Around 1,500 companies globally have set a climate target in line with a 1.5°C trajectory recommended in the Paris Accord. Why does the temperature pathway matter? 

Insights for What’s Ahead 

• Growing concern about climate change and risk, and the discussions at the COP 27 summit in Egypt are likely to have an impact on the global business environment.
• Businesses need to prepare for regulatory interventions that stipulate climate action specifically aligned with the 1.5°C target. For example, in the EU, the proposed Corporate Sustainability Due Diligence (CSDD) directive requires companies with more than 500 employees and a global net turnover of more than €150 million to adopt business models and strategies that are designed to meet the 1.5°C target. Similar requirements are also interwoven in the EU Taxonomy, the Corporate Sustainability Reporting Directive (CSRD) proposal, and the climate change working paper for the European Sustainability Reporting Standards. Other jurisdictions will likely follow suit with similar requirements that oblige companies to align their climate strategy with the 1.5°C target.
• Businesses will be expected to increase the pace and scale of their climate action. Those who develop strategies and models that are aligned with 1.5°C can stay ahead of regulation, reducing costs and disruption in the long term. These businesses can guard against reputational risk, but also reap the rewards of being seen as leaders by the growing ranks of consumers and clients who are increasingly pushing for stronger climate action (e.g., reducing emissions in operations and along the value chain, setting science-based targets, educating employees on climate issues).  
• Business should expect the recent trend in climate-related litigation to continue. Recent years have seen a surge in climate change-related cases. Globally, the cumulative number of climate change-related cases has more than doubled since 2015. Around one-quarter of these were filed between 2020 and 2022. Cases are typically filed by nongovernmental organizations (NGOs), individuals, or both acting together against national governments and corporates. Although most of the climate-related cases were brought against regional and national governments, there has been a marked increase in cases against private actors. Climate change litigation can be a big drain on resources and cause companies financial and reputational harm. Undertaking climate risk assessment can help businesses uncover and prepare for transition risks, including policy and regulatory, reputational, and legal risks. 

The Need for Global Temperature Targets

A long-term target to limit global temperature rise was a key element of the 2015 Paris Agreement on climate change. A total of 193 states plus the European Union agreed to hold average global temperature rise to “well below 2°C compared to preindustrial levels and pursuing efforts to limit the temperature increase to 1.5°C”. This wording marked change in the international consensus on the climate change danger point, which had been 2°C for years. 

According to the latest analysis by the UN Environment Programme, average global temperatures have, so far, risen by 1.2°C. Governments around the world have produced plans to reduce emissions as part of their commitments under the Paris Agreement. However, even if measures in these plans are fully implemented, average temperatures will still rise by 2.4-2.6°C, according to the UN. 

Scientists have modelled various scenarios to estimate when temperature thresholds might be passed. They say if emissions are not rapidly reduced, the average global temperatures are likely to get up to 1.5°C between 2026 and 2042. Warming could reach 2°C between 2034 and 2052. The World Meteorological Organization estimated that there was a small—but increasing—likelihood that it could happen as soon as 2025 for at least one year. 

Why Does Half a Degree Matter?

According to the 2018 special report on the matter by UN climate scientists of the IPCC, the impacts of climate change at a 1.2°C rise have already been more severe than scientists expected. At 1.5°C, the impacts are projected to be significantly worse, and at 2°C, they will be catastrophic for many economies, societies, and ecosystems. 

The report also found that by 2100, global mean sea level rise is projected to be around 10cm lower with global warming of 1.5°C, compared to 2°C. At 1.5°C warming, 250 million urban residents will be exposed to severe drought by 2100, but this rises to 410 million at 2°C. Flood risk will increase 100% at 1.5°C, but 170% at 2°C. An estimated 700 million people—9% of the world’s population—will be exposed to extreme heat waves at least once every 20 years at 1.5°C, compared to 2 billion people (28%) at 2°C. Coral reefs will decline 70-90% at 1.5°C warming, but will likely all be wiped out at 2°C. 

Changing climate patterns and the associated physical risks (e.g., droughts, floods, and extreme weather events) could cause disruptions across operations and supply chains. These risks can no longer be considered as immaterial and will most probably rise in prominence. 

Urgent Action Needed from Governments and Businesses

In order to achieve the 1.5°C target, greenhouse gas emissions need to be cut by 43% by 2030, compared to 2019, according to UN climate scientists. Holding the increase in the global average temperature below 1.5°C will require radical transformation of the economy, including energy and food systems, industry, transport, and buildings, the scientists said. 

However, though the growth rate of greenhouse gas emissions has slowed, overall levels are still rising. The latest data from the World Meteorological Organization showed that carbon dioxide, methane, and nitrous oxide all reached record highs in 2021. Climate impacts are hitting all regions of the globe, causing devastation to lives, livelihoods, infrastructure, and ecosystems. UNEP’s assessment of progress so far is that there is “no credible pathway to 1.5°C” in place. 

Against this backdrop, pressure has grown for businesses to align their climate change targets with the 1.5°C target. Following the IPCC’s report on 1.5°C, the Science Based Targets Initiative (SBTi) announced that it was raising the ambition for business climate targets assessed through its program by introducing new methods of aligning strategies with the 1.5°C goal. The SBTi also decided to publish what temperature target business strategies were aligned with and ask companies to review and revalidate targets every five years to remain aligned with evolving climate science. 

Companies have a vital role to play in building a low-carbon and climate-resilient economy. Those that build climate targets in line with a 1.5°C trajectory will give back to the planet and secure a sustainable future for all. Companies that proactively consider the opportunities, identify risks, think through what it means for them, and take concerted climate action will have more strategic freedom than their peers, and build a competitive advantage for their organizations.