IPCC Report on Climate Adaptation
The UN Intergovernmental Panel on Climate Change (IPCC) recently released part two of their Sixth Assessment Report titled Climate Change 2022: Impacts, Adaptation and Vulnerability. Understandably, the report was overshadowed by Russia’s invasion of Ukraine and the ongoing humanitarian crisis in Ukraine. The US and other countries have imposed sanctions on Russia’s economy, including the oil and gas sector, as part of broader efforts to force Russia to cease violent actions. Russia’s invasion has broader impacts for the global economy as well since Russia is a major supplier of fossil fuels, especially to Europe. The invasion has increased fears of a global energy shortage fueling further inflation, while highlighting the need to reduce dependence on fossil fuels. Greater use of renewable energy will reduce the global economy’s reliance on rogue nations like Russia that use oil and gas profits to finance indefensible military actions, while also helping address global greenhouse gas emissions.
While part one of the Sixth Assessment Report (released in August 2021) summarized the physical science of climate change, part two concentrates on the current and future impacts of climate change on human and natural systems. A major focus is climate adaptation, or “the process of adjustment to actual or expected climate and its effects.” Climate change is often described as a future risk to humans and the environment, but the IPCC emphasizes that climate change is inflicting significant damages on humans and ecosystems today. Global average temperatures have already increased 1.1 degrees C above pre-industrial levels and global aggregate economic damages increase non-linearly with global warming. Since we are not on track to reach global net-zero emissions soon, the impacts of climate change will only accelerate over time with further warming. Consequently, the IPCC stresses that society must invest in adaptation measures to increase global resilience to climate change and reduce vulnerability to climate-related shocks.
Key takeaways from the report:
Climate change threatens global food security
Climate-related events such as droughts, heatwaves, and flooding have exposed millions of people to food insecurity due to higher food prices and reduced food availability. Global yields of rice, maize, and wheat are expected to decline by 10-25% with each additional degree of warming, while livestock productivity also declines at higher temperatures. The combination of climate-related factors and rising population growth threatens global food security and highlights the importance of improving agriculture’s resilience to climate change.
Climate change is not just an environmental issue
While “approximately 3.3 to 3.6 billion people live in contexts that are highly vulnerable to climate change,” the losses and damages from climate change are not distributed equally. Populations most vulnerable to climate change often live in areas with high poverty, low economic development, and greater dependence on climate-sensitive activities like agriculture. Therefore, climate impacts will worsen global inequality if climate inaction persists. The IPCC also emphasizes that global financing for climate adaptation, especially to developing countries, has lagged what is needed to prepare for the impacts of climate change.
Climate change significantly affects human health
The COVID-19 pandemic has significantly impacted global health and climate change threatens further health consequences. Higher global average temperatures have increased the proportion of the global population exposed to heatwaves. As global temperatures rise, with disproportionate warming occurring in certain regions, heat-related mortality will continue to increase. This problem is magnified by increasing global urbanization and the urban heat island effect, where temperatures in urban areas exceed rural areas due to a lack of natural land cover. Climate change is also increasing the prevalence of water-borne diseases as floods compromise critical water safety infrastructure. Finally, warmer temperatures and higher humidity increase the geographic range and reproductive capacity of vectors. Vectors are living organisms, such as mosquitoes and ticks, that transmit pathogens to humans that cause diseases including malaria, dengue, and Lyme disease.
There are hard limits to adaption for humans and natural systems
The IPCC warns of “hard limits” that natural systems face in adapting to climate change. Many natural systems have already exhausted their limited capacity to adjust to changes in the global climate, and more will exhaust their adaptive capacity in the future. Given that humans are highly dependent on biodiversity and ecosystem services for survival and economic development, further warming will worsen climate impacts. The limits to adaptation from additional warming highlight the importance of rapid action to reduce global emissions to avoid future climate impacts and preserve the effectiveness of adaptation measures.
We have “a brief and rapidly closing window of opportunity” to act on climate change
Despite the alarming situation outlined by the IPCC throughout the report, the authors stress that all hope is not lost. Humans can still take immediate action to reduce emissions and help avoid the most catastrophic impacts of climate change, but only if we act now. As we highlighted in our post-COP26 blog, the collective focus needs to shift from 2050 net-zero goals to short-term action using technology available today. Yet, the IPCC acknowledges that some climate impacts are inevitable based on changes in the global climate to date. This requires investment in adaptation measures to increase resilience and reduce vulnerability to the impacts of climate change. Furthermore, the IPCC warns that overshooting 1.5 degrees C will lead to irreversible impacts for parts of the global climate system with low resilience.
GEOS: Investing in climate solutions
The IPCC’s findings underscore the need for investors to consider the impacts of climate change in their investment decisions. Climate change is a current threat, not just a future risk. While no company is immune from the impacts of climate change, companies with strong climate governance can minimize the physical and transitional risks of climate change. The climate crisis also presents a once in a lifetime investment opportunity. As the transition to a low carbon society accelerates, there is increasing demand for products and services that reduce greenhouse gas emissions and help society adapt to the impacts of climate change.
GEOS invests in companies that provide solutions to reduce emissions and increase resilience to climate-related impacts today. Technologies such as renewable energy, electric vehicles, and green hydrogen reduce greenhouse gas emissions by displacing fossil fuel alternatives. Energy storage, precision agriculture, water infrastructure, and distributed power generation help society adapt to the impacts of climate change. To further illustrate how GEOS invests to help society adapt to the impacts of climate change, consider the resiliency of the energy grid. Wildfires, heavy rains, and other climate impacts are reducing the stability of the grid since power lines and power plants are vulnerable to climate-related impacts. Homeowners and businesses can increase their resilience to climate-related events by adopting a decentralized model of energy production with rooftop solar and battery storage. By adopting solar plus storage, energy users reduce their exposure to grid instability and vulnerability to climate-related impacts. An additional benefit is the reduction in greenhouse gas emissions by substituting fossil fuel energy with renewable energy.
GEOS companies offer technologies that can help address the climate crisis today instead of waiting decades for breakthrough technologies that may never arrive. As the IPCC stresses, immediate action on climate change will help avoid the most catastrophic impacts of climate change and reduce global vulnerability to certain inevitable climate impacts based on warming to date. The time to act is now.
This commentary is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. The opinions and analyses expressed in this commentary are based on Essex Investment Management LLC’s (“Essex”) research and professional experience and are expressed as of the date of its release. Certain information expressed represents an assessment at a specific point in time and is not intended to be a forecast or guarantee of future results, nor is intended to speak to any future periods. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties.
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 Climate and Health, Centers for Disease Control and Prevention. https://www.cdc.gov/climateandhealth/effects/vectors.htm
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