A friend’s parents are dying. He is providing full-time palliative care. This is, of course, physically taxing and emotionally brutal. He says that part of the challenge is, during the rare moments when he can step away from 24-hour care-giving, that the world surrounding him appears to be sleeping in our lack of awareness of death.
Those of us paying attention to climate change cannot help but have similar feelings – no matter the urgent reality of the situation, the world mostly slumbers onwards.
Every year since 2010, the UN has released their “Emissions Gap” report. The overall message of their 2022 report has not changed – our action to reduce emissions is inadequate – but the language is increasingly blunt: “dire”, “misery”, “crisis”, “urgent”.
Given the political stagnation, responsibility for such systemic risks falls awkwardly on the financial industry
This year’s report at least answers a question posed in the 2010 report – are our pledges sufficient to limit temperature rise to 1.5°C by 2100? The answer is no. There is no credible path to 1.5°C. Instead, national emissions goals (NDCs) put the world on track to 2.4°C. Existing policies are not likely to achieve those goals, instead putting us on track to 2.6°C. Those policies themselves may not be effective, with existing actions putting us on track to 2.8°C. Of course, these are the estimates of the likely outcomes under these scenarios. Less likely but still possible outcomes under these scenarios will put us above 3°C.
The best we can say is that the most drastic outcomes are now less likely, due to a decade of better-than expected progress in renewable electricity. 4°C is unlikely, 5°C is almost ruled out.
What does this mean in practice? At our current temperature rise of 1.2°C, one-third of Pakistan has been submerged. Every additional 0.1°C of temperature rise will kill more people. Such temperature rises mean sovereign risk as well as human risks. States will fall – arguably climate stress is already causing this.
The lack of awareness and urgency persists. This remains a political problem with no solution in sight – last week’s COP27 in Egypt was as unable to wake us up as the previous twenty-six.
Given the political stagnation, responsibility for such systemic risks falls awkwardly on the financial industry. Carbon is slowly being priced, incompletely and unevenly, and systematic risks are being considered, if poorly measured or partially discounted. For sovereign risk at least, the risks can be and are quantified.
Government bonds provide a score of sovereign risk, albeit scored on narrow, economic criteria by a tiny number of people, but a score nonetheless. This year, New Zealand’s Treasury intends to offer sovereign green bonds – debt finance for specific public investments with climate change outcomes.
This is a frankly enviable situation to be in – our most pressing climate risk is not the loss of our homes or lives but the loss of our export markets. This lets us slumber on.
The premium that the market places on these bonds is expected to be low, reflecting investors’ assessment of New Zealand’s climate position. We are seen as having relatively low exposure to physical climate risks. The “relative” part is key here – we’re not going to have a third of the country flooded, but we will have the challenge of managed retreat or ever-increasing costs for coastal communities like Greymouth, Westport, Kaitaia, Thames, Gisbourne, and the Kāpiti Coast. Similarly, our climate policies and actions are relatively well-received. Feedback from overseas investors is that our Zero Carbon Act and Emissions Trading Scheme are well-regarded, although our persistently high agricultural emissions continue to be a risk at a national level. That risk comes from our export markets – the higher concern about the carbon footprint of red meat and dairy in the UK and Europe is a strong challenge for our export trade.
This is a frankly enviable situation to be in – our most pressing climate risk is not the loss of our homes or lives but the loss of our export markets. This lets us slumber on.
Let’s not pretend – our future looks brutal. But everything we do will be something to avoid the worst of our future.
Similarly, in Australia the near constant flooding in the eastern states, just a few years after the worst bushfire season on record, does not seem to have roused most of the population from their torpor. Australia’s climate response has improved this year with a firm, if inadequate, emissions reduction target. But carbon emissions are not priced, widely used carbon offset schemes have been discredited as a sham, and the Government is still approving new fossil fuel export projects such as the vast Burrup Hub. Australia too has hit the snooze button on climate response.
I am a partner in Aotearoa’s first climate-specific venture fund. The archetypal venture capitalist is over-optimistic. The industry has a selection bias towards promise and hope, sometimes unreasonably so. Yet incumbent upon us is the duty to be realistic about the prospects for our investments, for our companies, and for the impact we can have upon the world. The impact we are aiming for is to reduce emissions as much as we can with the resources we are entrusted with. We are making good progress and we intend to present our ongoing success as a rallying call – to show that waking up and making a difference to emissions not just needs to be done but can be done.
Let’s not pretend – our future looks brutal. The difference any of us can make alone won’t be enough. But everything we do will be something and every success may help us get to the global imperative that we require to avoid the worst of our future.