestorsshouldbeaskingastowhoisactuallymanagingtheserisks.

o Whilethefinancesectorisprolificinidentifyingphysicalrisksforclients,itispotentiallymissingasignificantnumberoftransitionrisksintherealeconomy,

o Whenthefinancesectorisaskedaboutitsowntransitionrisks,companiesreportrisknarrowlyfocusedonthepotentialriskstoowndirectoperations.

o Overhalfofthetotalfinancialvaluefromincreasingopportunitiesisalsoidentifiedbythefinancesector,whererelatedopportunitiestotaledover$1.2trillion.

§ Thenexthighestpotentialfinancialreturnsofclimate-relatedopportunitiesarereportedbycompaniesinthemanufacturing($338billion),services($149billion),fossilfuels($141billion),andfood,beverage,andagricultural($106billion)industries.

o OnlyhalfofthefossilfuelcompaniesintheG500reportedanyfinancialdataforrisksandopportunitiestheyidentified.

§ Surprisingly,fossilfuelcompaniesarereportingmoreopportunitiesthanrisksfromclimatechange.

§ Thesecompaniesidentifyopportunitiesfromthelow-carbontransitionintermsofnewproductsandservicestheycouldbringtomarket.

§ Themajorityoftheirreportedrisksarelinkedtoincreasingregulation,especiallycarbonpricing.

§ Thesecompaniesdonotreportmanysignificantrisksasaresultofthelow-carbontransition,whichtheyinsteadhighlightasanopportunity.

§ Thelow-carbontransitioncouldresultinreduceddemandfortheirproductsduetoregulation,marketchanges,andchangingconsumerpreferences.

• Thewinsfaroutweighthecostsofmanagement.o Ofthe192G500companiesdisclosingfinancialimplicationfiguresalongsidethecostto

managetheimpacts,themajorityreportmuchlowercoststomanagetherisksthantheirpotentialimplications.

§ Themanufacturing,power,andservicesindustriesaretheexceptiontothis.§ Thefinancialservicesindustryaccountsfor72%ofthetotalpotentialfinancial

impact($677billion)anddwarfsthecosttomanagethesamerisks($2.2billion).

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o Inalmostallindustries,thecoststorealizereportedopportunitiesaresignificantlysmallerthanthetotalvalueoftheopportunity.

§ Thepotentialvalueoftheopportunitiesarenearlyseventimesthecostsestimatedtorealize($312billionincostsvs.$2.1trillioninopportunities).

o Economistshavebeenhighlightingforoveradecadethatthepotentialnegativeimpactsofclimatechangeoutweighthecoststomitigatethem,andthattherearesignificantopportunitiesinthistransition.

o Investorsandstakeholdersshouldexpecttoseecompaniesinvestingmoreheavilyinthetransition–andiftheyarenot,theyshouldbeaskingwhy.

• Companiesandinvestorsneedtolearnlessonsfromthepowersector.o Companiesinthepowersectoraretheonlyonesreportinghighercoststomanage

risksandrealizeopportunitiesthantheimplicationsoftherisksandopportunitiesthemselves.

o Assetsinthissectorarelong-livedandrequiresignificantcapitalinvestment.o Coststomanageclimate-relatedrisks–whetheritbeinvestmentsinresilience,retiring

assetsearly,orinvestinginnewassets–areproportionallyhigherthanmanyothersectors.

o Companiesinthissectorthatdidnotmoveforanearlyintegrationoftheserisksintotheirstrategiesarefacinghigherrisksthaninitiallyplannedfor.

FullReport(PDF):https://6fefcbb86e61af1b2fc4-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/004/588/original/CDP_Climate_Change_report_2019.pdf

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4.FinanceChangingCourse:AComprehensiveInvestorGuidetoScenario-BasedMethodsforClimateRiskAssessment,InResponsetotheTCFDByUNEP-FI,May2019

Objective• TodetailtheresultsoftheUNEnvironmentProgramFinanceInitiative(UNEP-FI)InvestorPilot

onTCFDAdoption,acollaborativeefforttoexplore,enhance,andapplyamethodologyforassessingtheimpactofphysicalandtransitionrisksandopportunitiesontheportfoliosofinstitutionalinvestors.

Background

• Toappropriatelypriceclimateriskandtorewardinnovation,investorsneedtherightinformation.

• MomentumbehindTCFD’svoluntarydisclosurerecommendationiscreatingavirtuouscirclebyencouraginglearningbydoing.

• Climatechange(about1°Cofwarmingsofar)isalreadyhavingdisruptiveeffectsonglobaleconomies,throughitsphysicalmanifestationsandthemitigationactionsaimedatavoidingthese.

o Extremeweathereventsareincreasinginfrequencyandintensity.o Theseareresultinginsevererepercussionsforlivelihoods,communities,and

companies(throughimpactstooperations,supplychains,andcustomers).o Policyandtechnologyshiftshavebeguntoaffectthecompetitivepositionsof

emissions-intensivecompaniesrelativetoprovidersoflow-carbonalternatives.o Continuedphysicalimpactsandrapidpolicyactionstolimitclimatechangepresent

investorswithpotentiallyunprecedentedanduncertainfinancialimpactsthattheywillneedtomanage.

• TheTCFDrecommendationsoutlinetheneedforcorporateandfinancialinstitutionstoconductforward-lookingscenario-basedassessmentsoftheseclimate-relatedrisksandopportunities.

o Usingscenario-basedanalysestoassessthelong-termeffectsofclimatechangeaimstoensurethatcorporateandfinancialinstitutionsincorporatetheseeffectsintostrategicdecisions.

• TheInvestorPilotGroupfromthisreportismadeupof20institutionalinvestorsfromacrosstheglobe.

o TheultimateobjectiveoftheInvestorPilot,includingthisreport,isto1)boostinvestorsavviness,and2)supportindustry-wideharmonization.

Findings

• Therearealargenumberofscenarioanalysismethodologiesandprovidersthatofferdiverseandcontinuallyimprovinganalyses.

o ThisstudyfoundmanyavailablemethodologiesandathrivingmarketofserviceproviderstosupportTCFD-compliantscenarioanalysis.

o Therearemanysimilaritiesbetweenmethodologies,aswellassignificantdifferences.o Therearealargesetofmethodologiestochoosefrom,dependingondesiredscope,

depth,andfocusofanalysis.

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o Thisreportevaluatedmethodologiesonthebasisofscenariosused,physicalandtransitionhazardsexamined,impactassessmentmethodologydeveloped,outputsproduced,andfinally,theresolutionofanalysis.

• TheUNEP-FIInvestorPilotexplored,enhanced,andappliedamethodologycreatedbyCarbonDelta,road-testinga‘ClimateValueatRisk’(CVaR)forlistedequities,corporatedebt,andrealestateunderseveralfuturescenarios.

o Themethodologyexaminesthephysicalimpactsfromchronicchangesintheclimateandacuteweathereventsoncompanies’operationsusingbusinessinterruptionasaproxy.

o Onthetransitionside,itexplorespolicyriskthroughcostsformeetingnationalemissionsreductiontargets.

• Themethodology,whichincludednumerousgapsandassumptions,wasappliedtoa‘MarketPortfolio’thatincluded30,000equallyweightedcompanies,representingtheinvestablemarketuniverse.

o Investorsfaceasmuchas13.16%ofriskfromtherequiredtransitiontoalow-carboneconomy.

§ A1.5°Cscenarioexposescompaniestoasignificantleveloftransitionrisk,affectingasmuchas13.16%ofoverallportfoliovalue.

§ Thiswouldrepresentavaluelossof$10.7trillion,basedonthecurrent$81.2trillionAUMofthelargest500globalinvestmentmanagers.

o Climate-relatedrisks,includingrisksfromthetransitiontoalow-carboneconomy,becomeacutelyapparentatthesectorlevel.

§ Utilities,transportation,agriculture,mining,andpetroleumrefiningsectorsstandoutashavinghighpolicyrisk.

§ Undera1.5°Cscenario,theutilitysectorismoststronglyexposedtopolicyrisk(-50.6%atrisk),althoughthesectorcontributeslessthan10%overalltotheportfolio’sclimaterisks.

§ Manufacturinghasamuchlowerriskof-16.5%,butgetsthehighestportfoliocontributionof46.7%

§ Thereissignificantvariationinclimaterisklevelsbetweensectors,anddiversificationcanhelptoreducetheserisks.

o ‘Green’profitsina2°Cworldaresignificant,representingapproximately$2.1trillion.§ Greenrevenuesgeneratedfromthesaleoflow-carbontechnologieswillhelp

companiesoffsetcostsfromcomplyingwithGHGreductionpolicies.§ Strongerclimatepolicythereforetranslatesintoanincreasedpotentialfor

companiestogenerate‘green’profits.o Lowcarbontechnologyopportunitieshelpoffsetrisk.

§ Aggregatedtechnologyopportunitiesacrossaportfoliowillalleviatelossesgeneratedunderthe3°C(+3.21%ofportfoliobenefits),2°C(+6.94%),and1.5°C(+10.74%)policyscenarios.

o Companiesfaceincreasedcostsandinvestorsfaceincreasedriskifgovernmentsactlate.

§ The30,000companiesintheuniversefaceafurthercostof$1.2trillionifgovernmentsdelayactiontoenactclimatepoliciestoreduceGHGemissions.

§ Delayedactionnotonlyincreasespolicyrisk,butalsoresultsinmuchgreaterphysicalclimateriskduetotheincreasedatmosphericGHGlevels.

FullReport(PDF):https://www.unepfi.org/wordpress/wp-content/uploads/2019/05/TCFD-Changing-Course.pdf