Climate Change -- The Risks and the Opportunities

Climate Change 101

What is it?

The term "climate change" denotes dramatic changes in climatic conditions, whether these changes are anthropogenic (human induced) or naturally occurring. Anthropogenic climate change is the dramatic increase in global temperatures primarily caused by emissions of greenhouse gases (GHG) from the use of fossil-based fuels and industrial processes. Other human practices such as deforestation are also spurring climate change because they lead to the loss of natural "carbon sinks" that store or sequester carbon.

Is the earth really warming?

There is no question that the Earth is warming due to human activity. Temperatures at the Earth's surface increased by an estimated 1.4°F (0.8°C) between 1900 and 2005. While this may not sound alarming, it is: the earth's global average temperature varies very little, and a change of even one or two degrees can be dramatic for the creatures that inhabit it. The difference in global mean temperature between the last ice age and the present is about 5 degrees Fahrenheit; the global mean temperature difference between the present and the hottest period we know, about 35-65 million years ago, when there were alligators living north of the Arctic circle, is only about 5-9 degrees.

Average temperatures in the Arctic have increased at almost twice the global rate in the past 100 years. The past decade was the hottest of the past 150 years and perhaps the past millennium. In fact, the eight warmest years on record (since 1880) have all occurred since 2001, with the warmest year being 2005. The hottest 23 years on record have occurred since 1980 and NASA scientists believe that the next five years could be even warmer.

What will be the results of climate change?

Climate change is one of the most serious threats to our environment and our livelihoods. The gradual warming of the atmosphere will bring about increasingly severe weather, rising sea levels, and changes in the incidence of floods, fires, drought, and other weather-related patterns that will have potentially profound impacts on basic human activities such as agriculture, water use, and commerce. For example, over $7.2 billion worth of insured property lies on the Gulf and Atlantic coasts of the United States, and much of it is vulnerable to sea-level rise and storms, including hurricanes made more intense by climate change.

Why is a global agreement on climate change important?

As global institutional investors, we manage diversified portfolios that invest a cross section of assets, companies, sectors and markets. Calvert has held for some time that understanding corporate climate change risk and opportunity is vital to creating well-managed portfolios. That said, the certainty that an international agreement will provide – in helping to set a sustainable global cost of carbon—will allow investors to measure and manage this exposure more consistently and effectively.

All Eyes on Copenhagen

In 1997, representatives from around the world met in Kyoto, Japan to develop a treaty mandating limits on emissions of GHGs for developed nations that would extend through 2012. That document – the Kyoto Protocol – entered into force in February 2005. And while the U.S. did not ratify the Protocol, U.S. companies with foreign operations have been obliged to meet Kyoto Protocol requirements.

With Kyoto’s commitment end date of 2012 getting closer, governments around the world are looking towards negotiations in Copenhagen, Denmark, to reach a global agreement that will guide GHG emissions reductions into the middle of the 21st century. Calvert believes that a robust international agreement—that is strengthened by robust leadership from the United States—is imperative to the successful management of climate change.

Read more about the Copenhagen meeting and the key groups working to influence policy.

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Last Updated: September 22, 2009

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