The United Nations Intergovernmental Panel on Climate Change (IPCC) has released its 2021 AR6 climate change report (Report), as well as a summary for policy leaders. The Report addresses the current understanding of the climate system and climate change as well as the future possibilities of what could occur. In early 2022, the IPCC plans to release two further reports on climate impacts, adaptation and vulnerability.

195 governments across the world have endorsed the Report. While the Report does not contain policy recommendations, its unanimous approval by member governments (particularly in the lead up to the COP26 climate conference in November this year) means further regulatory changes both at national and international levels are likely to be on the horizon.

What does the IPCC Report mean for your business?

We have summarised some key points from the Report below. Our expectation is that the IPCC’s findings, including in the context of the upcoming COP26 climate conference, have a number of potential implications for companies:

  • Accelerated policy changes and increased uncertainty. The support of many States around the findings in the Report may see accelerated policy or regulatory change by governments. The Report’s findings may also lead to greater pressure by activists seeking to persuade governments to make desired policy or regulatory changes, which can increase economic uncertainty for business.
  • Sharpened focus on director decision-making. The Report’s findings represent a further development relevant to the actions required of directors to meet the expected standard of care in relation to considering, acting on and disclosing climate change risks (both physical and financial) as well as the foreseeability of such risks.
  • Enhancement of “clean” finance and investment. The Report may support ‘green’ or ‘clean’ financing and investment seeking changes to company policies in relation to the approach to climate change risks including in order to manage the financier or investor’s own risks.
  • Further legal claims from activist plaintiffs. We have written previously about the growing body of case law that is emerging internationally arising from the impacts of climate change and ESG issues. The Report’s findings are likely to further influence this trend – including because the Report underscores the foreseeability of climate change risk.
  • Scenario planning should encompass an appropriate scope of potential risk. Observational data identifies that there is an increased risk of extreme weather events as a result of climate change. Even where these risks are low probability (and in particular where they have potentially high impacts), they should be considered where appropriate in scenario planning.
  • Transition planning is needed for businesses, suppliers and customers. Businesses will need to consider how their operations impact and respond to climate change. Businesses should consider what a just transition would look like for them and for the communities in which they operate. Businesses should continue to develop clear plans for how they will adapt to climate change, including physical changes as well as changes to the regulatory environment in which they operate. This includes potential impacts to global supply chains and de-risking potential disruption events.

Looking ahead to COP26

The United National Climate Change Conference for 2021 (COP26) is scheduled to be held from 31 October – 12 November 2021. In the lead up to and following COP26, we anticipate seeing:

  • increased pressure on governments and businesses to commit to targets for decreasing emissions (likely to focus on net zero by at least 2050);
  • possible changes to COP26 goals in light of the findings in the Report (in particular, the goal to keep 1.5 degree within reach); and
  • increased consideration of how “hard-to-abate” sectors will be addressed at COP26.

 

Appendix: overview of key findings of the IPCC report

A.  The current state of the climate

The IPCC has reported that human influence has warmed the atmosphere, ocean and land and has found that changes to the climate system at an unprecedented scale have occurred in every region across the globe. The Report finds that these changes include continued increase in greenhouse gas (GHG) concentrations, an increase in human-caused surface temperature of 0.8°C to 1.3°C, with a best estimate of 1.07°C, global glacial retreat and warming of the global upper ocean.

Evidence of observed changes in extremes such as increased heatwaves, heavy precipitation, agricultural and ecological droughts, compound flooding and fire weather and an increased proportion of tropical cyclones, as well as their attribution to human influence, has strengthened since the IPCC’s Fifth Assessment Report (AR5).

B.  Possible climate futures

The Report considers 5 emissions scenarios and assesses that global surface temperature will continue to increase until at least the mid-century under all emissions scenarios considered. In particular, the Report concludes that:

  • Global warming of 1.5°C and 2°C will be exceeded during the 21st century unless deep reductions in CO2 and other greenhouse gas emissions are made in the coming decades.
  • Global warming of 2°C would be exceeded during the 21st century under the 2 higher emission scenarios, and is extremely likely to be exceeded in the intermediate scenario. 2°C is unlikely to be exceeded in the two lowest emission scenarios. Global warming of 1.5°C would be exceeded during the 21st century under the intermediate, high and very high scenarios. In the near term (2021-2040), 1.5°C is more likely than not to be exceeded under every emissions scenario. However, for the very low GHG emissions scenario, it is more likely than not that global surface temperature would decline back to below 1.5°C toward the end of the 21st century.
  • For every additional 0.5°C of global warming there are clear increases in the intensity and frequency of heat waves, heavy precipitation (extreme daily precipitation events are projected to intensify by about 7% for each 1°C of global warming) as well as agricultural and ecological droughts in some regions. Regions projected to see the highest increase in temperature of the hottest days, see increases at 1.5 to 2 times the rate of global warming, whilst the Arctic is projected to experience the highest increase in the temperature of the coldest days, at around 3 times the rate of global warming. The IPCC has projected that additional warming will increase permafrost thawing, as well as reduce seasonal snow cover and land and Arctic sea ice. The Arctic is likely to be practically sea ice free in September at least once before 2050 under the scenarios, with this happening more often at higher warming levels.
  • With increasing CO2 emissions, carbon sinks are projected to be less effective at slowing the increase of atmospheric CO2, with the proportion of emissions taken up decreasing with increasing emissions, leaving a higher proportion of emitted CO2 in the atmosphere.
  • Many climate changes are now irreversible for centuries to millennia due to past and future emissions. This includes changes in global ocean temperature, deep ocean acidification and deoxygenation and global sea level rise as well as loss of permafrost carbon following permafrost thaw, melting of mountain and polar glaciers and continued loss of ice at the Greenland Ice Sheet and Antarctic Ice Sheet.

C.  Climate Information for Risk Assessment and Regional Adaptation

The Report identifies that decadal variability has, and will, enhance and mask underlying human-caused long-term changes. All regions are expected experience multiple and concurrent changes in climatic impact-drivers. In particular, regions are expected to experience increases in hot climatic drivers and decreases in cold climatic drivers (i.e. more extreme temperatures).

Changes in climatic impact-drivers would be increased at 2°C or above compared to 1.5°C global warming, for example extreme heat thresholds relevant to agriculture and health would be exceeded more frequently at higher global warming levels.

Risk assessment and adaptation planning should have regard as appropriate to uncertainty associated with increases in climate variability combined with decadal incidents (e.g. large volcanic eruptions, intensified flooding).

D.  Limiting Future Climate Change

In relation to limiting future climate change, the Report concludes that:

  • Limiting human-induced global warming requires limiting CO2 emissions, reaching at least net zero along with strong reductions in other GHG emissions. It identifies that there is a near-linear relationship between cumulative CO2 emissions and global warming, with 1000Gt CO2 causing 0.27°C to 0.63°C (0.45°C best estimate) of warming. This shows that reaching net zero anthropogenic CO2 levels is essential, and that limiting global temperature increase to a specific level requires limiting cumulative CO2 emissions to a carbon budget.
  • Anthropogenic CO2 removal leading to global net negative emissions would lower atmospheric CO2 and reverse surface ocean acidification. If net negative emissions were achieved and sustained, the global surface temperature would be gradually reversed, but some climate changes such as global mean sea level could take centuries to millennia to reverse, even under net negative CO2
  • Scenarios with very low/ low GHG emissions lead quickly to discernible effects on GHG and aerosol concentrations, and air quality, relative to high and very high GHG emissions scenarios. Reductions in GHG emissions also lead to improvements in air quality but in the near term, even in the lower emissions scenarios, these are not sufficient to achieve WHO air quality guidelines in many polluted regions. Targeted reductions of air pollutant emissions, lead to more rapid improvements in air quality, however from 2040, efforts reducing both air pollutants and GHG emissions are the most effective.
  • The 2 lowest emissions scenarios lead to substantially smaller changes in a range of CIDs beyond 2040, such as the increase in the frequency of extreme sea level events, heavy precipitation and pluvial flooding and exceedance of dangerous heat thresholds, while limiting regions where such exceedances occurred, relative to high emission scenarios.

 

We will continue to monitor developments in this area, and encourage you to subscribe to be kept informed of latest developments. Please contact the authors or your usual Herbert Smith Freehills contacts for more information.

Silke Goldberg
Silke Goldberg
Partner, London
+44 20 7466 2612

Heidi Asten
Heidi Asten
Partner, Melbourne
+61 3 9288 1710

Mark Smyth
Mark Smyth
Partner, Sydney
+61 2 9225 5440

Jannis Bille
Jannis Bille
Associate, London
+44 20 7466 6314