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IPCC’s report on climate change impacts, adaptation, and vulnerability: What business leaders should know

While business leaders are rightly focused on the ongoing crisis in Europe and its near-and medium-term implications, in particular for energy security and affordability, the latest IPCC report on climate change impacts, adaptation and vulnerability offers a stark reminder of the consequences of rising physical risks and the imperative for both mitigation and adaptation.
Mekala Krishnan

Leads the McKinsey Global Institute’s research on gender economics, inclusive growth, and economic development

Leads McKinsey’s Climate Analytics team, serving clients across industries on climate and sustainability topics

Every six to seven years, the Intergovernmental Panel on Climate Change (IPCC), an international consortium of scientists convened by the United Nations, publishes an extensive three-part report that summarizes the current advances in scientific understanding on climate change and its impacts.

Part two of the latest report (known as Working Group II), published on February 28, 2022, is focused on the impact of climate change on human and natural systems, and how those impacts will change going forward. Written by 270 authors with 675 contributing authors from 67 countries, the report summarizes over 34,000 scientific papers and offers a clear reminder that while business leaders are rightly focused on the Russian invasion of Ukraine, the resulting humanitarian crisis, and near- and medium-term disruptions of energy markets, these priorities must also be considered along with the imperative for both the net-zero transition and adapting to unavoidable near-term climate risk.

Following is a synthesis of the key findings of the IPCC Working Group II, as shared in the report.

Key Finding 1: Climate change is already having substantial impact on both human and natural systems – more so than previously expected.

Working Group II focuses on the continued warming of the climate, driven by human greenhouse gas emissions. The first part of the new IPCC report, Working Group I, published on August 9, 2021, discussed how climate models have proven remarkably accurate at predicting the warming the planet has experienced since the first versions were developed over 50 years ago. This latest contribution of Working Group II provides an advanced understanding of the relationship between impacts of climate change, human and natural systems, while making use of most recent generation of climate models. The authors emphasize that these systems are more vulnerable than previously understood and that material impacts from climate change have already occurred, with disproportionate impact on the “most vulnerable people and systems.”

Working Group II states that extreme weather events have become more frequent and severe, and losses and damages from these events have materially increased. Climate science, the report notes, is now sufficiently advanced to identify climate change’s substantial contribution to this trend (separate from other factors, like growth in exposed capital stock or natural weather variability) on global and regional scales. Some of the many global level observed impacts highlighted by Working Group II include:

  • Approximately 3.3 to 3.6 billion people live in contexts that are highly vulnerable to climate change. In all regions, extreme heat events have resulted in human mortality and morbidity.
  • Increases in frequency and intensity of extremes, as part of overall climate change, have reduced food and water security.
  • Hundreds of local losses of species have been driven by increases in the magnitude of heat extremes, as well as mass mortality events on land and in the ocean and loss of kelp forests.

The report concludes that the rise in weather and climate extremes have led to some impacts that are irreversible.

Key Finding 2: Further increases in climate-related risks are inevitable, but near-term actions determine the rate of climate change and associated future risks and losses.

Working Group II says that halting warming requires reaching net-zero emissions and that doing so will take time, even in aggressive mitigation scenarios, leading to some unavoidable risks in near-term. Still, the report notes, there are substantial reductions in projected losses and damages if near-term actions were to limit global warming close to 1.5°C (above the pre-industrial level). Near-term mitigation and adaptation actions determine the rate of climate change and associated risks. With this in mind, the report suggests both mitigation and adaptation must be simultaneous priorities.

Key Finding 3: Adaptation is needed but will be constrained by “soft” and “hard” limits, especially as warming continues.

Working Group II notes that prospects for climate resilient development are already challenging at current global warming levels, and that such development “will be further limited if global warming levels exceed 1.5⁰C (high confidence), and not be possible in some regions and sub-regions if the global warming level exceeds 2⁰C.” The report further identifies two types of limits to adaptation: “hard adaptation limit,” when no amount of money or technology can solve a problem, and “soft adaptation limit,” which means that the required technology or policy intervention will be too costly to realistically implement. Hard limits include irreversible, large-scale changes to the Earth system or ecosystem functions (for example, the loss of glaciers feeding major inland water systems). Soft limits include changes to local climatology. Working Group II notes, for example, at 2⁰C it is expected that some staple crops may reach soft adaptation limits to changes in temperature and precipitation across the tropics, which will make them prohibitively difficult or expensive to grow.

Key Finding 4: The window of opportunity to avert the worst consequences is “brief and rapidly closing.”

Working Group II calls out that climate change will lead to numerous risks to natural and human systems, the impact of which is dependent on the level of global warming. The report highlights the following (non-exhaustive) list of risks which can be expected (depending on the level of future warming):

  • Globally, population exposure to heatwaves will continue to increase with additional warming, with strong geographical differences in heat-related mortality without additional adaptation.
  • Increases in frequency, intensity and severity of droughts, floods and heatwaves, and continued sea level rise will increase risks to food security.
  • In terrestrial ecosystems, 3–14 percent of tens of thousands of species assessed globally will likely face very high risk of extinction at global warming levels of 1.5°C, increasing up to 3–18 percent at 2°C.

Working Group II ends the Summary for Policymakers with a clear statement “The cumulative scientific evidence is unequivocal: Climate change is a threat to human well-being and planetary health. Any further delay in concerted anticipatory global action on adaptation and mitigation will miss a brief and rapidly closing window of opportunity to secure a liveable and sustainable future for all.”

Key Finding 5: Tools to accurately assess the economic implications of physical risks lack consistency and may underestimate impacts.

Contrary to the accuracy of physical science models described under Key Finding #1, the Working Group II report indicates that economic models for translating climate hazards to economic impacts, damages and losses, are still nascent and produce a wide range of results. The authors state that global aggregate economic impacts could be higher than previous estimates with significant regional variation. Further, they state with high confidence that global aggregate economic damages are likely to increase non-linearly with global warming levels.

The report notes that this wide range of results is due largely to high sensitivity to choice of statistical model and other specific inputs (like the discount rate), as well as a general inability to account for many of the most substantial, complex and systemic climate impacts. As such, authors conclude economic risks (a) may be higher than expected, and (b) need to be re-assessed regularly as evidence and measurement methods continue to develop.

What to take away from IPCC Working Group II

IPCC Working Group 2 highlights the existing and likely future impacts of climate change, leading to damages that escalate with higher warming levels. Climate change affects different sectors (eg, agriculture and climate change impacts on yields), and ecosystems (eg, biodiversity on land and in the ocean). As business leaders think about the implications, it is critical to:

  • Build the capabilities to understand and quantify climate impacts and embed these impacts into all decision processes
  • Invest in both adaptation and resilience in the near-term, as these decisions directly influence potential losses and damages due to climate change in the coming decades
  • Act on the transition to net-zero today in reducing emissions and working to mitigate continued warming, as outcomes are likely to be less severe in a world that transitions more quickly

McKinsey has also published several in-depth reports and articles on the topic of climate risk, adaptation, resilience, and the net-zero transition, including:

These publications offer suggestions to businesses as they embark on their mitigation and adaptation strategies, and look to minimize risks and capture opportunities from the net-zero transition.

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