The IPCC Climate Change and Land Report: Three Things Every Investor Should Know

As investors look at land-based portfolio risks, the agriculture sector is at the center of their attention. This focus makes sense. As outlined in the IPCC’s special report on climate change and land use, agricultural commodities will be hit hard if harmful land use practices are not stopped.

Yet the agricultural sector view fails to capture the full scope of land issues. Minerals and mining, consumer goods and retail sectors are just some of the many industries that depend on extensive natural capital for their goods and services. For most industries, land is a vital material resource. Therefore, companies across multiple sectors and industries need to better manage this increasingly scarce and highly-degraded resource.

Investors risk decreasing returns when companies fail to properly manage land resources down their supply chains. So we broke down the top three IPCC findings that investors in all sectors should know to minimize the material market risks in their portfolios and to understand how land, climate and the global marketplace are inextricably linked.

1. 1. The full report provides credible and comprehensive evidence on the impacts of climate change on earth systems. With over 1,400 pages created by a team of 107 experts from 52 countries, the report is backed by over 7,000 peer-reviewed scientific papers on the impacts of climate change on land and water. At around 1.5°C of global warming, the risks from dryland water scarcity, wildfire damage, permafrost degradation and food supply instabilities are projected to be high. These risks, along with risks from droughts and heatwaves, become even more severe at 2°-3°C of warming. Bottom Line: The evidence base overwhelmingly supports the investor business case to address the systemic risk of climate change.

1. 1. The report highlights the role of land-based greenhouse gas (GHG) emissions in global climate change. Land (including agriculture, forestry, and all other land uses) contributes 23% of net anthropogenic GHG emissions, half of which come from agricultural production. Forestry and land use change, including commodity-driven deforestation, produce 11%. However, improved management of croplands, grazing lands, and livestock, as well as reducing forest degradation and land conversion, can reduce GHG emissions. Bottom Line: To mitigate systemic climate risk within portfolios, investors must address the role of land management in driving climate change.

1. The report emphasizes that land-based mitigation is essential in order to keep global warming to 1.5ºC. All pathways that limit warming to 1.5ºC require land-based mitigation, with different combinations of reduced deforestation, reforestation and afforestation. But conversion of non-forested to forested land may have trade-offs with food security when employed at large scales (several millions of km2). In evaluating investment opportunities, it is therefore important to consider the net carbon benefits and the likelihood of future forest carbon uptake. Bottom Line: Land-based mitigation presents attractive opportunities for investment, but only if managed properly.

So, what can investors do now to act on land-based portfolio risks? They can join hundreds of institutional investors addressing these risks, such as the Investor Initiative for Sustainable Forests (IISF), a shared working group of the Ceres’ Investor Network and the UN Principles for Responsible Investment, which supports investors engaging companies on the material financial risks of deforestation for companies sourcing commodities such as cattle, soy, palm oil and timber. Investors can also analyze their portfolios for risks related to land, engage with companies on mitigating issue-specific risks (such as deforestation) and push companies to improve supply chain (scope 3) emissions disclosures. This analysis starts by addressing the gaps in investor awareness of these issues and sharing leading practices to drive deeper integration of deforestation, climate, and land-related risks into the investment decision-making process.

Ceres’ Engage the Chain site has been updated to include the latest information from the IPCC land and climate change report and outlines direct ways to act now. Investors should take heed of the new special report from the IPCC, which sends a clear warning: land use and the climate crisis are inextricably linked, not only in relation to agriculture, but also to companies and products across many sectors.