Climate change: Nine reasons why COP26 needs to work

Global GDP will be hit by climate change

5. The Network for Greening the Financial System (NGFS), a network of central banks and financial supervisors, estimates that if we achieve net zero, it will likely reduce global GDP by around 2% by 2050 through to 2100. However, it also expects that a ‘delayed transition’, which gets off to a later start, could be markedly higher – reducing GDP by around 5% by 2050, before losses are reduced to around 2.5% by 2100.

6. In the case of uninterrupted climate change, the NGFS forecasts that losses would exceed 6% of global GDP by 2050 while the Organisation for Economic Co-operation and Development anticipates that by 2100, total losses would total 10% – 12% of GDP. The International Monetary Fund’s current worst-case scenario forecasts an output loss of some 25%.

The world needs to spend and invest more

7. Only 2% of the $16trn of global government spending, used as economic support during the pandemic, has been allocated to the clean energy transition. According to the IEA this falls “well short of what is needed to reach international climate goals”. The IEA predicts that carbon dioxide emissions will reach record levels in 2023 and will continue to rise in the following years, under governments’ current recovery spending plans. It recommends $1trn of spending globally on clean energy measures. It said to reach the net zero goal, up to $4trn in annual investment was needed over the next 10 years to close the gap.

8. Princeton University estimates the US would need to invest $2.5trn (11% of GDP) by 2030 to deliver its net-zero-by-2050 goal. The European Commission forecast an even larger €3.5trn over the coming decade (25% of GDP) while Tsinghua University predicts that China’s plan would cost RMB 138trn (circa $21.6trn) and 122% of GDP over the coming four decades.

9. Researchers have suggested the true cost of the climate crisis may be far greater than thought. The work by experts at Cambridge University, University College London and Imperial College London puts the cost at $3,000 for each tonne of carbon emitted, roughly equivalent to a return flight to New York from London. The authors said their research reflects “mounting evidence” that the economic impacts of fires, floods, droughts and other effects of the climate crisis are not as transitory as had been thought. Current carbon pricing regimes in the US and Europe put the cost at less than $100 per tonne.

The vast majority of companies in the world are not yet aligned with the Paris Agreement.

To stand a chance of restricting the rise in global temperatures, investors need to mobilise finance to support the transition to net zero.

Investing in new technologies, in the transition leaders and engaging more forcefully with companies to meet climate objectives are all central to net zero carbon investing. There is a path open to a more prosperous and sustainable future but investors, alongside governments, need to be bolder today to ensure we are on that path.

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