Asset Management

Climate Change - A challenge transcending borders

April 2021

Read Time: 4 minutes

The Earth’s climatic conditions are deteriorating fast, after more than 10,000 years of relative stability. Land and sea temperatures have risen an average 1.2°C (2.2°F) since the mid-1800s, according to data from the National Oceanic and Atmospheric Administration (NOAA). CO2 concentrations in the atmosphere are at a level higher than they have been for the past 800,000 years. How much more warming and how many more carbon emissions can the Earth tolerate before experiencing the most destructive effects of climate change? The threshold of 2°C (3.6 °F) above “preindustrial” temperature levels rings alarm bells for many scientists. If we do not hold these temperatures, the entire earth – transcending boundaries – will be at risk of catastrophic climate risks. 

India, by the virtue of its populous demography, vast coastlines, and its geographic location, faces some of the biggest climate vulnerabilities in the world. Climate science tells us that, without conscious mitigation, the climate hazards that India will grapple with in the future, from heat waves to flooding to air pollution, along with reduction in agricultural productivity, will be severe and intense. Climate risk is thus a critical challenge that India will need to face head on. 

 According to research from McKinsey, India could become one of the first places in the world to experience heat waves that cross the survivability limit for a healthy human being sitting in the shade. Without targeted adaptation action, around 160-200 million people in India could annually bear a 5 percent chance of being exposed to a lethal heat wave as early as 2030, a ~40 percent cumulative likelihood over the decade beginning 2030. As a result of the intense temperatures, the effective number of outdoor working hours lost will increase approximately 15 percent by 2030, resulting in USD 150-250 billion (~ 2.5-4.5 %) risk to GDP. By 2050, both the intensity of and exposure to lethal heat waves, as well as the impact on outdoor work, could increase in a nonlinear way. 

Climate change would also have the biggest negative impact on crop yields, severely threatening the country’s food security in future. The annual probability of a yield decline of 10 percent or more for rice, corn and wheat is expected to increase from 12 percent today to 39 percent by 2050 for India. 

Enough literature exists on the global vulnerabilities of climate change. Climate risks are now no longer relegated to research papers of climate scientists but have entered our daily lives. As we stand together, on Earth day, as global citizens, let us all come together and make a conscious effort to mitigate climate risks. Every stakeholder – transcending boundaries – will need to come together as this is a global crisis which was created by humanity, globally. Governments, across the world must come together with aligned plans on holding global temperatures at current levels - just half a degree Celsius more and humanity may face existential risks. We can address this challenge but only if we stand together. 

While climate mitigation is indeed one of the biggest challenges that we face today, its solution - Decarbonization promises to be the single biggest opportunity and its time that we start seeing the glass as half full on this. As we have been highlighting under our ESG Edge series, decarbonization can be used by India, together with the world, as one of the biggest commercial opportunities. Investments in decarbonization initiatives such as renewable energy, electric vehicles, green hydrogen, battery storage and carbon capture, promise to be the biggest commercial opportunities entailing billions of dollars in expenditure. A well coordinated policy action on decarbonization along with strong opportunities for financing initiatives through attractive green finance options can spur one of the biggest capital formation cycles in India. 

Author: Abhay Laijawala, MD and Fund Manager at Avendus Capital Public Markets Alternate Strategies LLP

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