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Lindsey Hall: Hi. I'm Lindsey Hall, head of thought leadership at S&P Global Sustainable1.


Esther Whieldon: And I'm Esther Whieldon, a senior writer on the Sustainable1 thought leadership team.

Lindsey Hall: Welcome to ESG Insider, a podcast hosted by S&P Global where we explore environmental, social and governance issues that are shaping investor activity and company strategy.

Esther Whieldon: For all the progress the world has made in identifying climate risks and adapting to climate change in recent years, we're still very far from ensuring a viable path forward for society, the economy and nature. We got another example of that in a sobering new report released February 28, 2022. Over the course of nearly 3,700 pages, the UN's Intergovernmental Panel on Climate Change or IPCC details how every year of delayed action on climate change puts the world on a path to exponentially greater losses and damages. The further we go down one path, the more we will be locked into that trajectory, and the harder it will be to change the outcome.

Lindsey Hall: We're already experiencing climate-related losses to ecosystems, biodiversity, infrastructure and property. And this is something we've covered extensively on this podcast. According to the IPCC, 45% of the world's population is highly vulnerable to climate change right now, and the world's physical infrastructure is also at risk. For example, up to USD 14.2 trillion worth of assets globally are at risk of extreme flooding by the end of this century. And that's just under a business-as-usual high-emission scenario, but not all hope is lost. We still have time to reduce the scale and scope of those impacts and to ensure a sustainable and equitable future.

Let me note here that past IPCC findings have driven important climate-related policy changes as well as investor engagement. To give you an example: A 2018 interim report by the IPCC found that the world needs to achieve net zero emissions by 2050. And since then, hundreds of companies have adopted net zero targets.


Esther Whieldon: To learn more about the latest IPCC findings, I talked with one of its lead authors. Dr. Edward Carr is director of Clark University's International Development, Community and Environment department. And he was the lead author of the chapter in the IPCC report that talked about climate-resilient development pathways. Importantly, for our podcast listeners, the chapter included a look at the role companies and investors can play in adaptation.

I started off by asking Ed what constitutes a climate-resilient development pathway. Before we go to his answer, let me note that you'll hear him mention sustainable development goals. Here he is referring to the United Nations' 17 Sustainable Development Goals. That's an interlinked set of goals designed to help create a more sustainable society. Among other things, these goals aim to eradicate poverty, eliminate hunger and provide clean water and sanitation by 2030.
Okay, now let's get to my interview.


Edward Carr: Climate-resilient development pathways, first, require us to understand what we mean by climate-resilient development. This is a relatively new concept that's been emerging through the IPCC process first really getting attention in the "warming of 1.5" report that came out a few years ago and really elaborated here in this working group.
Climate-resilient development at its most basic is an effort to align 3 things: efforts to mitigate greenhouse gas emissions so that we can minimize future climate change. We want to align that with efforts to adapt to the impacts that we can no longer avoid because of things that we've already done. We already see change in the world. We have to deal with those things. And we want to align mitigation and adaptation actions so that we're implementing them in a way that furthers the achievement of sustainable development goals.


So that's climate-resilient development. Climate-resilient development pathways are the different ways in which people in particular parts of the world might move into the future trying to combine adaptation, mitigation in the achievement of sustainable development. It's going to look different in different places. We did not prescribe climate-resilient development pathways. That is we didn't say, if you do X in mitigation and Y in adaptation and you do it in a certain way, you will achieve sustainable development and everyone in the world should implement the same plan. Not only was that impolitic. It's very difficult to tell people what to do on this. It doesn't work. Different people are in different situations in the world. The way that they're going to be able to combine mitigation, adaptation [ in ] sustainable development will vary. It's really up to people maybe even at the scale of the watershed to figure out what's the right way to integrate these things to move forward sustainably.


I think there's a lot of evidence out there that suggests that, the kind of variability I'm talking about, the development of locally specific pathways by folks who understand the places in which they live, that actually can aggregate up to really large global benefits. And it can be much more adaptive in the face of a changing climate and economy than trying to prescribe pathways from the top down on to people everywhere in the world.


Esther Whieldon: Let's say you're asked to speak before the business roundtable. That's a group of CEOs from the largest companies in the U.S., and you have just enough time to get them 3 takeaways they should act on. What would you tell them?


Edward Carr: The very first takeaway from the report, at the very top line, really is about the need for transformation; and the fact that the changes that human beings have brought on the world since the onset of industrialization are now so significant. And we've waited so long to act that there isn't really a clear path forward for a safe, sustainable future that doesn't involve major transformations to the way we live in the world. And that's going to create significant challenges but also create significant opportunities, so I encourage people to try to think of the opportunity side of this because those challenges are going to create chances for us to think about new ways to do things in the world, new ways to generate energy and new value behind that, new ways to grow and consume food and again perhaps new values around that. So top line, you have to think about transformation, but that doesn't mean that transformation is coming to ruin everything for you.


The second big point would be that it's not a choice to transform anymore. You can proactively transform. You can think about how you want to change and what kind of a entity you want to be in the future, what kind of work you want to be doing. Or you can be transformed. We've done so much to the earth's environment at this point that it is starting to impinge upon our ability to do things in a business-as-usual kind of way, so we will have to change how we do things. We can be reactive about that, but that generally isn't very efficient or effective.


And I think the last point is to say that there will be costs associated with transformation. There are costs associated with adaptation to climate change, but the notion that these are new costs or different costs might not be very accurate. Most people, most entities, corporate or otherwise, in the world are already dealing with the impacts of climate change, just often in very indirect ways. And they're paying for them in very indirect ways. They're paying for them in direct impacts on the supply chain but maybe at the site where raw materials are gathered, so you don't necessarily see that, except in maybe a delay in delivery or slightly increased expenses somewhere that then radiates through that supply chain and starts changing the price of goods at the point of manufacture or even at the point of sale. So we're already paying for adaptation. The question is are we doing so in a constructive and proactive kind of way.


Esther Whieldon: And when you say they can basically transform or be transformed, can you give us an example of sort of how a company might not have an option?


Edward Carr: Yes. If I'm thinking about industries that are directly reliant upon the natural environment and primary resources. So I'm thinking about agri businesses is a good example. Timber is another area of this economy that matters a lot there. When you're looking at those primary resource-focused sections of the economy: Those are places where weather and climate change will directly impact how you grow things, how much you're able to harvest; and have indirect impacts on your ability to transport that stuff to other locations either for processing or for sale. You can start to think ahead about how the climate is going to impact your production, and you can think about how you're going to change that production. How are you going to transform that production so that it works in the future? And you have different options in the area of agriculture.


You can think about trying to continue to genetically modify crops to deal with, for example, less rainfall and greater temperatures. Or you can think about your overall agri business and ask yourself, "Are we even growing the right crops anymore?" Is it really the right thing to do, to be heavily investing in genetic modification for the next 20 years? Or does it make more sense to think about a strategic plan where we start integrating new and different grains, for example, into the supply chain, grains that are more resistant naturally to rainfall and temperature variation? That's the sort of transformation you can think about and you could work on and potentially really change up how you're doing things in a more effective and efficient way.


Esther Whieldon: I didn't have this on my list of questions, but you prompted me to think of it, which is the report did emphasize quite a bit the importance of turning to local communities and indigenous communities because they can give you that kind of knowledge, right, the kind of expertise about what plants can handle what and signals for nature and all that kind of stuff. Can you talk a little bit about that?


Edward Carr: So the changes that we're seeing in the world are, in some cases, presenting interesting challenges because it's not that science can't tell us about those changes. It's that we haven't chosen to focus on them. And yet there are people in the world who have a great deal of knowledge about both the changes we're seeing in terms of the climate in our environment and the impacts those changes have on people and their well-being. And so that's why you see a lot of emphasis in this report on indigenous knowledge, on local knowledge. Some of us, and I would count myself in this group, have been working in this field for most of our careers, trying to better understand what people and populations in particular places know about the environment and the world and how we might learn from that, to how we might build upon that to help address challenges that those folks identify as important in the world, but we can also use that knowledge to really better think through the climate-resilient future we want to have.


There is, however, I think, an important consideration to this, which is that this is knowledge. This is value generated by people who we historically have overlooked. And there's real risk, I think, to valorizing indigenous and local knowledge but perhaps extracting it from people instead of making them partners in a process and instead of letting them share in the value that's being generated.


Esther Whieldon: You talked about, you mentioned supply chains being 1 of the 3 areas where there is risk. As a company, what should they be doing to prepare for supply chain risks or to think about them? What do you recommend?


Edward Carr: I think the first thing anyone who's worrying about supply chain risk or, to be really honest, if we think much more broadly, anyone who's worried about the impact of climate change on their business, their operations requires you to go to first -- almost first principles. What is it you are doing in the world, and what are you dependent on in the world to do that? What is it that you manufacture? And what are all of the things that go into that manufacture? And what raw materials go into all those things? So you're tracing really your extended supply chain all the way out to whatever natural resources that supply chain depends on.

Then you have to assess the challenges that climate change would pose to all of those natural resources, and that's going to be variable. Sometimes it's going to be significant. Other times, it might not matter at all. Then you're going to have to ask yourself, where are all those things located? "And how do they move around the world to get to where I need them to put together the thing that I'm making? How do I also move the thing that I'm making to the markets where I'm selling it?" And in those moments, you start thinking about the ways in which climate change again can have impacts on the transportation infrastructure, so yes, key infrastructure becomes really critical here.


Threats to ports is probably one of the single biggest things that climate change presents to us right now because sea level rise is happening everywhere. It's happening at variable rates in different parts of the world, but we're seeing it everywhere. And that's definitely providing -- presenting a significant threat to key infrastructure in that area. Airports can be threatened by this, certainly coastal, low-lying airports. So Logan airport in Boston, JFK in New York are 2 examples of airports that are very close to the ocean and not very far above sea level and therefore will likely see significant challenges. That can be another key infrastructural area. And then of course, it's highways. It can be train lines. Here in places like the United States, we have to worry about those perhaps being inundated and having to relocate them.


In other parts of the world where I do work such as sub-Saharan Africa, we need to look at the speed with which infrastructure can degrade. It's one thing to build a road in sub-Saharan Africa. It's an entirely different thing to make sure that, that road is maintained over time. And if you start seeing, for example, more intense rainfall events, roads can degrade much more quickly because of those. And governments may or may not have the budget to maintain those roads. So this becomes very, very complicated; and it requires a lot of serious systems thinking and some really dedicated thinking. This is not the kind of exercise that a company taking this threat seriously can do just sitting around with a few people in a room. This is the kind of thing that really takes some extensive thinking and requires partnership with people who really understand the operations and products at great detail.


Esther Whieldon: But supply chains are not the only thing companies should be thinking about, Ed said. Many of the adaptation options companies will want to pursue also depend on what he calls public goods — I'm talking about things governments offer that underpin the economy.


Edward Carr: The example I always use for people is something like, say, the weather channel or any number of the weather apps that you use. These, of course, are often private companies. They have profit structures. They pay for all kinds of staffing. They pay for all sorts of marketing. They, of course, produce a good because they give you forecasts, but all of that is built upon the National Weather Service, which is a public good. Our tax dollars pay for that. And then these companies take the data generated by our weather service and then they build upon it. Most folks forget that there's a public good underneath there, so in some ways, I don't see a way around making sure that we have adequate public goods.
And so one area where I think companies can make a big difference is by advocating for needed public goods that they need to have in place to be successful as private entities. Climate change adaptation, in my mind, is not a partisan issue here. This is an issue that's going to affect absolutely everybody. It's going to affect all of us whether we are wealthy or not. And so at this point, we really do need a very strong public sector set of investments, again, around everything from infrastructure to weather and climate information. And we should be lobbying for that so that we can then build value on top of it in other kinds of ways. If you think that the private sector is going to get us through adaptation by itself, I strongly suggest it's not going to work out.
My experience. I work a lot in weather and climate information in sub-Saharan Africa, thinking about how to deliver that information to farmers. We've seen a number of companies started up a number of even government-funded endeavors that were really meant to be taken up by the private sector and run forward. None of them really work out. It is very difficult to make the basic generation of weather and climate information and the delivery of very basic forecasts profitable in a way that a private sector entity can run with it.


Esther Whieldon: Going back to your last point, it almost sounds like, when you're saying companies should be advocating for the basic public good infrastructure, that's not just where their headquarter is at, right? That would be in a place like sub-Saharan Africa. If they're dependent on agriculture from there or minerals or whatever, you would still need -- like having good weather forecasting in an area that's a big part of your supply chain could potentially be really important.


Edward Carr: That's right. We're talking about infrastructure anywhere in the world. We need adaptation infrastructure everywhere in the world. Companies, of course, are going to advocate for that infrastructure where they have the greatest interest. And that makes sense, but that does mean thinking about beyond where your corporate headquarter is located, where your manufacturing facility is located. It is where do your raw materials come from. This is really important because, if the private sector can pivot to start thinking in this sort of a way, we overcome one of the greatest challenges that we see today to investment in international adaptation, the same barrier, by the way, that we've always seen to investment in international development: the argument that there isn't a voting constituency for those development dollars, right? Because we spend those in other parts of the world. And when we spend them in other parts of the world, we're spending them on people who don't vote here in the United States and therefore don't reward, for example, our elected officials with their votes for spending that money.
This is, though, a moment where we can make it very clear to people why we need to be spending American dollars in other parts of the world to address issues like climate change because, in fact, not only does it help those people in other parts of the world. It generates actual values back here in the United States that people can capitalize on.


Esther Whieldon: I often hear, when people talk about climate change in general -- and it's often referring to mitigation, right, reducing emissions, but I often hear them say we need to ensure a just transition, which is just like a huge term, right? Can you connect the dots for us on why companies shouldn't just put lip service to this? I'm not saying they all do, of course, but can you connect the dots for us on how that is sort of shown to be important in this report?


Edward Carr: So when we talk about a just transition, one of the things that's very important to remember is that the current impacts of climate change are not born equally in the world. They're not born equally within a community, so the current impacts of climate change already present justice issues for us. Some people get to skate through the impacts of climate change now with very little impact on their day-to-day lives, while others notice these impacts all the time and are carrying costs.
So when we think about a just transition, we are thinking about how to deal with mitigation and adaptation to benefit the widest number of people; and ideally to not exacerbate the inequalities and vulnerabilities that we already see in the world, which of course would be to do a terrible injustice to people who are already experiencing a great deal of difficulty. At the most simple level, though, I think that anyone who lives in a society would hope for a more just society. We're talking about a society that, bluntly, is happier, that works together better, that addresses challenges together better, that has greater levels of trust in one another. All of these things are going to be incredibly important as we move forward under climate change because, no matter what we do on the mitigation side now, we're in for several decades to centuries of real impact on how we live in the world. And we're going to have to work together to make some very hard choices about how we deal with those impacts.


Esther Whieldon: Ed and I also talked about how Africa is often left out of ESG discussions. Here's what he had to say.


Edward Carr: At a global scale, we do need to be thinking about sustainability everywhere. Granted the largest impacts are coming from the wealthiest countries in the world, and therefore that's where we tend to focus our sustainability concerns and our sustainability actions, but there are significant things happening in other parts of the world. And so I do think about sub-Saharan Africa, where still a substantial portion of the population makes its living through smallholder farming. That is to say farming 1 or 2 hectares of land, maximum, often by hand or without major machinery, sometimes without inputs and often in what feels like a subsistence mode, although they are producing surpluses that at least get marketed locally.
Globally, 85% of the farms in the world are smallholder farms right now. That doesn't mean we're getting 85% of our food from smallholder farms, but they are a part of the global food system. And as the climate changes, that is eroding the ability of many of these smallholder farmers to continue producing food the way they used to or to produce it in a sustainable manner.
One of the concerns we have in sub-Saharan Africa is land degradation on these farms as farmers find themselves unable to rotate land effectively anymore because it's gotten too dry because rainfall isn't coming fast enough or because population pressure where they're living doesn't allow them to leave land fallow for as long as they used to. That renders farming practices that are otherwise fairly low intensity, when compared to what you see in the United States, unsustainable in that local context, so climate change presents major sustainability challenges for all sorts of livelihoods activities, even in places like sub-Saharan Africa, that indirectly will then radiate back into global markets because again it's a tightly -- so in the case of farming, it's a tightly interlinked global food system. And if millions of smallholder farmers are unable to produce the food that they need to eat, they will have to go somewhere to purchase it. Those purchases will then start to put strain on local supplies of grain. Local supplies of grain put strain on national supplies of grain. And all of a sudden, you have a gentle impact that goes out into global markets that can start to move prices around. That's something that we've seen happen on a much larger scale, usually with crop failures in industrialized agricultural areas, but with this many smallholder farmers part of the global food system, we would do well to remember they're out there. That's just one example.


Esther Whieldon: So tipping points. We've heard a lot about tipping points. They were mentioned in the first set of the series for the cycle, about how we've already -- we're past the tipping point on certain things [or] kind of locked in at least for a few decades [with] some stuff and possibly hundreds of years. What do we know about tipping points? And how can companies prepare for that?


Edward Carr: Tipping points are probably some of the most challenging things in the entire climate change conversation because of their nature. They are very difficult to predict to foresee with any sort of accuracy because they are characteristics of complex systems shifting into new states. And it's hard to know exactly when a system is going to do that and it doesn't happen at a linear pace. State change, as they call it, can happen very, very quickly relative to sort of longer-term trends in, say, precipitation or temperature, but the other tricky part is it's difficult to know what the new state will look like. Just because we know that, say, some section of the global environment or some ecosystem is changing, that doesn't mean we know what it's changing into. We don't know what the new system will look like.


And so if you're a company that is thinking forward in the world and planning, say, 10 or 20 years out, this idea is introducing radical uncertainty into your planning because, of course, 20-year planning requires some degree of foresight about where you think you're going to be in 20 years, where you think that the things you depend upon for your business are going to be in 20 years and where you think consumers are going to be in 20 years. That's difficult to do now even if we thought the world changed at relatively slow linear paces. If you start [ throwing ] big systems changes in and you start talking about tipping points, now you're introducing basically an acknowledgment that there is a possibility in a 10- or 20-year time frame that things could change in unpredictable ways that you simply cannot really account for or plan for fully. In that sense, the only thing you can really do -- as an individual, as a company, as a country, the only thing you can do is prepare yourself to behave adaptively. That is to be able to evaluate the situation around you to understand when changes are taking place and to start to adapt to that new situation as quickly as you can, understanding that you're going to have to keep taking new, adaptive decisions all the time to keep up with that pace of change.


So if there's any advice I can give to someone looking ahead and wondering about these sorts of tipping points, it's consider where those tipping points might take place. And again, are those things that influence directly or indirectly your operations, your thinking, your markets? All of that. And then ask yourself where your flexibility lies. Are there things that you simply cannot change? And if that's the case, how are you going to protect those things if there was a radical change in, for example, the environment around the place where you were getting that particular resource?
Is there some other way of doing business that allows you to preserve that? And if not, how are you going to think transformationally about your business? What are you going to do to really change things up and still exist in this new and transformed world? Some of this is kind of blue sky thinking, but I actually think that corporate entities can do some of the best work on this because they're not constrained like governments to things like electoral cycles. It's very difficult for governments to build policy and thinking that really extends past that, say, 4- to 6-year sort of time horizon. Companies, on the other hand, can make 20- and 30-year plans. They are responsible, of course, to shareholders if they're public companies, but you can actually work out in much longer sorts of time frames. And that actually, I think, can enable different sorts of thinking and different sorts of opportunities for transformation in companies that allow them to continue functioning no matter what comes at them in the future.

Lindsey Hall: So as we've heard today, companies are well placed to develop longer-term adaptation plans and to find new opportunities for transformation. At the same time, they can't do it alone. Governments, the private sector and the public must all work together to adapt to climate change and lower emissions. So looking ahead, Esther, what can we expect next from IPCC?


Esther Whieldon: Well, first, let me explain the IPCC has 3 working groups for this climate assessment cycle. Working Group I's report came out in August 2021, and that outlined the scientific basis for climate change. We'll include a link in our show notes to the podcast episode we did on that report. The subject of today's podcast episode is the findings of Working Group II on impacts, adaptation and vulnerability. And then very soon, in April 2022, IPCC Working Group III expects to publish a report on emissions reduction pathways. And this will be an important one. It's going to give us an updated picture on how quickly the world needs to make progress towards net zero emissions. And then in fall 2022, IPCC will put out a synthesis report combining the findings of all 3 working groups, so please stay tuned as we cover those IPCC reports as well as how the world is acting on the groups' findings.

Lindsey Hall: Thanks so much for listening to this episode of ESG Insider. And a special thanks to our producer, Kyle Cangialosi. Please be sure to subscribe to our podcasts and sign up for our weekly newsletter ESG Insider.
See you next time.