Immediate, concerted action on mitigation and adaptation measures could still save the world from intensifying climate disasters, but only if we act now, the U.N. body charged with advancing scientific knowledge about anthropogenic climate change says in its last scheduled report for this decade.

The message that we are running out of time to mitigate global warming is not new.  The Intergovernmental Panel on Climate Change (IPCC) tries once more to convey this urgent warning in its AR6 Synthesis Report, its final report this decade, which summarizes the state of knowledge on climate change and our current trajectory of global temperatures reaching 1.5C in the early half of the next decade.

It’s a sobering reminder that the world is strolling when it should be sprinting. The message from the U.N. body, is not, however, without hope, underscoring as well that, if the right investment and resources are allocated toward the right mitigation, resilience, and adaptation measures, and in the right way, the planet could be back on the road to recovery and exist in a sub-2°C world – even if it takes decades for the impact of investments to be realized.

“There is a rapidly closing window of opportunity to secure a liveable and sustainable future for all,” the IPCC notes, calling for urgent, near-term, integrated climate action, and underscoring why the climate change agenda must be as much about resilience and adaptation as it is about an energy transition. Most notably, the report emphasizes that we have the technology, capital, and know-how to solve climate change today. The real challenge, and one that financial institutions have been grappling with as they set out to achieve their net-zero ambitions, is overcoming the hurdles to deployment – policy, consumer behaviour, regulation, and market design.

The good news is that  there is enough capital and appetite to act on the transition, but momentum has been limited by a lack of economically viable investments, innovative public and private hybrid financing structures, and technologically mature solutions. The Inflation Reduction Act (IRA) enacted by the administration of US President Joe Biden is an important step in the right direction, amounting to the single biggest climate action commitment in US history, but more needs to be done there and in the rest of the world to finance the transition.

Paying Today, for Tomorrow

Even a cursory review of news headlines shows an alarming rise in severe weather events, with the global body of scientists telling us that these will intensify, even in scenarios that track base-case global warming of 1.5 during the 21st century. Moreover, the IPCC warns that even with best efforts, investments made today will only start to have a discernable impact on warming after two decades, underscoring the urgency for adaptation.

Hurricane Ian, which last September broke records as one of the costliest and most tragic storms to ever hit the United States, serves as a stark reminder of what is to come. Ian was the deadliest hurricane to hit the state of Florida since 1935, causing some $70 billion in damages as it ripped through communities from Florida to the Carolinas.

While hurricanes in that part of the world are common, Ian gained its unusually powerful strength over ocean water in the Gulf of Mexico that was 1°C warmer than usual for this time of year, based on NASA reports. According to physical scientist Chris Slocum with the National Oceanic and Atmospheric Administration, warmer sea water serves as a fuel source for hurricanes, sustaining them for longer than normal. While we are not necessarily experiencing an increase in the number of hurricanes, scientists have observed an increase in their severity – Category 4 and 5 storms - since they started tracking in 1980.  

The need for investments in resilience is illustrated by the story of Babcock Ranch in Florida, which escaped the worst of the hurricane after having invested $700 million to make itself more resilient to, and able to recover from, extreme weather. While the upfront price-tag may sound daunting, it’s a fraction of what it can cost to build back. For what climate-related disasters have cost Florida since the 1980s - between $200 billion and $260 billion - the state could have built 400 Babcock Ranches, enough to cover the entire acreage of Florida.

The message is clear: resilience investment in the near term can save money in the long run in the face of growing risks of future disasters. The question now is how governments and market players can incentivize short-term investment to deliver long-term benefits for the future.

Critical Enablers and Closing the Gap

The IPCC notes that investment in adaptation and mitigation must grow by 3-6 times relative to current levels if the most severe impacts of climate change are to be avoided. Accelerated and equitable deployment of capital will be required to reconcile this financing gap. “Rapid and far-reaching transitions across all sectors and systems are necessary to achieve deep and sustained emissions reductions and secure a liveable and sustainable future for all,” the IPCC said in its headline summary. “These system transitions involve a significant upscaling of a wide portfolio of mitigation and adaptation options.”

The IPCC calls for “critical enablers” to accelerate investment into the right solutions today, noting that there is sufficient global capital to close investment gaps, but there are barriers to redirect capital to climate action. The good news is that there is precedent for successful collective action. Take the case of electric vehicles, which are rapidly becoming mainstream. At first blush, average prices of over $60,000, or close to 40 percent more than a conventional, internal combustion engine car, are hard for many consumers to justify, even those who actively support the low carbon transition. That has shifted, though, as governments began aligning policy—in the form of mandates on new car sales—with incentives and subsidies. This served not only to offset the up-front cost for buyers, but to provide the market certainty required to crowd-in private capital.

“Finance, technology and international cooperation are critical enablers for accelerated climate action,” the IPCC report states.

Watch this space for more from the BMO Climate Institute on critical market enablers to unlock climate-related investment.