The Intergovernmental Panel on Climate Change (IPCC) estimated that, as of 2020, limiting global warming below 1.5°C relative to pre-industrial levels requires the global stock of CO2 emissions to not exceed 300 gigatons (Gt). Net-zero commitments to eliminate global emissions by 2050 are now becoming mainstream, with more than 190 countries adopting the Paris Agreement, and about USD 60 trillion pledged to carbon neutrality by asset managers around the world.
Figure: Alternative Decarbonization Pathways
The annual CO2 emission data combine totals of land use change and fossil CO2 emissions.
Our simulation of the decarbonization pathway highlights the binding time constraint to carbon neutrality. Estimates from the latest Global Carbon Project (GCP) show that global emissions increased substantially from 39.3 Gt CO2 in 2020 to 41.1 Gt CO2 in 2021, therefore shrinking the original budget of 300 Gt CO2 to just 219.6 Gt CO2. If this level of emissions is kept constant, the carbon budget would be exhausted in just 5.3 years. Delaying the decarbonization process would make the net-zero goal even more challenging to achieve: for example, postponing the decarbonization process to 2027 would require a sharper—and likely unfeasible—reduction in emissions to achieve the net-zero target (dashed line), as compared to acting now (dotted line).¹
Reducing, and ultimately eliminating, greenhouse gas emissions as quickly as possible is a foundational ambition for climate investing. Frequent re-evaluations of the global carbon budget are therefore necessary to inform sustainable investment. Our research emphasises that the approach to the net-zero portfolio is a dynamic process with tight time constraints and active engagement.
¹Due to publication lags, the latest carbon emission level refers to end of 2021.
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