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Itay Michaeli

Arifumi Yoshida

Arvind Sharma

Gabriel M Adler

Ethan Kim

Jeff Chung

Thomas P Wrigglesworth

Oscar Yee

Angus Tweedie

Mubasher Chaudhry

Samantha V Jelley

<h2>EVs Shifting from Regulatory- to Supply Chain-Driven Disruption</h2>
In reality, the transition to EVs has taken longer than anticipated. There continues to be a niche group of consumers who are die-hard believers in the need to switch to electric vehicles, and they typically make up the bulk of electric vehicle sales. But the general population continues to have reservations about whether electric vehicles have improved enough in range, charging time, and price to give them a second look. Governments have tried to sweeten the offer by providing price subsidies to lower the cost of electric vehicles but even those are not enough for an average driver in places like the U.S. or Europe to view electric vehicles as replacements for their gasoline engine vehicles. But winds of change are starting to form out of Europe. We see a threat on the horizon for auto manufacturers as the real electric vehicle (EV) arms race has now begun in Europe. In order for automotive original equipment manufacturers (OEMs) to meet European Union CO2 targets in 2021, plug-in hybrid electric vehicles (PHEV) and battery electric vehicle (BEV) volumes will need to double. Plans by a top EV player to boost European capacity by about 150,000 in 2021 and 500,000 units in 2022 &mdash; equal to about 30% of European market share &mdash; will make it significantly harder for incumbent automotive OEMs to meet these CO2 targets. This means automotive OEMs must begin to factor in either widespread fines or competitive pricing pressure particularly in the premium segment of the EV market. For an EV manufacturer to make such a bold move into the European market is either foolhardy, or suggests it believes it has a product (i.e., battery technology) that will allow it to appeal to a broader section of the automotive market. With other disruptive players suggesting battery technology can develop significantly faster than anticipated by incumbent automotive OEMs, there is a clear risk that we are seeing a technological march on peers. In any case, with disruptive forces fully funded from a technological standpoint, the stage is set for a technological clash in the next 18 months. We see three main areas where automotive OEMs could be disintermediated by disruptive players in the EV market. First, a leap forward in technology could make EVs technologically and cost competitive sooner than expected &mdash; giving demand for EV uptake a regulatory push versus a consumer pull approach. Second, easy availability of credit could result in vertical integration by disruptive players as new entrants are able to gain a competitive advantage by building their own battery supply. Finally, with the prospects of EV products surpassing internal combustion engine (ICE) vehicles from a performance and consumer cost perspective, regulators will likely come under pressure to support a faster transition to lower emission technology.
Authors: Angus Tweedie,Gabriel M Adler,Mubasher Chaudhry, ACA,Jeff Chung,Samantha V Jelley,Ethan Kim,Itay Michaeli,Arvind Sharma,Thomas P Wrigglesworth,Oscar Yee,Arifumi Yoshida,

The electric vehicle (EV) market is set to become a battleground. In order to meet emissions targets in Europe, production of hybrid and EVs are going to have to materially increase. New players are coming into the market with new technology — and these new competitors are fully funded. We see three things in the future (1) technological change coming; (2) vertical integration could be on the cards; and (3) an arms race is looking to develop in the EV space.

Electric Vehicle Transition - CitiGPS

EVs Shifting from Regulatory- to Supply Chain-Driven Disruption

We've been writing in Citi GPS about the potential for electric vehicles (EVs) since 2014, when we featured the topic in our Disruptive Innovations II report. Back then we predicted we'd see an early-mover leader emerge in four to six years.

Electric Vehicle Transition

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Download Volume 2

Eric G Lee

Edward L Morse

The Paris Agreement. Signed in 2015, the agreement brought 196 parties together with the same goal &mdash; to limit global warming to below 2 degrees Celsius (2&deg;C), compared to pre-industrial levels. Despite a few wobbly moments, it looks like everyone is back onboard to live up to their greenhouse gas reduction commitments. Overall, momentum for climate action was increasing before the world was hit by COVID-19. Despite the financial hardships brought about by the pandemic, government focus on climate action is actually accelerating with stronger climate policies and net zero emissions targets being put in place. This increased focus on climate is occurring in parallel with a rise in corporate and individual focus. The combination, we believe, puts us at a tipping point on climate action. In order to decarbonize the world, a whole portfolio of mitigation needs to be developed and implemented across the highest carbon-emitting sectors. Although the pace of innovation has accelerated and investment has increased, the investment gap between what's being spent currently and what needs to be spent is huge&mdash; as much as $3-$5+ trillion per year. Capital is needed to fund the technologies required help markets evolve towards decarbonization. Advancements in battery technology, the hydrogen economy, carbon capture and storage, electrification, and efficiency require investment to become reality. Carbon management (i.e., carbon dioxide removal) and carbon pricing will help to align investment and economic activity with climate goals. Public sector spending is crucial to funding climate action together with private investment. Luckily, green momentum in the investor community has led to an explosion in assets under management incorporating ESG considerations. At over $30 trillion, the challenge is putting these assets to work. Developing a clear green framework will help deploy ESG assets where they are most needed. Financial innovation is the key to matching capital supply and demand. Instruments including project finance, green, social, and sustainability (GSS) bonds, SPACs, 'efficiency as a service', and green securitization are used to close the gap. Given the scale of the issue, we've published Financing a Greener Planet in two volumes. Volume I &mdash; <a href="https://ir.citi.com/1A3j0pyk4EVUZ7y6ofrk1QjPbJgmCu4bqY%2BE5w9jswGdmBggmv2M2M1vxL54Cl%2FG3HDuw%2FA1U1Q%3D">Catalyzing Private Capital for a Net Zero Emissions World</a> &mdash; focuses on the three factors which indicate we are at a tipping point on climate action &mdash; policy and regulation, innovation, and green momentum in the investor community. Volume II &mdash; <a href="https://ir.citi.com/F8IqnUkF28geR%2Fg3HQyxRpvRB3mxYMFJRG2BwpPSEjMoNJo14m8Kcnqm2AJTrmT7CnGVOKH6KJo%3D">Bridging the Gap between Green Investment and Investors</a> &mdash; is dedicated to the financial options available to close the massive climate investment gap. Let's invest in what we care about.Authors: Eric G Lee,Edward L Morse,

We are reaching a green tipping point, with the “net zero emissions” club growing. 2021 is shaping up to be a year of acceleration for climate policy and action, with momentum already there in 2019. This report shows how opportunities and challenges in green financing for a range of investors are evolving quickly as a result. We focus on financing, especially from the private sector, which is particularly important for green investments given large upfront costs and usually low operating expenses relative to carbon-intensive investments.

Financing a Greener Planet - CitiGPS

Catalyzing Private Capital for a Net Zero Emissions World

Do we really care about climate change? In 2019, Amnesty International asked 18-25-year olds to name the five major issues facing the world. The most commonly cited issue was climate change. Okay, we do care about it, now what’s the plan?

Financing a Greener Planet

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Jason Channell

Elizabeth Curmi

Ying Qin

Emma Hawkins

<h3>The Toughest Nuts to Crack for a Net Zero Future</h3>
The COVID-19 pandemic has been noteworthy for so many negative things, but there was one temporary bright spot &mdash; global carbon emissions declined. With the sudden halt in industrial production and transportation coming to a standstill, cities saw noticeable declines in air pollution and the atmosphere benefitted from a decline in greenhouse gas emissions. Although these benefits were temporary and reversed once economic activity started to ramp up, it was encouraging to see that declines in emissions can actually happen.
Obviously shutting down major sectors of the economy for periods of time isn&rsquo;t the long-term answer to reducing emissions. But seeing evidence that lowering emissions can lead to a decline in greenhouse gas concentrations &mdash; whether the decline is big or small &mdash; is important and has helped changed attitudes toward making the effort. In our Citi GPS report <a href="https://www.citivelocity.com/citigps/financing-a-greener-planet/" data-link-source="tiny">Financing a Greener Planet</a>, we noted that government focus on climate action is actually accelerating with stronger climate policies and net zero emissions targets being put in place. This increased focus on climate is occurring in parallel with a rise in corporate and individual focus. Stimulus packages in many countries are focusing on green infrastructure and technology investment that help the economy transition away from fossil fuels. Progress towards a more sustainable global economy is already being made in a number of sectors, through actions such as the promotion of electric vehicles and recycling schemes, as well as an increased focus on energy efficiency in buildings. But not all sectors are created equal in terms of how easy it is to convert them to green. Certain sectors are harder to abate than others and it will take breakthroughs in technology, investment, and time to lower emissions. In the report that follows, Citi&rsquo;s Sustainable Finance team takes a detailed look at two hard-to-abate sectors &mdash; transport (road freight, aviation and shipping) and industry (cement and steel) &mdash; which need to be focused on to successfully meet net-zero emission commitments. Collectively, these sectors account for 25% of today&rsquo;s global carbon emissions, but have the potential to rise by 50% through 2050 given growth expectations. Although demand-side solutions can help, they&rsquo;re not sufficient to drive emissions levels down towards zero. Instead, supply-side solutions need to be incorporated. The team identifies three such solutions &mdash; hydrogen, bioenergy, and carbon capture, utilization &amp; storage (CCUS) &mdash; they believe can be the keys to &lsquo;cracking the carbon nut&rsquo; in hard-to-abate sectors. There is a cost premium associated with each of these solutions, but as technology advances and supply is scaled up, costs should fall and demand should increase. Identifying hard-to-abate sectors and the potential solutions to drive down emissions should help rally investment and accelerate capital deployment to fund the net zero transition. This won&rsquo;t be easy, but it is doable &mdash; especially with coordinated efforts between governments, corporates and investors.Authors: Jason Channell,Elizabeth Curmi,Ying Qin,Emma Hawkins,

‘Hard-to-abate’ sectors such as heavy industry and transport make up 25% of carbon emissions. WIthout plans to address these emissions, it will it will become increasingly difficult for governments and corporates to meet their net zero commitments. Demand-side solutions are only partially effective and aren't enough. Supply-side solutions such as hydrogen, bioenergy, and carbon capture, utilization & storage (CCUS) need to be implemented in order to drive a permanent reducion in carbon emissions and avoid the negative consequences of climate change.

Hard-to-Abate Sectors and Emissions - CitiGPS

The Toughest Nuts to Crack for a Net Zero Future

Progress towards a more sustainable global economy is already being made in many sectors, through actions such as the promotion of electric vehicles and recycling schemes, as well as an increased focus on energy efficiency in buildings.

Hard-To-Abate Sectors and Emissions

Anthony Yuen

Maggie Xueting Lin

Judy Su

<h3>Powering Up the Energy Transition</h3>
 Natural gas is a topic we have returned to time and time again. In 2013, our Citi GPS Energy 2020 series took a look at the shale revolution and how it would propel the U.S. from being a net energy importer to a net energy exporter. As part of that series, we looked specifically at the transportation industry and the inroads natural gas was making into petroleum&rsquo;s monopoly hold on the transportation fuel market. Now, as the world comes to terms with the role of greenhouse gas emissions in climate change, consensus has shifted on the role of natural gas as a substitute for petroleum. Instead, renewable energy, &ldquo;green&rdquo; energy sources, such as hydrogen and biofuel, and energy storage are being championed as low-carbon alternatives. But these technologies still need time to ramp up in scale and cannot provide the full amount of energy necessary to run the global economy today. While these alternative energy technologies mature, natural gas can be used as a lower-emitting &ldquo;transition&rdquo; fuel to bridge to a net-zero world, particularly a substitute fuel or feedstock in hard-to-abate sectors. As the Energy Transition proceeds, the primary proponents of natural gas as a transition fuel are the six countries making up 84% of all gas exports. The two biggest producers and exporters &mdash; the U.S. and Russia &mdash; will likely determine how natural gas could fit in to the clean energy future and how the market structure could evolve. Citi&rsquo;s Global Commodities Strategy group has teamed up with Russia&rsquo;s Institute for Energy and Finance Foundation (FIEF) to give their perspectives on the current natural gas market as well as ways the natural gas business can shift away from its incumbent mentality and not only learn to think outside of the box, but perhaps to think more like an upstart industry. The report identifies five key demand areas where the proposition for natural gas is strong, including: (1) providing reliable electric grid supply; (2) using its smaller footprint to provide power generation in urban areas; (3) as a bunkering fuel to help reduce emissions in shipping; (4) as a lower-emission fuel in road transport; and (5) in the production of blue hydrogen. At the same time, the industry itself needs to work on decarbonizing its processes &mdash; from wellhead to generation &mdash; including reducing carbon gas emissions and methane leakage in production and transport. How natural gas producers embrace the future could rest on their approach to the market. Some could manage supply and keep prices high by coordinating the trading of free float gas volume with other producers, thus extracting more export revenue but likely accelerating the Energy Transition. Alternatively, the industry could create an institution similar to a development bank to help finance the upfront liquefied natural gas (LNG) infrastructure that will drive natural gas demand into the future in ways that facilitate the Energy Transition. Given the size of the industry and its importance to the global economy, a plan to ensure natural gas is part of the Energy Transition is needed now. &nbsp; Authors: Anthony Yuen,Edward L Morse,Maggie Xueting Lin,Eric G Lee,Judy Su,

Is natural gas a transition fuel, a soon-to-be stranded asset, or an energy source that could be part of the Energy Transition? Given the size of the industry and its importance to the global economy, a plan to ensure natural gas is part of the Energy Transition is needed now.

Natural Gas - CitiGPS

Powering Up the Energy Transition

Much of the focus on the Energy Transition has been on how quickly renewables could take over, but reducing emissions from hard-to-abate sectors and places complicates the outlook. In this context, is natural gas a transition fuel, a soon-to-be stranded asset, or is it an energy source that could be part of the Energy Transition?

Natural Gas

Executive Summary

Edward McKinnon

Georgina Smartt

Alex Miller

Anita McBain

An unexpected positve outcome from the COVID-19 pandemic is related to climate change &mdash; after decades of steady increases, global carbon dioxide emissions actually fell. A combination of declining manufacturing and social activities in 2020 &mdash; factory shutdowns, a fall in air travel, and work from home which eliminated many commutes &mdash; led to global carbon dioxide emissions falling by almost 7% from 2019 levels. This unexpected result brought renewed focus on efforts to lower global emissions, as it provided proof that carbon dioxide reductions could be achieved and the Earth wasn&rsquo;t beyond help in terms of climate change.
In 2021, governments across the globe started shifting their focus from providing COVID-19 economic life preservers to providing fiscal stimulus to drive economies out of pandemic-induced recessions. As stimulus packages are being worked out, there are renewed calls to ensure large portions support &ldquo;green&rdquo; initiatives. 2021 is being referred to as the &ldquo;super year&rdquo; for sustainability, and looks to be a crucial year for not only climate action but also the wider sustainability agenda. The year ends with two scheduled critical global summits &mdash; the UN Biodiversity Summit (COP15) in October and the UN Conference on Climate Change (COP26) in November. We have already written a lot in 2021 on climate change in the Citi GPS report series &mdash; most recently in <a href="https://www.citivelocity.com/citigps/hard-to-abate-sectors-and-emissions/" data-link-source="tiny">Hard-to-Abate Sectors</a>, <a href="https://www.citivelocity.com/citigps/financing-a-greener-planet/" data-link-source="tiny">Financing a Greener Planet</a>, <a href="https://www.citivelocity.com/citigps/natural-gas/" data-link-source="tiny">Natural Gas Transition</a>, and <a href="https://www.citivelocity.com/citigps/electric-vehicle-transition/" data-link-source="tiny">Electric Vehicle Transition</a>. The report that follows takes a deeper look at the twin crises of climate change and biodiversity loss, and advocates for applying the same sense of urgency to both issues. With an objective to closing the gap between academic and policy literature and the perspective of the business and investor community, the report focuses on one question: Why should businesses and investors care about biodiversity loss? Businesses are inherently reliant on nature for resources and ecosystems to produce their products and services. At the same time, their operations also create direct and indirect impacts on nature that could ultimately affect their business. By not analyzing dependencies and the impact on nature and biodiversity, corporates open themselves up to material risk to the profitability of their businesses and shareholders. From an investor perspective, recent years have seen record levels of engagement in sustainability-related issues as demand for sustainable investment strategies rise. From 2016 through 2020, sustainable investment strategies saw a 50% increase in assets under management. With biodiversity loss putting over half of the world&rsquo;s GDP potentially at risk, integrating the protection of biodiversity into the fiduciary duties of institutional investors and assets managers increases in significance. We hope you find this report convincing in its argument on why biodiversity matters for corporates and investors. Follow up reports will expand on recommended actions, data, and frameworks businesses and investors can use to minimize risk to their operations and investments from biodiversity loss. Using the adage of &ldquo;every dark cloud has a silver lining&rdquo;, COVID-19 may have opened a window of opportunity to build a sustainable future for humanity by aligning the climate and nature agendas.Authors: Ying Qin,Anita McBain,Jason Channell,Elizabeth Curmi,Georgina Smartt,Edward McKinnon,Alex Miller,

The Ecosystem at the Heart of Business

This report takes a deep look at the twin crises of climate change and biodiversity loss, and advocates for applying the same sense of urgency to both issues. With an objective to closing the gap between academic and policy literature and the perspective of the business and investor community, the report focuses on one question: Why should businesses and investors care about biodiversity loss?

Biodiversity

Igor Cesarec

Francesco Martoccia

Adam Phillips

For most people the answer is a resounding, &ldquo;No.&rdquo; Sadly, ignorance is not bliss in this situation; the reality is we still have a mountain to climb and we are lacking much of the equipment needed to scale it. While the COP21 in Paris six years ago is recognized by most as a resounding success, progress to the agreed upon conference goals, at least from individual nations, has failed to live up to promise &mdash; both in terms of actions to date and future intentions. If we add up all of the current NDCs (national determined contributions &mdash; essentially each country&rsquo;s individual plan to stay within a 1.5 degree Celsius world &mdash; the aggregate effect in 2030 would be for emissions of around 55 gigatonnes (Gt) of carbon dioxide equivalent (CO2e). This represents an emissions reduction of just 1% versus 2019 and a 9% increase since 2010 if the conditional elements of NDCs are included. However, the International Panel on Climate Change (IPCC) tells us that in order to meet their 1.5 degree Celsius scenario, emissions by 2030 would need to fall by 45% versus 2010 levels. So current efforts are not even reducing emissions, let alone heading towards net zero. Looking at it in a different way, the Paris scenario would all but use up the entire &ldquo;carbon budget&rdquo; (the amount we can emit before temperatures rise above 1.5 degrees Celsius) by 2030, meaning that even to stand a 50% chance of staying below 1.5 degrees Celsius, our emissions would then have to magically drop to zero &mdash; which is clearly a fantasy. What is going on? If we all know about climate change, and 191 countries have signed up to the Paris Agreement to limit temperature increases to 1.5 degrees Celsius, how is it possible that emissions in 2030, even with each country&rsquo;s &ldquo;efforts,&rdquo; will barely change? The simple answer is, &ldquo;growth.&rdquo; While emissions have fallen and continue to fall in many developed markets, emissions from developing markets continue to grow significantly. This is for a variety of reasons. Economic development brings greater levels of wealth and demand for autos, white goods, holidays etc. In addition, the pace of growth, in countries where resources are limited, often means going for the fastest and cheapest upfront forms of energy, which are often carbon intensive &mdash; even if low-carbon alternatives might be cheaper in the long run. Does this mean our current situation is all the fault of emerging markets? Not really. Emissions per capita are significantly higher in developed markets, and moreover, the vast majority of the carbon budget has been used up historically by developed nations, in particular the EU and the U.S. Therefore, while current emissions and future growth might be all down to emerging markets, it is very much the fault of developed markets that we are where we are. So, do developed nations have the moral right to tell emerging markets they cannot be afforded the same leeway in economic development which developed markets had historically? And by doing that, can they effectively consign large swaths of the population to slower economic development, and at the extremes, consign millions to poverty for many years longer than might otherwise be the case? Simply put, to stand any chance of staying within a 1.5-degree Celsius temperature increase, we need to do much, much more to reduce emissions. Moreover, we cannot realistically expect emerging markets to fund their own decarbonization programs, and slow their economic growth and the prospects of their (voting) populaces themselves. The global burden must fall at least in part on developed nations. This would be a tough sell at the best of times, let alone in a massively indebted post-COVID-19 world. Convincing developed market voters they need to subsidize emerging markets &mdash; enabling them to compete better with developed markets in the future, with all of the implications for employment and economic growth it entails &mdash; will be difficult. We need to find a mechanism whereby global efforts to decarbonize are funded efficiently and equitably. This is where COP26 can help, and in particular &ldquo;Article 6,&rdquo; which looks at ways in which countries can work together &mdash; either bilaterally, regionally, or indeed globally &mdash; to reduce overall emissions. The world is a mess when it comes to carbon regimes &mdash; there are currently 64 carbon pricing systems globally, with another 30+ in development. Thirty of the existing systems are carbon markets, with the remaining 34 carbon tax regimes. Not only is there no agreement on a mechanism, but the prices within these regimes vary from the meaningless $0.10/tonne to an eye-watering $142.40/tonne &mdash; against a price widely seen as necessary now for Paris-alignment of $40-$80/tonne. This fragmented approach is clearly inefficient, and evidence tells us that so far, it is proving ineffective at a global level. Accordingly, to achieve real progress, we must find some way of integrating these individual regimes into one globally-fungible system. There are essentially four ways we could achieve this, using one, or a combination, of the methods mentioned below: The first option is essentially via command and control directives, where governments/regulators simply mandate the amount of emissions that are allowed when and from which industries, with non-compliance penalized severely. While potentially effective, this is unlikely to be efficient, and almost certainly would not provide the lowest cost solution. This leads us to the three other, market-based solutions (which, it should be pointed out, are not mutually exclusive): 
<ul>
<ul>
<li>The first of these is a carbon tax on emissions, which could either be applied as a flat rate globally, or with differing rates for emerging and developed markets, potentially with differing ratcheting up speeds, to eventually bring the world into alignment.</li>
</ul>
</ul>
<ul>
<ul>
<li>The second option involves cap and trade systems, whereby allowances for emissions are granted and/or auctioned up to a (reducing) limit, with parties showing faster than prescribed progress allowed to sell their excess allowances to other slower moving parties &mdash; while still reaching the same cap.</li>
</ul>
</ul>
<ul>
<ul>
<li>The third option involves baseline and credit systems, whereby parties earn credits for reducing emissions, which could be sold to others in deficit, potentially within one of the two preceding mechanisms.</li>
</ul>
</ul>
Each of these is fraught with complexities, both technical, and perhaps more importantly, political. Discussion of the pros and cons of each of these methods, the pitfalls and stumbling blocks, as well as how they might be implemented, forms the basis of this report. There are essentially two key problems common to all of the four methods &mdash; who pays for decarbonization, and assuming we successfully raise the money, how, and most importantly where, does the money get spent/distributed? Bottom line, as already noted above, there will need to be some transfer of value from developed markets to emerging markets. Putting a price on carbon has the potential to drive the adoption of CBAMs (Carbon Border Adjustment Mechanisms), essentially taxing carbon-intensive imports that are not subject to an equivalent carbon regime in line with that of the importing country/bloc. Countries that either do not take action, or do not do so at the &ldquo;required&rdquo; rate, could potentially see themselves become international pariahs, in both political and economic/trade terms. As the Citi Global Insights Sustainable Finance team points out in a <a href="https://www.citivelocity.com/citicms/Stranded%20Sovereigns:%20Cross-Border%20Carbon%20and%20Its%20Implication%20for%20Global%20Trade" data-link-source="tiny">recent report</a>, cross-border carbon has the potential to become one the biggest factors in global trade over the coming years and decades. The problem, is that a large proportion of carbon-intensive manufacturing is carried out in emerging markets, and hence CBAMs could actually cause money to flow in the opposite direction to that which we are trying to achieve &mdash; even if they might encourage other countries to decarbonize faster (to avoid taxes being applied to their exports). The second issue of how to allocate revenues is also a thorny one. Should revenue raised from, for example, carbon taxes remain in the country where it is raised, helping the less fortunate to cover the inevitably higher cost of goods that will result? Undoubtedly some should, but the reality is that for many emerging markets, a carbon tax could represent a crippling sum &mdash; in some cases as much as 20% of GDP. The impact of this on growth could be so dramatic as to make it unfeasible, and hence the need for capital flows from developed markets. One novel idea, which we propose in this report, is the creation of a climate development bank along the lines of existing development finance institutions. The bank would be funded collectively by nations and could take some/all of the receipts from global regimes and reallocate them around the world into lower carbon development. While not without issues, this would at least provide a coordinated and specialized approach, and would also present an enormous opportunity to harness the trillions of dollars of private capital that wants to invest sustainably, by adopting a blended finance approach. In summary, if we really are serious about tackling climate change and avoiding the resulting economic, social, and environmental decimation, we need to do much, much more, and we need to start working with each other to achieve our shared goals. There are no easy solutions, either economically or politically. However, we should not see these solutions as a cost. If approached correctly, the significant economic multiplier effects &mdash; even before we start to consider the environment and social multiplier effects &mdash; are compelling on their own. However, politics being politics, reaching a universal agreement in Glasgow will be tough, and hence it may be that the most likely outcome is the formation of so-called climate clubs &mdash; for example the U.S. and EU acting in concert and applying CBAMs to third-party countries that are not willing to pick up the baton (or move fast enough) to ultimately encourage a similar level of ambition. Whatever the outcome of COP26 in Glasgow, a mountain lies before us that absolutely must be climbed &mdash; by all of us, collectively. If we are successful, the view at the top looking forward would be spectacular, and who knows, could even usher in an era of greater global cooperation. If we fail to climb it by choice though, rising temperatures and sea levels might push us up that slope unwillingly, by which time it would be too late to turn back the clock. Either way, we are going up that slope, and we might as well do it on our terms now, in the cheapest way possible, and have the option to return down the mountain again when it is safe &mdash; rather than being stuck up that mountain, remembering what the world used to be like.Authors: Elizabeth Curmi,Jason Channell,Ying Qin,Edward L Morse,Eric G Lee,Anthony Yuen,Francesco Martoccia,Igor Cesarec,Adam Phillips,

We Are Running Out of Time Human-induced greenhouse gases (GHGs) have already caused one degree of global warming. In 2018, cumulative CO2 emissions exceeded 1.6 trillion tonnes, with the U.S> and EU27 responsible for the greatest share. China is responsible for 24% of total annual emissions, followed by the U.S. at 12%. Importantly, at current emissions rates, we have just 14 years before global temperatures rise beyond 1.5C. This means the time is now to (1) limit GHG emissions, (2) reach at least net zero CO2 emissions, and (3) look to go net negative in the second half of the century.

Human-induced greenhouse gases (GHGs) have already caused one degree of global warming. In 2018, cumulative CO2 emissions exceeded 1.6 trillion tonnes, with the U.S> and EU27 responsible for the greatest share. China is responsible for 24% of total annual emissions, followed by the U.S. at 12%. Importantly, at current emissions rates, we have just 14 years before global temperatures rise beyond 1.5C. This means the time is now to (1) limit GHG emissions, (2) reach at least net zero CO2 emissions, and (3) look to go net negative in the second half of the century.

We Are Running Out of Time

Announced National Determined Commitments (NDCs) Are Not Enough to Limit Temperature Increase of 1.5C or even 2C According to the IPCC, by 2030 we need to reduce our GHG emissions by 45% from 2010 levels and reach net zero by 2050. Assuming just the unconditional parts of the announced NDCs are met, projections in 2030 would be 16% higher than 2010 levels. In the context of the carbon budget consistent with a 50% likelihood of limiting global warming to just 1.5C, cumulative CO2 emissions in 2020-30, based on the latest NDCs, would use up almost 89% of the remaining carbon budget, leaving just 55 GtCO2 to be used post 2030.

According to the IPCC, by 2030 we need to reduce our GHG emissions by 45% from 2010 levels and reach net zero by 2050. Assuming just the unconditional parts of the announced NDCs are met, projections in 2030 would be 16% higher than 2010 levels. In the context of the carbon budget consistent with a 50% likelihood of limiting global warming to just 1.5C, cumulative CO2 emissions in 2020-30, based on the latest NDCs, would use up almost 89% of the remaining carbon budget, leaving just 55 GtCO2 to be used post 2030.

Announced National Determined Commitments (NDCs) Are Not Enough to Limit Temperature Increase of 1.5C or even 2C

Market-Based Mechanisms to Reduce Emissions A global solution is required to get to a net zero world, which is especially difficult given most market-based mechanisms require global agreement to be effective. Agreeing a solution between two or more nations — a "climate club" — could be the solution. Whichever mechanism is used, a new "Climate Action Development Bank" would be needed to drive global investments and help de-risk projects, particularly in emerging markets.



A global solution is required to get to a net zero world, which is especially difficult given most market-based mechanisms require global agreement to be effective. Agreeing a solution between two or more nations — a "climate club" — could be the solution. Whichever mechanism is used, a new "Climate Action Development Bank" would be needed to drive global investments and help de-risk projects, particularly in emerging markets.



Market-Based Mechanisms to Reduce Emissions

How a Climate Change Club Could Work Revenue from the Climate Change Club would be generated from (1) a domestic tax on GHG emissions, and (2) a carbon border adjustment mechanism (CBAM) on carbon-intensive imports from countries which are not members of the club. Using a hypothetical club between the U.S. and the EU, we estimate $520 billion could be generated through a domestic tax and up to $220 billion from a CBAM if placed on all imports.

Revenue from the Climate Change Club would be generated from (1) a domestic tax on GHG emissions, and (2) a carbon border adjustment mechanism (CBAM) on carbon-intensive imports from countries which are not members of the club. Using a hypothetical club between the U.S. and the EU, we estimate $520 billion could be generated through a domestic tax and up to $220 billion from a CBAM if placed on all imports.

How a Climate Change Club Could Work

We Are Running Out of Time Human-induced greenhouse gases (GHGs) have already caused one degree of global warming. In 2018, cumulative CO2 emissions exceeded 1.6 trillion tonnes, with the U.S> and EU27 responsible for the greatest share. China is responsible for 24% of total annual emissions, followed by the U.S. at 12%. Importantly, at current emissions rates, we have just 14 years before global temperatures rise beyond 1.5C. This means the time is now to (1) limit GHG emissions, (2) reach at least net zero CO2 emissions, and (3) look to go net negative in the second half of the century. Announced National Determined Commitments (NDCs) Are Not Enough to Limit Temperature Increase of 1.5C or even 2C According to the IPCC, by 2030 we need to reduce our GHG emissions by 45% from 2010 levels and reach net zero by 2050. Assuming just the unconditional parts of the announced NDCs are met, projections in 2030 would be 16% higher than 2010 levels. In the context of the carbon budget consistent with a 50% likelihood of limiting global warming to just 1.5C, cumulative CO2 emissions in 2020-30, based on the latest NDCs, would use up almost 89% of the remaining carbon budget, leaving just 55 GtCO2 to be used post 2030. Market-Based Mechanisms to Reduce Emissions A global solution is required to get to a net zero world, which is especially difficult given most market-based mechanisms require global agreement to be effective. Agreeing a solution between two or more nations — a "climate club" — could be the solution. Whichever mechanism is used, a new "Climate Action Development Bank" would be needed to drive global investments and help de-risk projects, particularly in emerging markets.

 How a Climate Change Club Could Work Revenue from the Climate Change Club would be generated from (1) a domestic tax on GHG emissions, and (2) a carbon border adjustment mechanism (CBAM) on carbon-intensive imports from countries which are not members of the club. Using a hypothetical club between the U.S. and the EU, we estimate $520 billion could be generated through a domestic tax and up to $220 billion from a CBAM if placed on all imports.

The aggregated plans announced in the Paris Agreement for emissions reductions aren't ambituous enough and more needs to be done. We look at some options.

Global Carbon Markets - CitiGPS

Solving the Emissions Crisis Before Time Runs Out

The focus on emissions and climate change is likely to reach new heights this November with the advent of the UN Climate Change Conference (COP26) in Glasgow. But while we might all be aware of the big picture, the rise of “net zero,” and the many climate acronyms popping up daily, do we really know where we are now, what the current plans in place — if delivered upon — would achieve, and what the plan to get to net zero actually is?

Global Carbon Markets

Anthony Pettinari

Michael Bilerman

Ravi Shankar

Roger Ashworth

Bryan Burgmeier

Asher Sohnen

Eric Lau

Ami Galla

Thais Alonso

Renata Cabral

Yijing (Alice) Cai

Nicholas Joseph

Andrew Mazini

In the lead up to the 2021 UN Climate Change Conference (COP26), media channels are full of content highlighting both the issues and the challenges surrounding climate change. Agencies such as the Intergovernmental Panel on Climate Change (IPCC) warn that global warming will exceed 2&deg;C during the 21st century. They believe achieving the goals of the 2015 Paris Agreement will soon be &ldquo;beyond reach&rdquo; unless rapid and deep emissions reductions in CO2 and other greenhouse gases (GHGs) occur in the next decade.
Others argue over who is ultimately responsible for reducing GHG emissions &mdash; countries who are currently the biggest emitters or countries who have emitted the most emissions cumulatively? In the Citi GPS report <a href="https://www.citivelocity.com/citigps/global-carbon-market/" data-link-source="tiny">Global Carbon Markets</a>, we argue climate change is a global problem that requires a global solution and international cooperation. In a variety of Citi GPS reports we have also discussed direct ways to decarbonize the planet &mdash; switching to electric vehicles; removing carbon dioxide from the air via carbon, capture, and storage (CCS) or direct air capture (DAC); changing the fuels we use for transportation; and using green inputs when we manufacture goods. One of the largest carbon-emitting industries is the building sector. Building construction and operations accounted for 39% of global CO2 emissions in 2017, with operational carbon (i.e., the amount of carbon emitted during the daily use and maintenance of a home) accounting for 28% of total CO2 emissions. As we look for ways to decarbonize the planet, what if we could build a net zero emissions home? The aim of our new Home of the Future series is to examine how the housing market can harness technological and financial innovations to make homes greener, smarter, more affordable, and more accessible to home buyers. This first report looks specifically at what is needed to build, operate, and maintain a home with net zero emissions. Cutting back on electricity use is the biggest way to move the needle on reducing a home&rsquo;s emissions. Opportunities to do so include replacing electric heating systems and water heaters with air source heat pumps and heat pump water heaters, respectively; installing insulation; upgrading to energy efficient lighting; installing smart thermostats; and replacing inefficient windows. We provide case studies around these opportunities that look at the cost to a homeowner of installation, the potential payback period, and the expected emissions savings that would result from the upgrades. In aggregate, our case studies present an upfront cost of around $66,000 to the homeowner could effectively bring an average U.S. home to net zero emissions. Looking &ldquo;outside the four walls,&rdquo; as power generation transitions away from the use of fossil fuels as energy sources, indirect carbon emissions from electricity usage by the residential sector should decline. In addition, household size (i.e., the number of inhabitants in a house) is a large determinant of residential emissions and global population shifts toward more densely populated areas and multifamily communities will also help decrease emissions.Authors: Anthony Pettinari,Roger Ashworth,Thais Alonso,Michael Bilerman,Bryan Burgmeier,Renata Cabral,Yijing (Alice) Cai,Ami Galla,Nicholas Joseph,Andrew Mazini, CFA,Adam Phillips,Ravi Shankar,Asher Sohnen,Eric Lau,

Framing the Carbon Issue in Housing Globally, residential buildings are responsible for 6% of direct carbon emissions and 11% of indirect emissions. To moves towards a net zero housing sector, both operational emissions (i.e., those emitted during daily use and maintenance of the home) and embodied emissions (i.e., those emitted during the building and eventual deconstruction of the home) need to be considered.

Globally, residential buildings are responsible for 6% of direct carbon emissions and 11% of indirect emissions. To moves towards a net zero housing sector, both operational emissions (i.e., those emitted during daily use and maintenance of the home) and embodied emissions (i.e., those emitted during the building and eventual deconstruction of the home) need to be considered.

Framing the Carbon Issue in Housing

Capital Markets Are Starting to Address Financing Needs for Net Zero Homes Creating energy-efficient homes for the future is dependent on significant financing. Given the size and diversity of the housing stock, it will take an equally diverse range of initiatives to achieve a lower carbon footprint. Green bond issuance his $255 billion in 2019, up 49% from 2018. Within that, securitization was one of the largest components of the $27 billion. Securitization of solar leasing is also a rising share of overall "green" non-mortgage asset-backed security (ABS) issuance.

Creating energy-efficient homes for the future is dependent on significant financing. Given the size and diversity of the housing stock, it will take an equally diverse range of initiatives to achieve a lower carbon footprint. Green bond issuance his $255 billion in 2019, up 49% from 2018. Within that, securitization was one of the largest components of the $27 billion. Securitization of solar leasing is also a rising share of overall "green" non-mortgage asset-backed security (ABS) issuance.

Capital Markets Are Starting to Address Financing Needs for Net Zero Homes

Mapping the Key Opportunities Inside the Four Walls Six key opportunities could be the largest needle movers in terms of saving electricity and ultimately reducing carbon emissions: (1) heat pumps, (2) insulation, (3) lighting, (4) smart thermostats, (5) water heaters, and (6) windows. Together, they could generate electricity savings in the U.S. of 273 terawatt hours (TWh) per year and could signify savings of ~126 million tonnes of carbon emissions nationally.



Six key opportunities could be the largest needle movers in terms of saving electricity and ultimately reducing carbon emissions: (1) heat pumps, (2) insulation, (3) lighting, (4) smart thermostats, (5) water heaters, and (6) windows. Together, they could generate electricity savings in the U.S. of 273 terawatt hours (TWh) per year and could signify savings of ~126 million tonnes of carbon emissions nationally.



Mapping the Key Opportunities Inside the Four Walls

Turning Old Homes into Net Zero Homes We look at seven individual case studies that present opportunities for existing home owners to replace brown technologies with green technologies in their home. Given a typical suburban home in the U.S. emits ~10 tons of carbon dioxide per year, we calculate an upfront cost of ~66,000 to the homeowner could effectively bring an average U.S. home to net zero.

We look at seven individual case studies that present opportunities for existing home owners to replace brown technologies with green technologies in their home. Given a typical suburban home in the U.S. emits ~10 tons of carbon dioxide per year, we calculate an upfront cost of ~66,000 to the homeowner could effectively bring an average U.S. home to net zero.

Turning Old Homes into Net Zero Homes

Framing the Carbon Issue in Housing Globally, residential buildings are responsible for 6% of direct carbon emissions and 11% of indirect emissions. To moves towards a net zero housing sector, both operational emissions (i.e., those emitted during daily use and maintenance of the home) and embodied emissions (i.e., those emitted during the building and eventual deconstruction of the home) need to be considered. Capital Markets Are Starting to Address Financing Needs for Net Zero Homes Creating energy-efficient homes for the future is dependent on significant financing. Given the size and diversity of the housing stock, it will take an equally diverse range of initiatives to achieve a lower carbon footprint. Green bond issuance his $255 billion in 2019, up 49% from 2018. Within that, securitization was one of the largest components of the $27 billion. Securitization of solar leasing is also a rising share of overall "green" non-mortgage asset-backed security (ABS) issuance. Mapping the Key Opportunities Inside the Four Walls Six key opportunities could be the largest needle movers in terms of saving electricity and ultimately reducing carbon emissions: (1) heat pumps, (2) insulation, (3) lighting, (4) smart thermostats, (5) water heaters, and (6) windows. Together, they could generate electricity savings in the U.S. of 273 terawatt hours (TWh) per year and could signify savings of ~126 million tonnes of carbon emissions nationally.

 Turning Old Homes into Net Zero Homes We look at seven individual case studies that present opportunities for existing home owners to replace brown technologies with green technologies in their home. Given a typical suburban home in the U.S. emits ~10 tons of carbon dioxide per year, we calculate an upfront cost of ~66,000 to the homeowner could effectively bring an average U.S. home to net zero.

Housing generates a large amount of carbon emissions. We look at ways to improve construction and operations and create a net zero emission home.

Home of the Future - CitiGPS

Building for Net Zero

One of the largest carbon-emitting industries is the building sector. Building construction and operations accounted for 39% of global CO2 emissions in 2017, with operational carbon (i.e., the amount of carbon emitted during the daily use and maintenance of a home) accounting for 28% of total CO2 emissions. As we look for ways to decarbonize the planet, what if we could build a net zero emissions home?

Home of the Future

Helen Krause

Nardin Baker

Jamie Coats

Ana Vaz

This report represents an exciting collaboration between Citi and SOPHIA Oxford, which was formed by Oxford University as a not-for-profit partner of the Oxford Poverty and Human Development Initiative (OPHI). Over the past decade, OPHI has developed the field of multidimensional measurement, focused primarily on poverty and well-being, expanding its research and social policy uses. The OPHI multidimensional poverty approach has been adopted in official measures of poverty by the United Nations Development Programme, the World Bank, and more than 30 countries.
In this report, Citi&rsquo;s researchers and data scientists have partnered with the SOPHIA Oxford team to help bring this world class methodology more broadly to the business world. Eliminating poverty and reducing inequalities can deliver substantial growth, and the private sector has a key role to play in making this happen. The good news is that investors are increasingly embracing the UN SDGs and aligning their investment strategies to the 17 goals. The challenge is for these funds to be effectively targeted and their impact measured. This is more important than ever as the world starts to recover from the COVID-19 crisis because the pandemic has increased the gap to achieving several SDGs, including SDG 1 &mdash; No Poverty.
We provide an overview of measures of poverty in the global economy and then address how the OPHI methodology allows for more nuanced and effective interventions, which can drive both economic growth and social inclusion. We include case studies of where the OPHI approach has been used successfully at a country level and at the corporate level, and in the last chapter we propose using it to harness finance to realize the ambition of SDG 1.
We hope you gain fresh insights from this Citi GPS report and are challenged to consider how you can support the adoption of SDG 1. We look forward to sharing the results of the collaboration between Citi and SOPHIA Oxford in future reports and events.
<h3 class=""> Authors: Jason Channell,Ying Qin,Helen Krause,Nardin Baker,Jamie Coats,Ana Vaz,</h3>

The Importance of a Multidimensional Approach in Tackling SDG 1

The first of the United Nation’s Sustainable Development Goals (UN SDGs) is to end poverty. While one of the benefits of globalization over the past 30 years has been the reduction in absolute rates of poverty worldwide, poverty is often still simply measured in terms of income levels. Yet poverty is multifaceted and reflects more than a deficiency of income and productive resources. It encompasses economic, social, cultural, and political elements and is inherently interwoven with a lack of fundamental human rights. According to the UN, its manifestations include hunger and malnutrition, inequality, social discrimination and exclusion, deprivation, inadequate access to education and basic services, as well as lack of participation in decision-making. To make progress towards poverty reduction, we need to consider ways to mobilize more investors and businesses to adopt this goal.

Eliminating Poverty

Citi GPS

Citi GPS has tackled a range of themes over the past 11 years, but sustainable investing is one that we find ourselves frequently returning to. The rise of environmental, social and governance (ESG) investing has revolutionized capital markets as investors increasingly recognize the need to fund technologies required to help markets evolve towards decarbonization.
 Growth in ESG funds under management has also been driven by a change in how people think about their effect on the planet and by a generational shift in attitudes, which increasingly focus on &ldquo;doing good&rdquo; in addition to making money. As these investors look for investment opportunities, they are focusing their money towards sustainable investment. Another type of investing &mdash; impact investing &mdash; has also gained popularity as the flow of funds into ESG-type investments increases. Impact investing goes beyond ESG investing as the investment must not only target impactful activities, but also be impactful in and of itself. This sounds simple, but there is a big debate on how to measure impact as well as the ways in which an investment can be impactful. The recent focus on impact investing has shifted the conversation from focusing solely on the risk and return of an investment, towards focusing on risk, return, and outcome. Investors are increasingly interested in the real world effects of their investments more broadly and they want to understand the outcomes of their investment activities. Measuring the impact of investing activities requires quality data. New vendors have come to the market that are able to process large amounts of information at scale and provide &ldquo;inferred&rdquo; data on what a company actually does on the ground. This marks a shift from when investors could only access &ldquo;disclosed&rdquo; data, based on what a company says it does. With a growing body of investors interested in the outcome footprint of their investments across the board, rigorous ways to think about these footprints will be extremely useful. Citi&rsquo;s ESG team believes taxonomies will play a significant role in developing impact awareness and provides a useful framework to attribute economic activities to investment. Once the analysis for all economic activities has been mapped, investors can both quantify and visualize how a portfolio might look. The team proposes building a global taxonomy using the UN Sustainable Development Goals as an underlying framework, which will help aggregate visibility across global portfolios. As Sir Ronald Cohen notes in the report&rsquo;s foreword, &ldquo;There is more than enough capital tied up in the ESG market to generate the changes we need. The problem is directing that capital effectively to where it can bring the greatest improvement.&rdquo; Strengthening impact transparency is a step towards progress.Authors: Edward McKinnon,Anita McBain,Adam Phillips,Georgina Smartt,Hayley McGuinness,Helen Krause,Harlin Singh Urofsky,

Impact Awareness on the Rise Investors beyond the impact investing space are increasingly interested in developing "impact awareness," or a better understanding of the environmental and social outcomes associated with their investments.

Investors beyond the impact investing space are increasingly interested in developing "impact awareness," or a better understanding of the environmental and social outcomes associated with their investments.

Impact Awareness on the Rise

Evolving Investor Practices Traditionally, many investors have sought to "avoid doing harm" through their investments,. however, investors are increasingly also trying to align their portfolios around certain outcomes and invest in solutions, without engaging in impact investing per se.

Traditionally, many investors have sought to "avoid doing harm" through their investments,. however, investors are increasingly also trying to align their portfolios around certain outcomes and invest in solutions, without engaging in impact investing per se.

Evolving Investor Practices

Evolving Data Landscape Previously, investors would rely on non-mandatory company disclosures (i.e., what a company says it does) to assess environmental, social, and governance (ESG) performance. However, technological advancements have enabled a shift toward using "inferred" information from external data sources (i.e., monitoring what a company actually does), with the aim of cross-validating companies' behavior with data on the ground.

Previously, investors would rely on non-mandatory company disclosures (i.e., what a company says it does) to assess environmental, social, and governance (ESG) performance. However, technological advancements have enabled a shift toward using "inferred" information from external data sources (i.e., monitoring what a company actually does), with the aim of cross-validating companies' behavior with data on the ground.

Evolving Data Landscape

Measuring Impact Using the UN Sustainable Development Goals (SDGs) as a framework for Citi's Global Taxonomy, we did not find a strong correlation with performance suggesting all companies with positive exposure to the SDGs outperformed those with negative exposure. However, we did find that those with high upside exposure to the SDGs outperformed those with high downside exposure.

Using the UN Sustainable Development Goals (SDGs) as a framework for Citi's Global Taxonomy, we did not find a strong correlation with performance suggesting all companies with positive exposure to the SDGs outperformed those with negative exposure. However, we did find that those with high upside exposure to the SDGs outperformed those with high downside exposure.

Measuring Impact

Impact Awareness on the Rise Investors beyond the impact investing space are increasingly interested in developing "impact awareness," or a better understanding of the environmental and social outcomes associated with their investments. Evolving Investor Practices Traditionally, many investors have sought to "avoid doing harm" through their investments,. however, investors are increasingly also trying to align their portfolios around certain outcomes and invest in solutions, without engaging in impact investing per se. Evolving Data Landscape Previously, investors would rely on non-mandatory company disclosures (i.e., what a company says it does) to assess environmental, social, and governance (ESG) performance. However, technological advancements have enabled a shift toward using "inferred" information from external data sources (i.e., monitoring what a company actually does), with the aim of cross-validating companies' behavior with data on the ground. Measuring Impact Using the UN Sustainable Development Goals (SDGs) as a framework for Citi's Global Taxonomy, we did not find a strong correlation with performance suggesting all companies with positive exposure to the SDGs outperformed those with negative exposure. However, we did find that those with high upside exposure to the SDGs outperformed those with high downside exposure.

Investors beyond the impact space are starting to consider impact. What is impact investing and how can taxonomies be used to help measure impact.

Investing for Outcomes - CitiGPS

Why Impact Is Relevant Beyond Impact Investing

The recent flow of funds into ESG0-type financial products has prompted investors beyond the impact investing space to consider impact and try and understand its boundaries. Impact investing goes beyond ESG investing as the investment must not only target impactful activities, but also be impactful in and of itself. This sounds simple, but there is a big debate on how to measure impact as well as the ways in which an investment can be impactful.

Investing for Outcomes

<h3 style="box-sizing: inherit; margin: 0px 0px 0.5rem; padding: 0px; line-height: 1.4; text-rendering: optimizelegibility; font-size: 1.25rem; background-color: #ffffff;">What comes to mind in a discussion about greenhouse gas (GHG) emissions? A dirty factory smokestack spewing out brown smoke or a car idling in traffic on a highway pumping out exhaust fumes? Looking through media articles on the effects of GHG emissions on climate change, the associated images are typically of cars, buses, and factories polluting the environment. These images link the use of fossil fuels with activities that endanger the environment. From a public policy standpoint, mitigation measures for emissions also focus on fossil fuels. Government actions to reduce climate footprints focus on renewable energy to replace coal and gas-powered electricity generation and electric vehicles to replace internal combustion engines.</h3>
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Only occasionally, it seems, the focus strays from fossil fuels to methane emissions from cows. But images of green farmland are not what comes to mind when thinking about harmful emissions. Unfortunately, the global food system&mdash; agriculture and food production collectively &mdash; is responsible for one-third of global greenhouse gas emissions. This means a global solution to climate change must also address how the world produces and distributes food to its population. As the population of the world and the demand for food increase, the need to find solutions for mitigating emissions from the global food system becomes even more important.
The two largest sources of emissions from the global food sector are from deforestation, particularly land clearing for crop production or pasture for cattle farming, which release carbon dioxide; and enteric fermentation, which emits methane during the production of meat. Emissions are also found through the full food supply chain, including in processing, transportation, and household consumption.
<h4 style="box-sizing: inherit; margin: 0px 0px 0.5rem; padding: 0px; line-height: 1.4; text-rendering: optimizelegibility; text-transform: uppercase; font-size: 1.125rem; background-color: #ffffff;">SOLUTIONS FOR MITIGATING EMISSIONS</h4>
Given the complexity of the global food ecosystem &mdash; not just in overall size of the system but in the number of players &mdash; there is no single solution to reducing emissions. In the report that follows, we look at six potential solutions to this challenge. These include (1) regenerative agriculture, (2) low carbon livestock, (3) halting deforestation, (4) reducing food waste, (5) investing in low carbon technology to decarbonize energy-related emissions, and (6) investing in innovation.
<img class="alignnone size-full wp-image-11270" style="box-sizing: inherit; border-width: 0px; vertical-align: middle; display: inline-block; max-width: 100%; margin-bottom: 30px;" src="https://icg.citi.com/rcs/icgPublic/storage/public/Fig-33-Reducing_GHG_Emissions_v1.png" alt="" width="100%" height="auto" />
Implementing just the first four solutions noted above could lead to emissions mitigation of between 6.9 gigatonnes of carbon dioxide equivalent (GtCO2e) and 8.1 GtCO2e, or between 58% and 68% of current levels of equivalent emissions from the global food system. This would be an enormous step towards reducing emissions to net zero.
<h4 style="box-sizing: inherit; margin: 0px 0px 0.5rem; padding: 0px; line-height: 1.4; text-rendering: optimizelegibility; text-transform: uppercase; font-size: 1.125rem; background-color: #ffffff;">COORDINATION IS KEY</h4>
Bringing mitigation solutions to life will require coordination between companies, governments, and consumers. Financial institutions will also play a key role by providing options to meet the estimated $300 billion to $400 billion required for this transformation. Research organizations and international institutions also have an important role in supporting change.
Authors: Elizabeth Curmi,Jason Channell,Ying Qin,

The Global Food System and Climate Change The global food system has far-reaching impacts on climate, emissions, nutrition, and livelihoods. It has also altered our planet more than any other human activity. Food insecurity is a large and growing concern, but it cannot be solved for without reducing greenhouse gas (GHG) emissions and addressing the effects of climate change.

The global food system has far-reaching impacts on climate, emissions, nutrition, and livelihoods. It has also altered our planet more than any other human activity. Food insecurity is a large and growing concern, but it cannot be solved for without reducing greenhouse gas (GHG) emissions and addressing the effects of climate change.

The Global Food System and Climate Change

Finding Solutions and Taking Action We explore six solutions for reducing GHG emissions, including four — regenerative agriculture, low carbon livestock, halting deforestation, and reducing food waste — that could mitigate almost 70% of current emissions. Companies, governments, and consumers can take specific actions to help implement these solutions. Collaboration is key, and financial institutions, research organization, and international institutions play critical roles in supporting change. These solutions can also work towards UN Sustainable Development Goals by achieving benefits such as safeguarding biodiversity and improving livelihoods, all of which would lead to greater food security.

We explore six solutions for reducing GHG emissions, including four — regenerative agriculture, low carbon livestock, halting deforestation, and reducing food waste — that could mitigate almost 70% of current emissions. Companies, governments, and consumers can take specific actions to help implement these solutions. Collaboration is key, and financial institutions, research organization, and international institutions play critical roles in supporting change. These solutions can also work towards UN Sustainable Development Goals by achieving benefits such as safeguarding biodiversity and improving livelihoods, all of which would lead to greater food security.

Finding Solutions and Taking Action

The Global Food System and Climate Change The global food system has far-reaching impacts on climate, emissions, nutrition, and livelihoods. It has also altered our planet more than any other human activity. Food insecurity is a large and growing concern, but it cannot be solved for without reducing greenhouse gas (GHG) emissions and addressing the effects of climate change. Finding Solutions and Taking Action We explore six solutions for reducing GHG emissions, including four — regenerative agriculture, low carbon livestock, halting deforestation, and reducing food waste — that could mitigate almost 70% of current emissions. Companies, governments, and consumers can take specific actions to help implement these solutions. Collaboration is key, and financial institutions, research organization, and international institutions play critical roles in supporting change. These solutions can also work towards UN Sustainable Development Goals by achieving benefits such as safeguarding biodiversity and improving livelihoods, all of which would lead to greater food security.

Creating Sustainable Food Systems for a Net Zero Future

What comes to mind in a discussion about greenhouse gas (GHG) emissions? Food, agriculture, and climate change are inextricably linked – not only is the sector one of the largest contributors of greenhouse gas (GHG) emissions, but conversely, climate change will have a detrimental impact on food production in many regions. 

Food and Climate Change

P.J. Juvekar

Zoe Whitton

Paul L Bradley

Randy Toth

Ephrem Ravi

Kendall Marthaler

Kara J Enomoto

Eric B Petrie

Alexander Hacking

Kgosietsile S Rahube

Daniel Kang

Jakob Cakarnis

While the principle of resource conservation is undoubtedly good, recycling systems currently implemented across the globe vary widely in terms of basic structure, incentives, and scope. Many recycling systems are publicly run, others are completely outsourced to private parties, while still others use a hybrid public/private approach. Recycling systems also vary widely in terms of basic effectiveness. Despite the good feelings consumers get tossing items into the right color-coded bin, many of these items are not truly recycled &mdash; they are simply collected, and ultimately end up in landfills, being incinerated, or worse yet, littered. This is because the cost of recycling materials is often not competitive with virgin materials, which are typically cheaper and also offer better performance characteristics.
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Recycling systems have always grappled questions around profitability and ownership: What products should get recycled? Which governmental authority should mandate it? How much are consumers willing to subsidize it? However, one recent seismic policy change has thrown global recycling systems into chaos: China's decision to effectively ban the importation of half of the world&rsquo;s scrap plastic, paper, and metal. This drastic policy change has made recycled (i.e., scrap) materials in North America and Europe incredibly cheap &mdash; now instead of getting paid for their recycled material, many municipalities have to pay to haul away what is essentially garbage.
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Recycling systems are not harmonized at the global, national, or even regional level, but rather are hyper-local &mdash; resulting in a patchwork of public, private, and hybrid systems. That said, with global consumers, corporates, and governments demanding higher environmental standards, some solutions are emerging. In this report we examine the relative pros and cons of recycling solutions including container deposit schemes, &lsquo;pay as you throw&rsquo;, and recycled content pledges, and think about what it will take to finally &lsquo;close the loop&rsquo;.
 Authors: Anthony Pettinari,Bryan Burgmeier,Randy Toth,Asher Sohnen,P.J. Juvekar,Kendall Marthaler,Kara J Enomoto,Eric B Petrie,Paul L Bradley,Alexander Hacking, CFA,Zoe Whitton,Kgosietsile S Rahube,Ephrem Ravi,Oscar Yee,Eric Lau,Daniel Kang,Thomas P Wrigglesworth,Edward McKinnon,Jakob Cakarnis,

Finding a Global Solution to the Patchwork of Recycling

The ~$40 trillion global consumer economy is incredibly diverse and shaped by significant political and cultural differences. However there is one belief consumers in all regions and sectors of the global economy seem to share — recycling is good. Whether it’s a shop owner in Brazil putting out recycling bins for her customers, a homemaker in Europe sorting cans, bottles, and paper into colored bins, or a local elected official in the U.S. touting the benefits of a new curbside collection program, economic decision-makers get a sense of satisfaction in recycling, feeling they are making a difference and passing on a better world to the next generation.

Closing the Loop on Global Recycling

Val Smith

Rupert Rink

In response to this attention, the information available regarding the market impact of climate change has improved markedly, which in turn helps drive improving visibility of the problem. Historically, the quality of information on climate change (regarding both its possible impacts and the exposure of market participants to said impacts) has been very poor. As such, a number of initiatives are under way to improve information access and thinking on the topic. Not least among these are the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD), which outline ideal disclosures regarding climate risk. Thanks in part to these recommendations, the information available to market participants is improving rapidly. However, we argue that markets are still a distance from being able to think properly about climate-related risks and opportunities. In our view the TCFD recommendations have two goals: to prompt companies to manage and reduce their individual risk (company risk reduction), and to allow the market to price risk (market risk reduction). However, we think that at present only one of these two goals is being satisfied. The current highly-flexible approach to TCFD disclosures supports the first goal (reducing company risk), as companies can demonstrate their competence by selectively choosing what to assess and disclose. However, disclosures are not presently comparable, and as such the second goal (reducing market risk) is in our view a long way from being satisfied. A holistic system-level picture of risk (including, for example, the sovereign level) is still well out of reach given existing disclosures. In this report, we outline the disclosures which need to be improved to achieve the market risk management goal, noting that specific financial disclosures with specific timelines and outputs are important if market risk is to be managed. We outline a set of disclosures principles which we think satisfy both goals, an endeavor we hope will contribute to more clarity and comparability among TCFD disclosures. We are aware that we are merely one of a score of organizations opining on the topic, and we expect that best practice will change. However, the list we have included here specifically targets improvement on the goal which is presently least served &mdash; market risk. Finally, we note the ultimate underlying goal for an increasing number of market participants is decarbonization &mdash; the transition of global and regional economies to less carbon-intensive modes of operation. Smooth decarbonization is widely considered to be the lowest climate risk scenario available &mdash; minimizing the risk presented by economic change, while also minimizing climate change impacts themselves. At present, we think a growing number of stakeholder and disclosure requests are driven by a desire for companies and investors to take some responsibility for decarbonization. As a larger portion of the financial and regulatory system becomes focused on this goal, we expect market emphasis on decarbonization among investors and companies will only grow. Authors: Zoe Whitton,Edward McKinnon,Rupert Rink,Val Smith,

What the Markets Need to Price Climate Risk

 Financial markets and climate change are two topics which were traditionally seen by some as only vaguely related. However, parts of financial markets are and will continue to be profoundly affected by climate change in one way or another. Furthermore, financial markets are increasingly considered to play a key role in the transition of economies to lower emissions states — a process which will ultimately reduce the human and economic risk presented by climate change. These interactions have prompted regulators, governments, and investors the world over to focus increasingly on climate change — the futures it might present, the risks and opportunities embedded in these futures, and the impacts of these on the many companies, projects, and activities which make up any given economy.

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