The IPCC Summary Report on Climate Change: What It Means for Impact Investing

By Marta Maretich, Maximpact

On 27 September 2013, the United Nations Intergovernmental Panel on Climate Change (IPCC) published the first of three volumes of its fifth Assessment Report (AR5). The long-awaited report summary emerged amid a flurry of media coverage and a volley of commentary, both pro and con. Its main conclusions were clear, however: climate change is real, its effects are already measurable, and it is being caused by human activity.

AR5 Summary Highlights

• Human influence on the climate system is clear. This is evident in most regions of the globe.
• Warming in the climate system is unequivocal.
• Global surface temperature change for the end of the 21st century is projected to be likely to exceed 1.5°C relative to 1850 to 1900 in all but the lowest scenario considered, and likely to exceed 2°C for the two high scenarios
• Projections of climate change are based on a new set of four scenarios of future greenhouse gas concentrations and aerosols, spanning a wide range of possible futures. The Working Group I report assessed global and regional-scale climate change for the early, mid-, and later 21st century.

Source: the UK government The summary report has sparked controversy worldwide. Some rushed to embrace the findings while others immediately set out to disprove the science and question the motives behind it. The world’s reaction is a measure of how emotive—and divisive—the issue of anthropogenic (human-caused) climate change has become for governments, businesses and individuals in the years since the first IPCC report in 1990. With passionate feelings on both sides, the controversy is set to continue.

Challenging times for believers

The report’s publication follows a rough period for those who believe that climate change poses a threat to life on earth. In 2001, the U.S., under the administration of George W. Bush, rejected the Kyoto agreement on global warming. Flaws in the AR4, IPCC’s 2007 report—among them the apparent claim that Himalayan glaciers would disappear by 2035—drew intense fire from critics and distracted attention away from AR4’s core findings. They provided more fuel for the so-called climate change deniers—those who hold that global warming is a hoax or a conspiracy to slow progress. From 2008, the economic crisis prompted world leaders to put economic growth ahead of environmental protection, with many governments backing away from previous emission-lowering commitments. The worldwide carbon market, including the EU’s cap-and-trade scheme, essentially collapsed in 2012, leaving questions about its efficacy as a means to control emissions. Against this background, the summary report serves as a wakeup call from the most respected source of climate science the world has. The new report has been widely accepted as the most convincing body of evidence of climate change and the human role in it so far. For impact investors, it could have profound importance on many levels.

What does it mean for the impact investing sector?

It’s fairly safe to say that most of those involved in the impact investing sector are already convinced of the reality of climate change. Many already focus their investing activity on areas relating to climate change such as agriculture and agribusiness, food security, forestry, land and water use, waste management and reduction, clean and renewable energy, energy efficiency and cleantech. For this reason, it’s likely that impact intermediaries, impact investing funds and social entrepreneurs will take the IPCC report as a renewed call to action. However, the new IPCC report will change the impact investing landscape for everyone. Impact investors will see the effects of changes in government policy, the attitude of big business and international public opinion. What will be some of the main currents affecting our impact investing strategies?

Governments respond with policy

The release of the summary report was a huge event, but it’s only the tip of the iceberg when it comes to the IPCC findings. The 19th annual meeting of the UN Climate Change Convention will be held in Warsaw from November 11-22. At this meeting, the IPCC will deliver further scientific evidence to diplomats in order to facilitate policy decisions. A new legal commitment with respect to carbon emission will then be drawn up, replacing the 1994 accord. This is scheduled to take effect by 2015. In preparation for these events, governments across the world are already formulating their policy stances. There are questions about how individual governments will react in the face of the new evidence. Climate change remains highly controversial in some developed countries, notably the U.S. and Australia where it has become an issue that divides the political left and right. India, China and other rapidly industrializing countries are also wary: they have so far been unprepared to agree to emissions cuts unless more developed countries do the same. Meanwhile island nations like Tuvalu, and South Asian countries like Bangladesh, both highly vulnerable to the effects of climate change, argue for a robust international response. For impact investors, one thing is certain: there will be a new legal framework guiding climate change policy worldwide in 2015. Whatever the shape of this framework, it will change the investing landscape in many countries and have far-reaching effects for impact investors in many parts of the world. Much will depend on the structure and extent of the new laws, which will be hotly debated by governments. Regardless of the outcome, things will change for impact investors. The direct effects will be felt through the policies, programs and incentives governments create in response.

Where governments take a lead…

In places where government policy supports pro-climate investing, there are likely to be more opportunities for collaborative investments working across government agencies, impact intermediaries, impact funds and private investors. Collaborative cross-sectoral arrangements are already a characteristic of the impact investing world. In the UK, Sustainable Development Capital was awarded £50 million by the UK government’s Department of Business, Innovation and Skills to invest in energy efficiency infrastructure projects. Big Society Capital, an independent fund created by the government, invests in many climate-friendly initiatives, especially in cleantech, energy efficiency, and sustainable energy for disadvantaged communities in Britain. The UK provides what is probably the best current example of a dynamic government-lead approach to market-based social investing. As other governments take action to meet new policy commitments, they will be looking for solutions and partners. Seasoned impact intermediaries and funds—of which there are a growing number—can bring specialist skills and knowledge to collaborative cross-sectoral arrangements for financing impactful businesses. They are also in position to benefit from government subsidies and tax incentives focused on meeting carbon reduction targets. For these reasons, the ability to work for and with government could prove essential for impact investors and the businesses they finance.

…and where they don’t

Where government leadership is lacking—and incentives such as tax breaks, subsidies and government co-investment are not forthcoming—global development agencies, philanthropic organizations, activists and impact investors will have to take the initiative in catalyzing the response to climate change. This may not be a bad thing: some commentators believe that private action, not government intervention, will be the key front in the fight against human-caused climate change. There’s already evidence that governments have been scaling back their commitments to climate change action and pushing responsibility onto NGOs and private companies, while private investors have been picking up the slack. Many organizations and activists have been operating this way for decades and will continue to do so regardless of what governments do in response to the IPCC findings. The U.S. provides many examples. The same country that rejected the Kyoto Protocol—and produced some of the most virulent and well-funded examples of climate change denial—has also given the world some of the most progressive models of local and state support for climate-friendly businesses and approaches. This independence has made parts of the U.S. leaders in areas like clean energy, energy efficiency, renewables, organic and sustainable agriculture and sustainable forestry. The States boasts some of the most mature markets in these new kinds of businesses, proving that federal government policy needn’t be an obstacle to progress. The new markets remain volatile and, despite everything, still subject to the effects of government policy and subsidy (the rollercoaster of cleantech provides one example). Yet it looks as though these market areas will grow as communities and values-driven businesses, if not governments, look for new ways to react to climate change. This could be a growth area for impact investors and businesses. Read part 2, The IPCC Summary Report on Climate Change: Impact Investing as a Powerful Tool. Marta Maretich is Maximpact’s Chief Writer and Blog Editor. Maximpact is a free global portal for ventures / deals that assist the social, impact and sustainability sectors in fund raising and collaboration of different kinds. It operates as a secure web-based listing service that allows sustainability, philanthropy & CSR professionals, as well as entrepreneurs, intermediaries, and funds to share information about initiatives and impact investment deals, online. [Image credit: Morgue File]