Doing nothing will be more expensive than investing in climate action today, warns IPCC

We cannot continue ignoring it: we are already experiencing the devastating impacts of climate change, and things will get even worse if we do not act now. It is happening today, in every corner of the planet, and nobody is immune - not even businesses and investors.

On Monday 4 April, the Intergovernmental Panel on Climate Change (IPCC) has once again sounded the alarm through its latest report: Climate Change 2022: Mitigation of Climate Change. “There are solutions available in every sector to at least halve emissions by 2030. Without immediate and deep emissions reductions across all sectors, limiting global warming to 1.5°C will be out of reach”. It is now or never, if we are to ensure a future for all.

The importance of finance

The report highlights the critical role of finance in decarbonizing the global economy, and notes that while solutions to halve emissions by 2030 are ready to be implemented, the finance needed to realize these opportunities has to grow fast.

To support financial institutions in setting science-based emissions reduction targets covering their lending and investment portfolios, and operations, the SBTi has developed Financial Sector Target Setting Guidance. Financial institutions can and should start their journey now to integrate climate action across their institutions, and there are several ways of doing so, for example, adopting climate-related investment policies so that companies they invest in have approved Science Based Targets.

This year, we are scaling the SBTi’s financial sector work by publishing additional metacriteria for assessing and harmonizing alternate methods, as well as new guidance and technical resources to support banks, investors, insurance companies, pension funds and other financial institutions. We are also developing a Net-Zero Standard for Financial Institutions, set to be launched in 2023, to support this sector in the formulation and implementation of their long-term science-based targets. On April 12, we will be setting the groundwork for this with the launch of our foundations paper, which sets out initial definitions and marks the start of our Standard develop process.

Decarbonizing energy and industry

The IPCC report also draws attention to energy demand sectors such as buildings, industry (e.g. steel, cement and chemicals), energy and transport. Companies in these sectors already have many solutions to cut emissions at the pace and scale required by science, including demand management, material efficiency and circular material flows. However, according to the authors: “achieving net-zero will be challenging and will require new production processes, low and zero emissions electricity, hydrogen, and, where necessary, carbon capture and storage.”

To drive decarbonization in these and other key sectors, the SBTi is developing sector-specific methodologies, tools and guidance tailored to the unique context of each industry to enable alignment with 1.5°C.

What’s more, the urgency of reducing dependence on fossil fuels was re-emphasized and the UN Secretary General was emphatic: “Fossil fuels are choking humanity. We must triple the speed of the shift to renewable energy if we are to limit global warming.” Aiming to develop more robust methodologies that will better support companies in the fossil fuel sector to decarbonize in line with climate science, the SBTi has recently updated its policy for companies in this sector. To this end, we are planning a peer review of the oil and gas target-setting methods and guidance through a panel of independent external experts. Due to the need of this more robust methodology, the SBTi has paused accepting commitments or validating targets from fossil fuel companies. We will share further updates on the development of this guidance soon.

Land sector mitigation potential

Companies in the forest, land and agriculture (FLAG) sectors have the potential to provide reductions and removals at scale, yet, mitigation measures in these sectors “cannot compensate for delayed emission reductions in other sectors.” Later this year, the SBTi will launch the world’s first standard method for companies in land-intensive sectors to account and set climate related science-based targets that include land-related emissions and removals. It will also clarify ten specific mitigation pathways for major commodities with high carbon footprints: beef, chicken, dairy, maize, palm oil, pork, rice, soy, wheat, and timber and wood fiber; provide companies with a streamlined tool to make implementing regional targets straightforward; and will require companies to commit to zero deforestation covering all scopes of emissions.

The FLAG Science Based Target Setting Guidance will apply only to land-related emissions and qualified removals in a company’s direct emissions and supply chain. All other emissions in a company’s inventory should be covered by a non-FLAG science-based target.

Urgent economic transformation

The IPCC report provides additional detail on what’s needed to limit warming to 1.5°C, but the central message and urgent call to action remain the same. Global emissions need to be reduced fast to keep the 1.5°C target within reach, and there are solutions available in every sector to halve emissions by 2030. The SBTi’s precedent-setting work to establish 1.5°C-aligned emissions targets at the cross-sector level and different sectors of the economy still holds, and we will examine whether changes are needed for the SBTi’s 2023 update (as stated in the SBTi’s Pathways to Net-Zero report, Appendix 2).

The SBTi plays a vital role in enabling organizations to halve emissions by 2030 and reach net-zero by 2050. Embraced by the climate action ecosystem, to date more than 2,700 companies and hundreds of investors are taking action and seeking to align their portfolios with global climate goals. Later this month we will be launching SBTi’s 2021 Progress Report which will demonstrate the impact of science-based targets, the challenges ahead and the steps the SBTi is taking to overcome them.

Counteracting the impact of climate change will require greater investment in the future than what we need today to tackle the climate crisis. It is crucial to exponentially grow the number of companies and financial institutions taking action.

We must not fail to follow the science. Companies across all sectors and financial institutions must reduce emissions at the pace and scale required to keep warming below 1.5°C - and setting science-based targets represents the crucial first step. We have a range of resources to support businesses in their decarbonization journey. Find out more and set a science-based target for your organization now.