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Climate change is often headline news these days, and with good reason. Its effects are more and more visible, and efforts to raise awareness about the threat it poses are starting to bear fruit, but the issue itself is complex. The following overview will help deepen your understanding of this important topic.

The greenhouse effect

The greenhouse effect is a natural mechanism: the Earth’s surface reflects part of the sun’s rays back into space but also absorbs some of this radiation, which contributes to warming the planet. Naturally occurring greenhouse gases (GHGs) like methane and carbon dioxide trap some heat from the sun. Without these gases, the average temperature on Earth would be -18°C, and life as we know it would not be possible.

Since the Industrial Revolution, however, humans have been emitting significant amounts of GHGs, which build up in the atmosphere, intensifying the greenhouse effect. The results include more frequent heat waves, rising sea levels, increased precipitation in some parts of the world and longer droughts in others, and ocean acidification, which disrupts the very base of the food chain1.

The Paris Agreement

In 2015, faced with this threat, 195 countries signed the Paris Agreement, which is the first universal climate treaty. Its goal was to limit global temperature rise “well below 2°C” above pre-industrial levels by demanding concrete action by all parties.

According to the Intergovernmental Panel on Climate Change (IPCC), human activity is to blame for more than half of the increase in the average temperature of the Earth’s surface from 1951 to 2010, with GHGs contributing to a warming of 0.5 to 1.3°C.

Scientists have calculated the potential consequences of global warming and put forth several scenarios, which have made it clear that the average temperature increase would be approximately 4°C by 2100 if no GHG emission reduction efforts are made. These analyses also established that in order to limit the irreversible effects on the planet, the global temperature rise by 2100 must be kept below 2°C, while a more ambitious target of 1.5°C is desirable. This target is based on the maximum GHG storage capacity of the Earth’s atmosphere.

GHGs and economic sectors

Many sectors of the global economy must improve their practices if we are to meet the IPCC’s target. The sectors chiefly responsible for GHG emissions are the following:

global_ghg_emissions_graphic.png

The highest-emitting activities3 in each sector are the following:

  • Electricity and heating: The combustion of coal, natural gas and oil to produce electricity and heat is the largest source of global GHG emissions.
  • Agriculture, forestry and other land uses: GHG emissions from this sector are mainly due to agriculture, crops and livestock.
  • Industry: The combustion of fossil fuels at energy production sites generates most of this sector’s GHG emissions, while some emissions can also be traced to waste management activities.
  • Transportation: Fossil fuels burned for road, rail, air and maritime transportation are responsible for the lion’s share of this sector’s GHG emissions.
  • Other energy: This catch-all category is for energy-sector emissions that are not directly related to the production of electricity and heat, such as the extraction, refining, processing and transportation of fuels.

RI as a driver for change

Desjardins responsible investing solutions invest in all economic sectors and use various strategies to fight climate change, including the three outlined below:

  • Shareholders can use their influence to get companies to improve their environmental, social and governance (ESG) practices. For example, by holding dialogues with an electricity supply company, its shareholders can push for a faster shift from coal to natural gas. Therefore, shareholder engagement is a driver for promoting energy transition.
  • Through thematic investing, investors can support energy transition by financing green projects, such as ones that produce renewable or alternative energy. They can also buy shares of companies with climate change solutions. This type of investment can push automakers, for example, to speed up the electrification of their vehicles, which would contribute directly to lowering GHG emissions.
  • The “best-in-class” strategy can be used to support the companies in each sector that are most deeply committed to a decarbonization approach. This strategy means investing in companies that actively manage the environmental impacts of their operations. A report from MSCI has shown that the MSCI ACWI Low Carbon Target Index, which is based on a decarbonization strategy, has a carbon footprint that’s 33% lower than the MSCI ACWI ex Fossil Fuels Index.
Notes:
  1. Le Monde. “Comprendre le réchauffement climatique en 4 minutes.” December 26, 2018.
  2. Source : IPCC (2014)
  3. Source: EPA. “Greenhouse Gas Emissions.” www.epa.gov.
  4. MSCI – Morgan Stanley Capital International / ACWI – All Country World Index

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