Achieving a Low-Carbon Economy Is Going to Be Messy, Warn Risk Analysts

From the signing of the Kyoto Protocol to a surge of interest around An Inconvenient Truth, climate activists have had cause for fleeting bursts of optimism over the years. Yet so far, those bursts of good news have too often been tempered by backsliding, pushback, or at very least, inadequate levels of progress. 

This isn’t simply a case of missed opportunities that can be “made up for” later. Each time we fail to act on climate, it dramatically steepens the scale of ambition at which later action will be necessary, limits what we can actually achieve, raises how much it will cost, and it narrows the window of time in which we can still make a meaningful difference. 

It’s a point that’s been made many times before: 

The latest example comes from risk consultancy Verisk Maplecroft, whose 2021 Environmental Risk Outlook warns investors and policymakers alike that "disorderly transition" to a low carbon economy is now all but inevitable for G20 nations. Most strikingly, even better-than-most countries like the United Kingdom—which has cut emissions to Victorian-era levels, and recently upped its ambition—is still facing the prospect of a huge shortfall between its stated goals and the policies it is willing to enact: 

“The new 78% emissions reduction target for 2035 effectively brings its 2050 goal 15 years forward. Yet, the U.K.’s current policies will not build the zero-carbon electricity, transport and heating infrastructure needed to achieve this goal, much less deliver carbon neutrality by 2050. Unless the U.K. starts to move legislation quickly it will need to rush through regulations later on, leaving business little time to adapt.”

What this means is U.K. policymakers will either have to miss their goals, which will bring with it both direct climate impacts and more drastic action later, or they will need to bite the bullet and deliver increasingly strict limits on high carbon activities. This is doubly true for countries like the U.S. and China, where climate action has so far lagged far behind:

“Major economies like the US, China, the U.K., Germany and Japan will need to yank the handbrake on emissions to meet agreed climate goals – at the same time as dangerous rises in extreme weather events play an increasingly disruptive role in the global economy. These conditions will leave businesses in carbon-intense sectors facing the most disorderly of transitions to a low-carbon economy, with measures – such as restrictive emissions limits for factories, mandates for buying clean energy, and high levies on carbon – imposed with little warning.”

It's all summed up in this somewhat confusing and yet also quite illuminating chart, which shows not just where countries currently stand—but also how recent policy decisions have either helped or hindered their cause: 

None of this is news to those of us who have been watching the climate crisis unfold for quite some time. And yet, it’s fascinating—and somewhat encouraging—to see the world of mainstream finance begin to grasp the magnitude of the challenge we are facing. It’s why investors are increasingly up-in-arms about lackluster climate action and half measures, and why governments and courts appear increasingly willing to add some teeth to their much talked about climate ambitions. 

What’s clear is that we no longer have a choice, and probably never had much of one in the first place. The low carbon transition is happening and will continue to pick up speed. What society does now is all about determining how rough that ride will be: 

“Our data underscores that it is clear there is no longer any realistic chance of an orderly transition. Companies and investors across all asset classes must prepare for at best a disorderly transition and at worst a whiplash from a succession of rapid shifts in policy across a host of vulnerable sectors. And this doesn’t just apply to energy companies – transport, agriculture, logistics and mining operations must all work to identify the threats and opportunities a carbon-restricted future will open up for them.”

Of course, what’s true for the investor class is also true for society at large. And many of the most vulnerable populations are at a significant disadvantage when it comes to adaptation. That’s why, as we watch the financial world wake up to this threat, we must push our politicians to focus not just on the potential economic fallout—but on the impact it will have on communities around the world. 

That means prioritizing environmental justice. It means empowering community-led solutions. And it means making sure any financial and policy reforms are not just about protecting the stock market, but ensuring a just and resilient future for all citizens—especially those who have done the least to create the problem in the first place.