THE IPCC 2022 AR6 GROUP II CLIMATE CHANGE REPORT – AN OVERVIEW

The IPCC's Working Group II has issued its latest Sixth Assessment Report (AR6) publication - the 2022 AR6 Group II Report (the "Group II Report"). This report addresses climate change through the lens of impacts, adaptation and vulnerability. It follows the 2021 AR6 report which was released pre-COP26 and was endorsed by 195 governments across the world – you can read our breakdown of the 2021 AR6 and its significance for business here.

As observed with the previous IPCC reports, the 2022 AR6 Group II Report will likely carry notable sway amongst policymakers and influence the course of the regulatory landscape both nationally and internationally. Equally of importance in the report are the projected direct impacts of climate change which will likely disrupt supply chains, markets and workforces. Accordingly, this report is highly relevant for businesses take the report's findings into consideration when looking at future practices.

The Impacts of the IPCC Report on Businesses

A few of the key points from this report are summarised below. We believe that the findings recorded in this Group II Report, like the previous one, are going to significantly impact the conduct of business across sectors globally:

• Further acceleration in adaptation policy making. The Group II Report signals that the need to adapt to climate change has become more urgent in the recent past. While it observes that there has been progress in adaptation planning and implementation across all regions and sectors, this remains to be unevenly distributed. Public institutions have been encouraged to close these regional and sectoral gaps which take into account both near term and long-term risks of climate change. This might lead to uncertainty regarding the legislative/regulatory landscape, but also provides new opportunities for businesses to come up with integrated, multi-sectoral solutions.
• Better climate adaptation of markets. The Group II Report supports climate responsive markets, including in the energy sector. It encourages better design standards of energy assets as per current and projected climate change, the use of smart grid technologies, robust transmission systems and improved capacity to supply deficits. The Panel believes that such markets have high feasibility both in the medium and long term. Such modernisation or "green deals" are also encouraged in the agricultural sector and sectors that depend on extraction of natural resources. As these markets modernise, businesses will be required to adapt as well.
• Change of focus from mitigation to adaptation. The Panel observes that most of the global tracked climate finance, from the public and the private sector, has been targeted at mitigation and not adaptation which may not be sufficiently forward looking. In this light, businesses may be required to switch strategies to focus on not only mitigating any climate-change-caused damage but adopting a preventative approach to avoid inevitable climate change risk associated loss.
• Enhanced focus on monitoring and evaluation. The previous Group I Report in 2021 had underscored the importance of scenario planning, while this report focuses on enhanced monitoring and evaluation as a successful risk management tool. Effective monitoring and evaluation can allow businesses to track their adaptation progress, understand the effectiveness and equity of their adaptation mechanisms and feed into ongoing adaptation processes.
• Encouragement of Climate resilient development. As the world moves towards fostering climate resilient development, businesses will have to re-adjust their goals to align with this objective. While this will be different across different sectors and regions, the private sector would also be required to, at the least, make more inclusive development choices that prioritise risk reduction, equity and justice. Investment aligned with fostering climate resilient development may be encouraged via policy/regulation.
• Encouragement of green investments. With the focus on adaptation only increasing, businesses may be expected to play a key role in supporting large scale financing of adaptation and climate resilience. This has previously been done through instruments such as green, social impact and resilience bonds as well as dedicated investment vehicles, which may grow even more popular. The Group II Report however notes that the tracking of such instruments has been difficult, and businesses may be required to be more transparent.

Appendix: overview of the key findings of the IPCC report

The Current State of the Climate

The Group II Report reveals that human-induced climate change has impacted regions globally through the compounding of increasing extreme events and the gradual deterioration of terrestrial, marine and freshwater ecosystems. These changes have affected both natural and human systems. In the latter, the agricultural, energy and health sectors have suffered in particular.

Among the impacts reported are a decline in populations of around 50% of plant and animal species, a ~4 – 5% reduction in thermoelectric and hydropower production, and growing issues concerning malnutrition and disease transmission. Many of these issues have been found to overwhelmingly affect vulnerable groups in society, such as minority groups, low-income households and Indigenous Peoples.

Possible Climate Futures

The Group II 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. The Report also notes that cumulative stressors and extreme events render climate projections more and more uncertain. The Report concludes that:

• According to projected warming pathways, there is now a 50% likelihood that surface temperatures will reach or exceed 1.5°C by the mid-century, even for the very low greenhouse gas emissions scenario. Even if surface temperature is subsequently reduced stably to 1.5°C by 2100, this "overshoot" could give rise to irreversible impacts, such as coral reef damage and glacier melt.
• Water availability for agriculture, hydropower and human settlements in the mid- to long-term is projected to diminish. At 2°C, the Report predicts that snowmelt water used for irrigation will decline in some basins by up to 20% and global glacier mass will see losses of 18 ± 13%. These changes are expected to double if temperatures warm by 4°C. As for biodiversity, global warming levels of 1.5°C in the mid- to long-term (2041-2100) present a very high risk of extinction for assessed species which will increase incrementally by roughly 10% for each 0.5°C increase in temperature. The combination of reduced biodiversity and water scarcity in addition to increasing intensity of droughts, floods and heatwaves will increase risks for food security. These risks will expand substantially at 3°C or higher global warming levels in the long-term in comparison with 2°C.
• Coastal risks will increase by at least one order of magnitude over the 21^st century if significant adaptation and mitigation action is not taken. These risks will continue to escalate beyond 2100, even if global warming stops. Levels in Europe are projected to increase by at least 10-fold by 2100 with current adaptation and mitigation measures. As well as affecting coastal settlements, coastal and marine ecosystems will be greatly impacted unless they can adapt through vertical growth and landwards migration.
• Where global warming levels exceed 1.5°C, rising sea levels and the intensity of marine heatwaves will threaten ecosystems which acts as carbon storage, namely mangroves, marshes and seagrass habitats. These carbon sinks will become increasingly saturated and could even turn into carbon sources. This will likely be exacerbated by increases in wildfires, tree mortality, insect pest outbreaks and permafrost thaw.
• The Group II Report projects a surge in extreme weather events. 60% of megacities will endure at least one day per year with a heat index above 40.6°C at 2.7°C of global warming, which will rise to almost 80% at 4°C. Between warming levels of 1.8°C and 2.5°C, soil moisture droughts will last 2-3 times longer and fluvial flood frequency will increase significantly, affecting 24% of the population at 1.5°C and rising to 30% at 2°C. Rising temperatures will also impact the workforce, with effective labour estimated to decrease relatively by 10% at 2°C warming level. There is increased evidence since AR5 that extreme events are a direct driver of involuntary migration, with an average of 20 million people being displaced within their country of residence since 2008 due to severe weather-related events.

Climate Information for Risk Assessment and Adaptation

The Group II Report shows that severe risks are rarely driven by single factors, therefore risk assessments will need to consider a combination of conditions such as irreversibility, thresholds, cascading effects, likelihood of consequences and the effectiveness of adaptation measures. Many ecosystems will soon exceed the historical experience of their limits in the face of changing climatic conditions, which will only magnify uncertainty for possible climate futures and risk assessment planning.

Near-term adaptation responses are projected to influence future inequalities, poverty, livelihood security and wellbeing. The Group II Report emphasises the importance of using climate-justice principles to legitimate and evaluate decisions concerning adaptation measures. In human and managed systems, financial constraint are key determinants of adaptation limits, especially in low-income settings.

Adaptive planning and iterative risk management are essential to avoid maladaptation and ensure timely action. This includes integrated pathway analysis across sectors which establishes 'low regrets' anticipatory options for both the near- and long-terms and considers multiples objectives, scenarios and timeframes.

Limiting Future Climate Change

Cascading impacts and compounded risks are set to intensify above 1.5°C warming. Whilst adaptation options can reduce risks to ecosystems, they should not be used to substitute reductions in greenhouse gas emissions. In some natural systems, hard limits have been reached and more will be reached beyond 1.5°C warming level. The Group II Report identifies adaptation in conjunction with greenhouse gas mitigation as essential to climate resilient development, particularly as adaptation responses reduce in effectiveness above 2°C global warming.

Net zero and net negative CO2 emissions are the ideal goals, but even if they are achieved, 'overshoot' means that some impacts could take a while to turn around. Solar Radiation Modification approaches could offset warming but their potential to introduce new risks to people and ecosystems is not yet well understood.

In order to effectively enable climate resilience, non-climate drivers must be considered alongside climate drivers when planning adaptation pathways. Strengthened health, education and basic social services among the general population and farmers is key to reducing climate impacts across food systems, human settlements, health, waters, economies and livelihoods. Solutions which maintain planetary health are vital to deliver co-benefits to human and societal health. The Report recommends effective ecosystem conservation of approximately 30% - 50% of land, freshwater and ocean areas will protect biodiversity, and ecosystem resilience and integrity.

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.