Need to Know: 2023 Climate Action Report
The World Resources Institute yesterday released the 2023 State of Climate Action Report.
There are a number of “need to know” findings, which give rise to a number of plausible implications for businesses operating both within Australia and those exporting, doing business or seeking financing overseas.
The main findings are:
We are not closing the gap to 1.5 degrees, by any timescale. Forty-one of forty-two indicators assessed are not on track to achieve their 2030 targets. Six of the forty-two indicators have gone backwards. Twenty indicators are heading in the right direction, but not quickly enough.
Of those heading in the wrong direction, agriculture and transport feature most prominently. We are travelling more km per person by passenger vehicles, we are selling more combustion buses than ever before, we are losing hectares for food production, and we are losing mangroves. These are the areas where policy and economics need to converge to find better answers. Financing for fossil fuels in 2021 also doubled from 2020 to reach the highest levels seen in almost a decade. Deforestation increased to 5.8 million hectares (Mha) worldwide in 2022, losing an area of forests greater than the size of Croatia in a single year.
Most sectors feature in those areas heading in the right direction but needing more change. Renewable energy is making a massive contribution, but will need to do even more. The global share of these two technologies in electricity generation has grown by an annual average of 14% in recent years, but this needs to reach 24% to get on track for 2030. To meet 1.5 degrees, global efforts to phase out coal in electricity generation need to shift seven times faster than the current rates. This is equivalent to retiring roughly 240 average-sized coal-fired power plants each year through 2030. The annual rate of deforestation — equivalent to deforesting 15 football (soccer) fields per minute in 2022 — needs to be reduced four times faster over this decade. As well as this, global climate finance needs to be eight times larger to meet the challenge of change.
The transport transition is the shining light for the transition. The share of passenger EV sales has risen at an average annual rate of 65% — up from 1.6% of sales in 2018 to 10% of sales in 2022 globally. This indicator is on track for 2030.
For those manning strategic watchtowers, or concerned about most likely future scenarios, the implications of reports such as these, particularly in the lead up to COP28 are clear. We are nearing a point where Government commitments will begin to be attracted towards almost commitments to impossible changes in direction from an operational or economic perspective. This poses significant risk to Boards and management who are exposed to these types of decisions, through taxation, penalties or assistance to competing technologies.
Our research shows that companies do best when they exhibit three characteristics. Firstly, they are open to the prospect that change is occurring, they are anticipating the range of most likely scenarios and they are committed to the notion that Government’s will most likely begin to move in directions that are not economically rational as the years move on. This requires agility in the C suite, and in particular the CEO and CFO. Secondly, they have the support of equity holders that will require investment and risk, whether to maintain market share, move into new adjacent areas or seize new opportunities. Thirdly, and most importantly, that even with the best will in the world, that they have enough time.
Would you like to continue the conversation? Message a member of the team for more information or to arrange a meeting.