Lecture 9 - Sustainable Financing

Session 9 –
Sustainable Financing
September 2023
The investor perspective
Sustainability as The financing universe
Competitive
Agenda
Overview of investment needs by sector
Advantage
Copyright © 2022 by Boston Consulting Group. All rights reserved.

Deep dive: Financing nature-based solutions
2
Sustainable investing means
managing assets through one or
multiple ESG strategies / approaches
3
Overview of key Sustainable Investing approaches for asset managers
1 Exclusions
For specific assets – reflection of "client values" For all assets1 Excluding issuers with negative ESG impact (e.g.,
tobacco, O&G) or controversies (e.g., UNGC violation)
4 5 6
2 Best-in-class
Impact investing Selecting companies or tilting entire portfolios towards
ESG integration
higher ESG performance
3
Engagement
Thematic funds 3 Thematic funds
Using sustainability themes (e.g., climate) as basis for
allocation towards industry sectors or companies
2

Best-in-class 4 Impact investing
Investing in entities that have intention to generate ESG
impact alongside a financial return
1
Exclusions 5 ESG integration
Systematically and explicitly integrating ESG factors into
traditional investment analysis and decision-making
6 Engagement
Using dialogue, voting, and other shareholder actions to
urge issuer to improve ESG practices
1. "ESG integration" applicable to actively managed funds; "Engagement" applicable to corporate issuers
Source: GSIA, UNPRI; BCG analysis 4
Concrete examples of Sustainable Investing approaches
For all
assets1 ESG integration Engagement
100% integration Engagement with all

in active AuM issuers in EQ and FI

For specific
assets –
Exclusions
reflection of Best in class Thematic Impact
on sectors
"client values"
Fossil fuel – Fund with top 5% Renewables SDGs
free fund of ESG performers fund fund
1. "ESG integration" applicable to actively managed funds; "Engagement" applicable to corporate issuers
Source: BCG analysis 5
Sustainability is an increasingly important component of investor
analysis as financial impacts become more tangible
Companies see an Quantifying value Trends evidence certain

Investors are factoring opportunity to generate of sustainability can positive TSR & valuation
in sustainability data returns & reduce risks be a challenge in green businesses
Investors with over $30T Generate returns: Four reasons make it hard • Impact centered
AUM support climate risk • New / shifting profit to quantify sustainability around new / shifting

disclosures pools impact profit pools
• Government-led • Gain / protect market • Materiality • Positive trending in
policies share • Data quality easier-to-abate
• Reporting initiatives sectors, negative
Reduce risks: • Timeframe
trending in harder-to-
• Scoring standards • Cash expenses of CO2 • False correlations abate sectors
• Investor coalitions • Resource scarcity
6
Sustainability initiatives create value by generating new sources of
growth or protecting against risks, thus building resilience
Generate returns and grow Risk to future profitability
Participate in emerging, growing Large & increasing risks and expenses of

profit pools externalities, e.g., CO2 and regulations

Gain and protect market share as Avoid risk of resource scarcity (e.g.,
customers prioritize sustainability materials, CO2 offsets)
Two competitive 1 Sustainable leadership position in growing profit pools

advantages that frame
investment thesis 2 Structurally lower relative potential cost bases
7
"Spending other people's money": Investors weigh ESG & climate in
business performance, not a blanket priority
of investors ranked climate (and other

Only investors use dedicated ESG data in
environmental risks) among their top-3 1 in 3
5% risks (ranking 11th among macro concerns)
decision making
Fewer of investors rank conflicts between ESG

of investors are actively considering ESG

and financial performance or unclear
than in their day-to-day investing decisions 67% financial benefits of ESG as top-2 reason
½ (46%, 2 %-point increase from 2019)2
for not more strongly considering ESG2
Companies need to define clearly which sustainability topics matter, and how those topics align with corporate
purpose. We look for companies that target 3-5 critical issues and track progress seriously”
-Marcie Frost, CEO of CalPERS
1. Including 5% highlighting "climate and carbon footprint" (15 th), 5% indicating "material social factors and stakeholder
impact" (16th), and 1% referring to "other material environmental factors" (18 th) 2. Based on 2021 BCG Investor Survey 8
Source: BCG’s Investor Pulse Check series, January 31, 2022 (n = 150)
Investors want companies to:
Share a point of view on material ESG factors in their
businesses and the robust processes used to derive them
Investors buy into Share their overall purpose, ESG strategy and narrative, and
sustainability specific and measurable ambitions for material ESG factors
vision when Establish an action plan to embed ESG in the business and
efforts have a improve performance
strong narrative Articulate how ESG will be ingrained into the organization

and are well- (governance, incentives, capability, data, reporting)
reported Companies need to define clearly which sustainability topics

matter, and how those topics align with corporate purpose.
Don't tell me you're doing everything. We look for companies
that target 3-5 critical issues and track progress seriously"
— Marcie Frost, CEO of CalPERS
9
Private investors increasingly factor in decarbonization in
investment decisions
From our work, we know that PE firms…
…began to include carbon risks and opportunities as part of The next 1,000 billion-
portfolio assessment to get to a carbon-adjusted valuation
dollar start-ups will
…have aligned on a data initiative association (EDCI) to be those “that help the
standardize a set of ESG metrics and mechanisms for world decarbonize
comparative reporting

and make the energy
…see acting on carbon today as a likely high NPV strategy transition affordable for all
consumers”
…anticipate exit premia for companies that decarbonize &
penalties for those with insufficient decarb progress - Larry Fink,
Blackrock CEO
Source: ESG Data Convergence Initiative; BCG analysis 10

Communications with >3 features of a strong announcement boost
performance; weaker announcements can have negative effects
Features of a strong sustainability announcement Comprehensive announcements boosted
rTSR vs. incomplete announcements
1. Tangibly illustrate advantage created from actions
Assessment of 14 climate & sustainability announcements
through examples / testimonials
N
2. Make it real by showing material and measurable
impact with well-defined, 3rd-party-verified targets
Covered 4-5
5 features
0.9
3. Fund the journey by connecting ambition to financial

plans (capital, revenue, and operational improvements)
Covered 3
4 features
0.1
4. Emphasize financial benefits / risks and value

creation potential
Covered 0-2
5 features
-2.1
5. Develop and deliver a strong, crisp sustainability

narrative & investment thesis across channels
Average rTSR on the day of announcement (%)
Exhibit 4: Relative TSR versus peers on day of announcement 11

Strong sustainability announcements are further supported when
companies establish credibility by displaying 3 features
Honest ambition Proven achievements Clear accountability
Transparent reduction targets - Successful past reductions Globally accepted ratings and

ambitious in company context disclosure standards
History of sustainable company
Understandable and tangible culture Supportive corporate
initiatives governance
Resilient portfolios based on Products that support climate

scenario analyses solutions Public commitments and
cooperation
12
Competitive
Agenda
Advantage

13
Climate finance can be disaggregated in two components – we focus on
"climate-aligned finance"
“Climate-Aligned Finance” “Adaptation Finance”
Climate Change Mitigation Climate Change Adaptation
A Zero-carbon or near-zero C Adaptation initiatives

carbon activities (typically promoting the climate
referred to by market as resilience of infrastructure as
“green”) well as of social and economic
assets more broadly2

B “Transition activities” that
contribute to transition to net-
Often excluded zero emissions economy but not
from today’s market currently close to net-zero
definitions of carbon1: Associated financing
sustainable finance typically referred to by market
as “Transition Finance”
1. Defined as per definition in EU taxonomy; should show trajectory of performance that aligns with Paris Agreement-aligned transition pathways 2. As per ICMA definitions 14
Transition to net zero will unlock massive flow
Global Climate Financing Need (US$ T)
of green capital over next decades …
10
7
$100-150T $3-5T 5
Avg. annual investment
Total climate-aligned
needs to decarbonize 2
accumulated investments
the World's economy 1
for the next 3 decades 1 0
20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50
… while high emitters will have reduced access
to capital and fact significant credit risks

• Investment is expected to be
frontloaded until 2035, peeking
$10T/yr by ~2030
~2x 5 • Investments will reach all
Increase in rated debt since 2015 for Additional industries classified by
"high" or "very high" environmental Moody's as facing "very high" sectors and regions of the globe,
environmental credit risks since
risk industries
(up 1.7x as a % of all debt) 20201 in different levels
1. Coal mining and terminals "very high" risk in 2020; Chemicals, Mining, Exploration & Production, Integrated Oil &
Gas, and Refining & Marketing added in 2022 Source: Bloomberg; Moody's; GFMA and BCG Report – Climate Finance 15
Markets & The Real Economy Dec/2020; BCG analysis
Development of climate finance depends on an ecosystem of market
participants
Market Structure
The term “Climate
1 Instruments Equity Fixed Income Derivatives Structured Prod. 9 Stakeholders
Finance Market who influence
Structure (CFMS)” Lending Project Finance Securities Fin. Funds market actors
is used to
collectively define 2 Demand 3 Intermediary 4 Supply Civil Society
Capital Flow
the range of
financial market Corporates Banks Asset Owners Alliances
participants, Asset Managers Media
products and
Public Sector Asset Managers Public Sector
financial Think Tanks
instruments, Multilateral

policies and Multilateral Others Banks Researchers
regulations,
Academia
financial market
Governance
infrastructure, and 5 Policy-setting Environmental Industrial Fiscal Monetary

other enablers
(e.g., legal 6 Regulation Prudential Conduct Market Self-regulation
contracts) that
7 Financial Market Infrastructure 8 Enabling Functions
support capital
Primary Markets Research Legal Contracts Market and trade data
Enablers
markets activity
Secondary Markets Reporting
for climate ESG Data Technology
finance. Payments Risk Management
Settlement/Clearing Standards Ratings
16
Deep dive on financial instruments
Grants Debt Equity Special constructs

1 2
Public grants Public loans
Grants (without payback) e.g. by Loans by governments,
governments, DFIs1 agencies, and DFIs1
Public 3
Climate funds
Funds disbursing capital to climate-friendly projects Emission trading

Raising capital by trading carbon
4 6 credits or emission permits
Green bonds Green PE/VC
Bonds to finance projects with PE/VC funds focused on

positive ecological impact climate investments
5 7
Currency green bonds YieldCo
Green bonds listed at a foreign stock Attracting capital via SPV which
exchange only operates assets
Private
8
Bank loans Green ABS
Loans to finance green projects ABS with green underlying asset
Crowdfunding Efficiency contracting

Performance-based model,
Raising capital from a large number of people
contractor provides investment
1. Development finance institutions 17

Comprehensive view compares all attributes of the different financing options
Market attributes Instrument attributes Project attributes
Financial Market Market Typical Investment Cost of Cost and Investment Technology Typical Regional Typical
instruments size growth investors threshold capital requirement horizon stage industries presence example
All, esp. Devel'ing

Public grants 1 Gov'ts, DFIs Variable Variable
R&D countries
All
Public Public loans 2 Gov'ts, DFIs Variable
industries
World-wide
All, esp. Devel'ing

Climate funds 3 Gov'ts, DFIs Variable
energy countries
Inst. Infra-
Green bonds 4 World-wide
investors structure

Currency Inst. Infra-
5 Asia Pacific
green bonds investors structure
Inst. All Mostly NA,

Private Green PE/VC 6
investors industries EU
Inst. Unclear – North Am.,

YieldCo 7 Energy
investors too recent UK
Inst. Depends on Variable,

Green ABS 8 Asset-driven Mostly US
investors tranch e.g., solar
Small Low Low Low Low Short Early

Key
Large High High High High Long Late
18
Each attribute has a clear definition
Attribute Definition
Market size Market volume (in $ bn) to indicate marketability

Market
attributes Market growth Market volume growth (CAGR) to indicate current trends
Typical investors Typical investors which invest in the financial instrument, e.g. institutional investors, funds, private stockholders
Investment threshold Typical size of investment that is needed in order to use the financial instrument successfully
Cost of capital Cost of capital (interest rate in %) to indicate financial conditions

Finance

attributes
Set up cost and requirements One-time set up cost and qualitative requirements (legal, procedural, institutional) to indicate complexity
Investment horizon Typical instrument maturity to indicate timeframe
Technology stage Typical technology stage of project that is financed with the financial instrument
Industry Industries that regularly use this instrument

Project
attributes Regional availability Regional availability and establishment of financial instrument
Typical example Project examples that were financed with this instrument
19
Each attribute has a defined scale
Attribute Scale
≤$ $ 500m $ 2.5 bn $ 5bn- $ 10bn $ 25bn $ 50bn $ 75bn ≥ $100

Market size
500m -2.5bn - 5bn 10bn -25bn -50bn -75bn -100bn bn
Market Market growth over
≤ 0% 0-5% 5-10% 10-20% 20-30% 30-40% 40-50% 50-60% ≥70%
attributes last 3-5 years1
Banks, insurance companies, pension funds, hedge funds, REITs, investment advisors, endowments, and mutual funds, development banks, public
Typical investors
investors/governments, PE funds
Investment
Non-existent < $ 5m < $ 20m < $ 100m > $ 100m
threshold
Cost of capital None ≤ 5% 5-10% 10-20% ≥20%

Finance

attributes Set up cost and Low, e. g. mostly Medium, e. g. including High, e. g. including
requirements formal requirements collaboration with IBs asset transfer into SPV
≤1 1-3 3-5 5-7 7-10 10-15 15-20 20-30 ≥ 30
Investment horizon
year years years years years years years years years
Idea & Test Fully
Technology stage R&D First commercial use
first concept projects commercial
Industry
Project
attributes Regional
availability Only qualitative information
Typical example
1. Depending on data availability 20

Capital markets vision: evolution of climate finance market structure
Long-term sustainable
Mature
Growing Climate fully integrated
Nascent Well-established market into regular finance
Market mechanisms mechanisms; climate
Opportunistic innovation building out finance at scale
Carbon fully priced into all
Key regions have long-term economic markets, within a
National policies and industry- coherent policy framework,
Carbon not priced in most policy frameworks align on
level standards emerging providing economic motivation
markets; pockets of innovation climate, reinforce adoption and
globally; economics quantified
to internalize; economic common standards
All market mechanisms aligned
rationale incomplete Ubiquitous climate data with climate outcomes (e.g.,
Sector transition paths align
Well-aligned definitions and disclosure (supply and demand) taxonomies, data, standards
Unclear taxonomies; data Clear labelling of products ubiquitously aligned)

taxonomies; dataset standards
limited and not congruent, established across companies Climate data integrated across
inconsistent standards At-scale cross-sectoral
asset classes and platforms
partnerships with large-scale
(e.g., on exchanges, OTC, etc.)
Sub-scale climate finance Instruments to bridge demand- capital flow
Mismatch between supply and supply mismatch of capital Transaction cost parity for All relevant financial products
demand of capital Standard contracts to reduce climate-aligned products and services take into account
Innovative financial products transaction costs Climate integrated into core climate factors (incl. credit risk
but still niche; high transaction Fin products emerging at scale financial products, including assessment, pricing, investment
cost and admin burden Climate integration into risk/ derivatives and structured decision making, product
products in some regions products development, etc.)
21
Today 2025 2025-2030 2030+
Three core underlying root causes leading to an
underdeveloped climate finance market structure
Three core underlying root causes leading to an underdeveloped climate

finance market structure
Risk mispriced, not

Higher risk,
factored into investment
early stage technologies
decisions
Limited pipeline of Divergent ESG ratings,

Fear of greenwashing Unclear link between
investable projects unclear link of ratings to
climate & financial value
action
Limited economic Legacy Lack of capabilities and

High-risk capital demand,
motivation for climate carbon-intensive High transaction costs understanding of climate
low-risk capital supply
action activities still viable issue
Market failure: Ambiguity & Products sub-scale,

Carbon pricing lack of clarity capital mismatched
• Carbon not sufficiently priced in markets as • Inconsistent and incomparable ESG data— • Demand-supply mismatch on risk-profile of
an externality limited to mostly large corporates capital supply and demand
• Economics not providing motivation for • Unclear understanding of transition pathways • Financing solutions niche, limited
change by sector and region integration into “core” financing activity
• Limited public incentives, lack of long-term • Unclear understanding of sustainable finance • High transaction costs for climate finance
commitments, and policies creating products & solutions; unclear labelling products
uncertainty • Lack of common definitions & taxonomies for • Lack of widespread capability to integrate
• Unclear link between climate and climate/sustainable finance climate factors into products
financial/strategic value • Risk frameworks are short term and do not
• Insufficient demand for sustainable products account for climate risks
22
Competitive
Agenda
Advantage

23
A $100–150+ trillion investment need: sectoral insights and implications (I/III)
Sector Key decarbonization levers Key implications for climate finance

• Increase reliance on renewables (~$39T): high • Significant investment across value chain from power generation to transmission and distribution
Power upfront capex investments for renewable energy • Renewable energy commercially viable in several regions today, but long-tenor, project finance structures
generation needed to support high upfront capex needs
• Improve grid flexibility & reliability (~$17T): New • Need for high-risk/equity capital (e.g., in project equity or in storage solutions)
network connections, energy storage • Role for the financial sector beyond capital: engaging corporates customers through Corporate Power Purchase
• Invest in development of CCUS (~$3T): for coal Agreements, collaboration with the public sector for state-owned enterprises
(~$59T) power plants
• Increase use of recycled scrap steel (~$0.7T): • Constraints in industry with limited cash flow to cover cost of capital
Iron & Steel including buildout of EAF facilities • Financial sector support need with long-term finance structures and innovative funding options (e.g., funding
• Use of natural gas as reducing agent (~$1.0T): initiatives with border taxes or ETS sales)
installation of DRI-EAF facilities • Need for substantial bridge funding to support transition while net zero emission solutions become
• Switch to H2-based reduction (~$0.1T): substitute commercially viable
(~$2.3T) fossil fuels • Potential role for financial sector beyond capital by promoting cross-sectoral partnerships (e.g., for CCUS, H2
• Retrofit plants with CCUS (~$0.5T): R&D and based reduction)

installation of CCUS
• Invest in CCUS (~$1.1T): retrofits for existing cement • Near-term focus on developing commercial-scale pilots and demonstrating product readiness for CCUS;
Cement plant equipment investment contingent upon achievement of commercial viability or provision of concessionary capital (e.g.,
• Update plants with energy-efficient equipment public funding) where needed
(~$0.3T): including heat recovery • Existing players expected to primarily access debt markets to fund expansion and equipment upgrades, given
(~$1.5T) • Increase use of alternate fuels & binders (~$0.1T): mature nature of industry
switch from coal as fuel, reduce clinker
• Improve process & energy efficiency (~$0.2T): heat • Need for significant investment in early parts of chemicals value chain (~80% of emissions from extraction and
Chemicals recovery, industrial efficiency refining of feedstock)
• Use alternative fuel and feedstocks (~$0.9T): • Opportunity to partner across industries such as Oil & Gas, Transport, Aviation, Steel/Iron & Shipping that are
electrification, green hydrogen & ammonia expected to be involved in clean feedstock or fuels (e.g., Green Hydrogen, Green Ammonia, etc.)
production • Need expected to ramp up on R&D investment for chemicals with less mature ‘clean’ solutions
(~$2.2T) • Deploy CCUS (~$1.1T): large need expected for
production of blue hydrogen, and production in Asia
24
A $100–150+ trillion investment need: sectoral insights and implications (II/III)

• Develop electric vehicles (~$3.6T): R&D, conversion, • Strong dependency on public sector interventions to accelerate EV adoption - (e.g., taxes, fiscal incentives)
Light construction of factories for vehicles and • Opportunity to connect corporates across sectors for partnerships in charging infrastructure (e.g., Oil & Gas and
road transport components vehicle manufacturers)
• Develop electric 2/3 wheelers (~$0.2T): R&D, • Strong corporate commitments for EV transition provide opportunity to drive EV adoption
conversion, construction of factories for vehicles and • Key to enable sustainable battery industry scale-up to support the EV transition: including policy frameworks to
components reduce investment risks, funding of sustainable battery manufacturing
• Expand public charging infrastructure (~$1.2T): to • PPPs expected to be key to catalyze private investment in public transport infrastructure
(~$9T) support growth of EVs
• Mode shift to mass transit (~$4.0T): buildout of
public transportation infrastructure
• Develop & deploy battery electric commercial • Strong need for public sector interventions & engagement to accelerate uptake of low-carbon powertrains and
Heavy vehicles (~$17.5T): largely for lighter and shorter- fuels (e.g., ban on ICE vehicles, subsidies, blended finance, fuel taxes etc.)
road distance applications • Opportunity to connect corporates across sectors for partnerships for investment in hydrogen refueling
• Develop & deploy hydrogen fuel-cell electric infrastructure (e.g., Oil & Gas and CV manufacturers)
transport

commercial vehicles (~$12.6T): R&D, conversion, • Opportunity to finance expansion of corporate electric LCV fleets in the near future as logistical players
construction of factories, purchase of vehicles (Amazon, DHL, FedEx, etc.) have made pledges
• Produce hydrogen and build refueling infrastructure • Opportunities to support buildout of green hydrogen sector as a cross-sectoral lever
(~$32T) (~$1.8T): as fuel for hydrogen fuel-cell vehicles • Significant portion of trucking companies are private leading to challenges in emission disclosures and lowering
• Use of biofuels & synthetic fuels (~$0.2T): as the motivation to decarbonize
substitutes for fossil fuels in ICE vehicles
• Improve fleet efficiency (~$0.2T): through retrofits • Key to have measurable efficiency thresholds for fleet efficiency improvements for new aircraft and retrofits
Aviation • Use Sustainable Aviation Fuels (~$0.9T): to replace • Sustainable aviation fuels (SAF): opportunity for financial sector to leverage customer relationships across
fossil fuel as low-carbon alternative sectors to scale and de-risk capex investments (e.g., across fuel value chain including Agriculture, Chemicals,
• Deploy next-gen propulsion technologies (~$4.0T): Power, and Oil & Gas sectors)
including use of open-rotor, hybrid-electric, • Offtake contracts between supplier of feedstock, SAF producers, and consumers important for scale
hydrogen, etc. • Important role for the public sector to ensure high safety standards around use of SAFs
• Critical need for governments subsidies, carbon pricing, etc. to improve SAF economics
(~$5.1T)
• Accelerated decarbonization through incorporation of emissions criteria and targets by governments in COVID-
19 relief packages for aviation sector
25
A $100–150+ trillion investment need: sectoral insights and implications (III/III)

• Improve ship efficiency (~$0.6T): technologies • Operational and ship efficiency viable in short-term: finance enabled by measurable efficiency thresholds
Shipping related to drag reduction, exhaust treatment, etc. • Opportunities in optimizing chartering contracts between operator and owners through benefit sharing
• Improve operational efficiency (~$0.1T): digital • Partnerships across the value chain important for alternative fuel development; opportunity for financial sector
solutions to optimize route and speed, ship to leverage relationships across sectors
performance • Critical role for governments in making e-fuels viable
• Use of low-carbon fuel alternatives (~$1.7T): engines • Significant need for bilateral lending given private ownership with limited access to capital markets
(~$2.4T) using clean fuel such as e-ammonia, and investment • Need to scale use of Poseidon Principles and integrate climate consideration into lending decision; critical since
in land-based infrastructure for production private ownership limits disclosure
and storage • PPPs and blended finance expected to be important and gaining traction
• Shift diets towards plant-based and cultured meat • Strong need for public sector capital and policy incentives to support farmers in transition
Agriculture (~$1.3T): will require driving change in consumer • Potential role for financial institutions in supporting/financing through partnerships (e.g., with equipment
behavior suppliers, F&B companies, multilaterals, microfinance and mobile finance services, local intermediaries &
• Improve manure management (~$0.5T): through governments)

infrastructure such as anaerobic digesters (AD) • Innovative structures such as cluster financing (e.g., for pooling of multiple AD deployments with lease/PPA)–
• Adopt regenerative farming practice (~$0.1T): for cross-sectoral potential (e.g., with solar companies)
investment in no-till farming equipment • Engagement with both landowners and operators to drive regenerative practices, given split-incentives
• Measurement of carbon challenging and likely to need technological innovation
(~$1.9T) • Significant potential for capital markets activity in emerging alternative meat industry (e.g., through
acquisitions, JVs, new entrants)
• Increase efficiency of electric equipment (~$3.8T) • Finance for R&D for higher-performing, cost-effective heating technology (e.g., cold climate heat pumps)
Buildings • Reduce heating/cooling energy demand (~$1.5T): • Important for public sector to encourage accelerated adoption through programs/incentives
through building design & retrofits • Need for engagement with private equity, pension funds, and REITs given high ownership levels
• Replace and electrify conventional heating (~$0.7T): • Collaboration between real estate community and policymakers on standards integrating emissions
with efficient and electric alternatives • Cross-sectoral efforts across industrial, power, and buildings for co-generation and waste heat utilization
(~$6.1T + ~$4.6T • Develop system-level district heating & • Effort needed to drive technology adoption, e.g., through policies, product standards and labelling programs,
for retail residential) cooling (~$0.1T) education, etc.
• Shift to efficient cooking technologies (<$0.1T)
26
Investment needs by sector: Summary
Total across
Power Iron & Steel Cement Chemicals Transport Aviation Shipping Agriculture Buildings sectors
Electrification & renewables 56.7 ---- ---- <0.1 35.1 2.8 --- --- --- 94.6
Efficiency & Circularity --- 0.7 0.4 0.2 4.0 0.2 0.7 0.6 5.3 12.1
Theme ($T)
Alternative Technologies 2.5 1.6 1.1 2.0 2.0 2.1 1.7 1.3 0.8 15.0
Total Investment 59.2 2.3 1.5 2.2 41.1 5.1 2.4 1.9 6.1 121.7
North America 9.6 0.1 0.1 0.5 8.1 0.9 0.3 0.2 1.3 21.1
Europe 9.1 0.1 0.1 0.6 7.4 1.1 0.7 0.3 1.3 20.7
Region ($T) Asia 34.3 1.3 1.0 0.9 21.7 2.8 1.2 0.8 2.5 66.4
Rest of World 6.2 0.8 0.3 0.2 3.9 0.3 0.2 0.6 1.0 13.5
Total Investment 59.2 2.3 1.5 2.2 41.1 5.1 2.4 1.9 6.1 121.7
Loan 38% 56% 34% 32% 50% 66% 49% 47% 42% 44%
Bond 17% 20% 19% 29% 29% 20% 19% 4% 8% 21%
Instrument
Equity 45% 24% 47% 39% 21% 14% 32% 49% 50% 35%

Total Investment 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Energy
Power T&D
Cement
Iron & Steel
Chemicals
Industries
Auto & Trucking
involved
Airlines
Shipping
Food & Beverage
Farming
Other
Source: BCG Analysis

Notes: De minimis rounding differences, T&D = Transmission & Distribution 27
Example: Power
15.8 Gt emissions per annum, ~30% global emissions
72% 6% 22%
Coal Oil Natural Gas
~$9T estimated investment needed globally over 2020-2050
Sectors involved by lever Energy Power Transmission & Distribution Needs heavy subsidy Commercially viable
Increase reliance on renewables
• Higher upfront capex investment for renewable plants with long-term savings on maintenance and opex
$39T • Solar PV and onshore wind remain the most viable and prominent energy sources; ongoing efforts to broaden off-shore wind beyond LCOE at parity today in several regions; key bottleneck around supply variability
the North Sea
Improve grid flexibility & reliability

• Build new network connections/lines (e.g., north/south lines help mitigate seasonality)
$17T • R&D for emerging technologies to support variable generation (e.g., energy storage), as well as off-shore grids and long-distance Storage still not utility scale today; technology for off-shore & long-distance
transmission transmission improving
Invest in large-scale development of CCUS infrastructure
• Critical for markets with newer coal plants e.g., China, South-East Asia
$3T • Costs can be reduced through “hub” approach where shared infrastructure can support multiple sectors Limited commercial viability, need for high carbon price or policies and incentives for
large-scale deployment

Current capital structure Key implications for climate finance
Renewable Power Electric Utilities
• Need for significant investment across the value chain from power generation to
North America 34% 13% 53% 10% 48% 42% transmission and distribution, including scaling of energy storage and grid flexibility and
Europe 50% 8% 42% 19% 10% 53% reliability
• Renewable energy commercially viable in several regions today, but long-tenor, project
Asia 45% 11% 44% 12% 26% 39% finance structures needed to support high upfront capex needs
• Significant need for high-risk/equity capital (e.g., in project equity or in storage solutions);
Loan Bond Equity Loans Bonds Equity opportunity to connect sources of high-risk capital
• Role for the financial sector beyond capital:
$9.6T – E.g., engaging corporates customers in new project investments and enabling
$2.5T $2.4T $4.7T
Investment need by region, by instrument North America customer sustainability ambitions through long-term Corporate Power Purchase
Agreements
• Existing utilities players, thought the market is mature, are expected to $9.1T
$3.5T $1.3T $4.3T – E.g., collaboration with the public sector, particularly in Asian power markets, to
need equity funding to support increased leverage given the scale of Europe drive transition with state-owned enterprises
investment needed $34.3T
• Renewable players in Europe rely more heavily on lending for debt $14.4T $5.3T $14.6T
Asia
financing, driving the resultant loan-to-bond ratio for investment
opportunity $6.2T RoW
• Although grid improvements will largely be financed through debt,
significant equity opportunity remains in Asia due to new market entrants in
renewables
Sources: IEA, IRENA, ETC, BNEF, CapIQ, Dealogic, BCG analysis 28
Example: Light Road Transport
3.9 Gt emission per annum, ~7% global emissions
77% 11% 8% 4%
Passenger vehicles Buses and minibuses Light commercial vehicles Two/three wheelers
~$9T estimated investment needed globally over 2020-2050
Sectors involved by lever Auto2 Ground Transportation Energy Needs heavy subsidy Commercially viable
Develop and produce electric light duty vehicles (excl. two/three wheelers) 1
• Investment in R&D, conversion/construction of factories to manufacture BEVs and components
$3.6T • Battery development and production estimated at ~15-25% of investment in long-term Fast-evolving technology, with battery prices expected to decrease in near term; BEVs
In addition, financing for purchase of BEVs estimated at ~$51T expected to achieve TCO parity with ICE by 2024 in some regions
Develop and produce battery electric 2/3 wheelers
• Investment in R&D, conversion/construction of factories to manufacture electric 2/3 wheelers and components
$0.2T • Electric two/three-wheeler market expected to be concentrated in China, India and the ASEAN region Fast-evolving technology, moderate dependency on expansion of public charging
In addition, financing for purchase of electric 2/3 wheelers ~$2.9T infrastructure as private charging mostly used
Expand public electric charging infrastructure
• Investment in public slow and fast charging stations
$1.2T • Need for public intervention to foster simultaneous investment in supply of charging infrastructure and demand for electric vehicles Recharging stations prevalent in some regions but further expansion needed with
In addition, investment in private slow charging infrastructure: ~$0.8T greater BEV adoption
Mode shift to mass transit
• Financing of public transportation infrastructure (e.g., buses, trains)

$4.0T • Lead to significant returns from savings in vehicle ownership, savings in operating and fuel costs from reduced vehicle use, along Prevalent technology; further expansion needed especially in regions with high/or
with travel time and congestion savings increasing levels of urbanization
Auto and Components2 Ground transport
• Strong dependency on public sector interventions to accelerate EV adoption
North America 22% 45% 33% 3% 50% 47% (e.g., public procurement schemes, tax rates adapted to tailpipe CO 2
Europe 25% 32% 42% 22% 10% 68% emissions, fiscal incentives on EVs)
• Opportunity to connect corporates across sectors for partnerships for investment in electric
Asia 25% 14% 61% 12% 13% 75% charging infrastructure (e.g., Oil & Gas and vehicle manufacturers)
• Strong corporate commitments for EV transition provide opportunity to drive EV adoption
Loan Bond Equity Loans Bonds Equity among corporate customers
• Key to enable sustainable battery industry scale-up to support the EV transition:
$1.1T – Public sector: policy frameworks to reduce investment risks, e.g., clear signals on
$0.3T $0.6T $0.2T
Investment need by region, by instrument North America deployment of charging infrastructure, low- or zero-emission mandates
– Financial institutions: funding in battery manufacturing and linkage to
• Largest investment needed in Asia primarily driven by high regional need for $1.1T
$0.4T $0.4T $0.3T sustainability requirement; connections within industry participants in battery
manufacturing of battery electric LVs and investments in public transport Europe production value chain
• Public transport investment likely financed through project finance $4.9T • PPPs expected to be key to catalyze private investment in public transport infrastructure as
structures (SPVs), driving regional equity financing $1.6T $1.0T $2.3T well as sharing risks across public and private sectors
Asia
• Significant financing needed in rest of world to expand public transport
spurred by rapidly increasing urbanization rates $1.9T RoW
1. Excludes all LCV used for the transport of goods 2. Auto and components (incl. motorcycles) Note: hydrogen refueling infrastructure not considered in the light transport sector but
considered in the heavy transport sector Sources: EEA, European commission, World Resources Institute, FAO, IEA, OICA, Energy Transitions Commission, ICCT, Coalition for Urban
Transitions, IHS Markit, UN, Market Research Future, CapitalIQ, wattev2buy, evobsession, Gasgoo AutoNews, Cleantechnica, SinaAuto, Xinhuanews, Yiche, ifeng, BCG analysis 29
Example: Aviation
0.9 Gt emissions per annum, ~2% global emissions
43% 37% 6% 7% 7%
Passenger: Narrowbody Passenger: Widebody Passenger: Regional Freight: Belly Freight: Dedicated
~$5.1T estimated investment needed globally over 2020-2050
Sectors involved by lever Airlines Energy Needs heavy subsidy Commercially viable
Improve efficiency of fleet
• Improvements related to engines, aerodynamics, weight and control systems to enhance efficiency
$0.2T • Replace fleet with new gen. aircraft and/or retrofit technology (estimate excludes purchase of new fleet (~$4.5T), considered BAU, Majority of technologies are developed and mature
will require agreed-to transition pathways and thresholds)
Use Sustainable Aviation Fuels (SAF)

• Biofuels: build facilities and scale capacity; feedstock supply constraint must be solved to ensure long-term viability
$0.9T • Synthetic fuels: scale infrastructure to produce green hydrogen and e-fuels (estimate excl. renewables investing)
Biofuels: HEFA pathway most economical near-term option, but biofuels still at 2-8x
A1 prices, Synthetic fuels: Not yet commercially viable (2-5x A1 prices); long time
• Development is dependent on partnerships between players in entire fuel value chain horizon for development and relies heavily on renewable energy prices
Deploy aircraft with next generation propulsion technologies
• Next-gen propulsion systems: open rotor, hybrid-electric, full electric and hydrogen combustion (estimate excludes R&D investment)
$4.0T • Full electric likely only for short-haul due to limited energy density Nascent technologies; expected entry into service: propfan (2030); hybrid (2035); full
electric (2040); hydrogen combustion (2040)
Other key decarbonization levers:
Upgrade air traffic management systems
• Optimize flight distance, climb/descent profiles and enhance airport operations

Demand management in passenger aviation
• Reduce global passenger aviation demand (e.g., through behavioral changes, phasing out short-haul flights, and reducing long-haul flights and flights for business purposes)
Airlines
• Fleet efficiency improvements: development of climate finance solutions likely to need
North America 35% 30% 36% measurable efficiency thresholds for new aircraft and retrofits
Europe 57% 10% 33% • Need for cross-sector collaboration across fuel value chain for SAF scale-up: Agriculture,
Chemicals, Power and Oil & Gas sectors
Asia 53% 10% 37% • Sustainable aviation fuels (SAF), opportunity for financial sector to leverage customer
relationships across sectors to scale and de-risk capex investments
Loan Bond Equity Loans Bonds Equity – Sustainable supply of feedstock: offtake contracts between supplier of feedstock
and SAF producers for de-risking
$0.9T – Scaled production of SAFs: offtake contracts between airlines and SAF producers
$0.4T $0.4T $0.1T
Investment need by region, by instrument North America • Important role for the public sector to ensure high safety standards around use of SAFs
(e.g., involvement in testing and certification)
• Largest investment need in Asia driven by highest expected future regional traffic $1.1T
$0.8T $0.2T $0.1T • Critical need for governments subsidies, carbon pricing, measures around SAF offtake, to
• Capex in sustainable aviation fuels partially financed through equity (project Europe improve SAF economics
finance structures expected) $2.8T • Accelerated decarbonization through incorporation of emissions criteria and targets by
• Largest source of funding is debt as airlines are likely to tap into debt capital $2.0T $0.4T $0.4T governments in COVID-19 relief packages for aviation sector
Asia
markets to finance retrofits and aircraft with next generation propulsion systems
$0.3T RoW
Sources: EEA, European commission, World Resources Institute, FAO, IRENA, ICCT, ICAO, Energy transformation committee, IATA, Airbus, IEA, The Royal
Society, Oliver Wyman, CapitalIQ, BCG analysis 30
Competitive
Agenda
Advantage

31
Nature based solutions (NbS) refer to measures that protect and restore the
earth's natural assets to mitigate climate change & enhance climate resilience
Ecosystem restoration Ecosystem management Ecosystem protection

Forests • Reforestation and afforestation • Forest management (Indigenous • Forest protection (Avoided
and land (tree plantation, temperate land, abandoned farmland forest conversion)
forest restoration, tropical restoration, bamboo) • Grassland protection (Avoided grazing,
forest restoration) • Grassland management avoided grassland conversion)
(managed grazing)
• Agroforestry (Silvopasture, tree
intercropping, multistrata agroforestry
• Other regen ag (soil sequestration,
perennial staple crops)

Freshwater • Peatland and wetland restoration • Freshwater solutions (stormwater • Wetland protection (avoided peatland
(grassland protection, management impact, coastal wetland protection,
peatland rewetting) peatland protection)
Oceans • Ocean restoration (mangrove • Coastal wetland management (marine • Coastal wetland protection (salt marsh
restoration, seagrass restoration, salt permaculture, ocean farming) protection, mangrove protection,
marsh restoration, reef protection, seagrass protection)
coastal wetland restoration)
Regenerative agriculture practices
32
Nature-based solutions have the potential to provide >35% of cost-effective
CO2 mitigation required by 2030
NbS levers Cost–effective mitigation potential (GtCO2e/year) in 2030

Reforestation & afforestration 3.0
Ready for large-scale deployment and low
risk vs. other carbon capture technologies
Avoided forest conversion 2.9
7.3
Natural forest management 0.9 GtCO2e Not permanent due to tree death and carbon
Forest Techniques to increase CO2 content release, accelerated by damage (e.g. fire)
related
Others1 0.5
Includes Conservation agriculture 0.4 Ready for large-scale deployment and low
regenerative Plant cover crops off-season risk vs other carbon capture technologies
1.8

agriculture Other soil sequestration 1.0
methods Techniques to store carbon in soil GtCO2e
Agriculture Permanence in question; difficult to
Others2 0.4 measure, report, and verify
related
Avoided peatland impact 0.7 Ready for large-scale deployment and low
risk vs other carbon capture technologies
Peatland & wetland restoration 0.6 2.2
GtCO2e
Wetland Less public attention and fewer actors
Others3 0.9 driving change
related
1. Including improved plantations, fire management, avoided wood fuel harvest, etc. 2. Including improved feed, improved rice cultivation, and animal
management, etc. 3. Including cropland nutrient mix, avoided coastal wetland impact, etc. Source: Griscom et al (2017), BCG analysis 33
NbS levers differ in potential, benefits, & implementation
GHG Cost-effective potential Sustainability Ease and speed of Impact
mitigation potential (opportunity costs1) co-benefits implementation per land area
Low-cost Duration to Area needed to
Global potential in 2030 range1 in 2030 Potential in 2030 at costs1 Existence of generate first generate 100 Mt
(GtCO2e/year) (USD/tCO2e) ≤USD 10/t (GtCO2e/year) accreditation carbon impact p.a. for 50y (Mha)
Avoided forest >10
1.8 0.4 1.4 3.6 1–10 1.5 0.3 1.8 1y Gradually building
conversion (REDD) up over years
Reforestation & >3y >10

0.7 9.2 10.1 5–15 0.2 <0.1 0.2
with slow Required from
afforestation 0.2 ramp-up the beginning
Natural forest 0.4 0.4 0.7 >120
1.5 3–10 0.3 0.4 1y Required from
management 0.2 the beginning
Conservation >80
0.2 0.1 0.4 3–10 0.1 0.2 1y Required from
agriculture 0.1 Partially the beginning
Improved rice >60

0.1 0.1 0.3 3–10 <0.1 0.1 1y Required from
cultivation <0.1 Partially the beginning

>40
Other alternative
0.8 2.1 3.1 3–10 0.4 0.4 0.8 1y Required from
agric. techniques5 Partially the beginning
>5
Avoided peatland
conversion
0.5 0.2 0.8 1–10 0.1 0.5 1y Gradually building
0.4 up over years
>5
Avoided coastland
convers. (blue carbon)
0.1 0.3 1–10 <0.1 0.2 1y Gradually building
0.2 0.1 Partially up over years
>3y >10
Peatland
restoration
0.6 0.8 5–10 0.1 0.1 with slow ~1/2 required from
0.1 ramp-up the beginning
Coastland restoration >3y >3

(blue carbon)
0.8 0.8 n/a 0.0 with slow ~1/2 required from
Partially ramp-up the beginning
0.1
<USD 10 USD 10-50 >USD 50 Easier addressable2 Other Air quality Biodiversity Water quality Soil quality
1. Direct on the ground costs only, e.g. for land leases and on the ground manpower - not taking into account costs for carbon accounting, accreditation, project management, etc. 2. In countries with 34
at least fair levels of governance/rule-of-law 3. In other countries 4. Alliance of Small Island States 5. Includes amending agriculture land with biochar, reduced/improved fertilizer use, planting of
trees in cropland, optimizing grazing stocking rates, and sowing legumes in planted pastures;
Regenerative agriculture can drive a large share of mitigation and improve
adaptive capacity of food systems
Breakdown of global GHG emissions
within Food, Agriculture, & Land use1,2 Mitigation solutions Adaptation solutions
Retail 3%
5% Supply chain • Low-carbon supply chains (including • Analytics to support disaster
Packaging 6% (18% emissions) waste reduction) preparedness and response
Transport 4%
Food processing Livestock and • Low-carbon livestock management • Ecosystem conservation
fisheries (agricultural land, water, life) e.g.,
Livestock & fish farms 30% via soil conservation, livestock and
(31%)
fishery management

Crops for animal feed 6%
Crop production • Alternatives to high-emitting foods • Resilient crops and improved yields
(27%) (alternative protein, cell-based via no till
meat) • Cover soil / crops and living roots
Crops for human food 21%
• Sequestration via crop rotation, • Diversity in species, integrated
living roots livestock
Land use for human food 8%
Land use • Managed grazing • Soil and land use data, elevation
(24%) • Other regenerative farming data, and analytics to determine
Land use for livestock 16% practices risk to disasters
1. Food, Agriculture, and Land use constitutes 24% of annual global emissions. Sources: UN Food and Agriculture Organization (FAO), Joseph Poore & Thomas
Nemecek (2018) Reducing food's environmental impacts through producers and consumers 35
Persistent gaps in meeting financing need in NbS with many acute impacts
Annual investment need will reach $536B, four times

the amount invested today Agriculture is a critical segment that intersects with
nature-based solutions
Annual investments (Billion US$ 2019/year)
• Agriculture drives 16% of global emissions, but only
500 receives ~2% of global climate financing for mitigation
400 • $700B will be needed in the US alone to scale

403 regenerative agriculture
300

536 • 80% of worldwide deforestation is driven by
agriculture, while >80% of forests must remain intact to
200
mitigate the impacts of climate change
100 • $193B is needed annually in Silvopasture, which
133
equates to ~38% of total financing need
0
Current Investment gap 2050 annual
investments investment need
Note: Investment gap is the sum of the gaps over the course of next three decades
Source: UNEP State of Finance for Nature 36
Back up | Majority of $133B NbS financing today is sourced from domestic
governments, with minimal private capital
Domestic government Private capital
Sustainable
Water supply chains,
resources, $7B
conservation Pollution
and land abatement,
management, wastewater
pollution mgt, and
Protection of biodiversity and landscape, Agro, forestry and fishing, control and environmental
$53B $23B other natural protection,
resources $11B Impact
Biodiversity
invest-

budget, offsets,
$17B ments,
$5B
$3B
Conservation
Other
NGOs, $1.8B
Environmental policy and other,
$8B Public ODA
$2.4B
Domestic government Private capital Public ODA
Note: These figures are the midpoint between the lower and upper bounds of annual investment
Source: Vivid Economics, adapted from OECD, IMF and other public data sources listed in the Annex; UNEP State of Finance for Nature 37
Back up | Current NbS spending and regional mitigation potential highlight
areas with greatest impact opportunity
Regional breakdown of public sector NbS spending Regional mitigation potential

Lack of
Brazil investments flows
Latin America 2
in Latin America
China create potential
for outsized impact
Africa 4
Indonesia
EU Continued high investment

Oceania 5 need in Asia
India

Europe 27
Russia
Forest related
Mexico Agriculture related
North America 36
Wetland related
US
Asia 46
Series Australia
1
0 10 20 30 40 50 500 1,000 1,500 2,000 2,500
Annual NbS investment ($B) Mitigation potential (MtCO2e / year)
Note: Maximum potential abatement, only selected pathways shown

Source: UNEP State of Finance for Nature , Roe, 2019, BCG analysis 38
Despite barriers, investors point to multiple archetypes of high-interest
investment vehicles in nature-based solutions
Closing financing gaps in project development Enabling efficient, functioning carbon markets
• Bridge financing to seed development • Off-take agreements and

of high-quality projects guarantees to de-risk long timelines
• Permanence fund to underwrite risks • Investments in scaffolding to further

to carbon credit project permanence develop and scale carbon markets
• Project aggregation that diversifies • Data and measurement to enable faster

risk for early, small-scale projects accreditation
• Regenerative agriculture financing to • Insurance to de-risk projects before

support supply chain transitions verification or before credit production
Financing protection of natural assets

• Conservation bonds to encourage
green government investments
• Structuring to enable investment

into NACs
Highest potential for client
Logos shown where banks are • Insurance to underwrite risk for
showing early interest natural assets 39
High potential NbS investments for the client to deploy catalytic capital
Intervention Description Role for Client Potential partners

Bridge • $100M NbS Project Accelerator in partnership • Concessional capital into accelerator
financing with WRI and WWF to invest in startups focused financing solution to accelerate carbon
onadvancing NbS projects across decarbonization credit production
Project development
tech and biodiversity protection / restoration
Permanence • Permanence fund to underwrite risks to project • Concessional capital to establish

fund permanence associated with the permanence permanence fund
requirements (e.g., 100 years) of carbon offset
[Sanitized]
accreditation
Regen ag • Creating publicly listed NACs to finance large-scale • Investment in IEG to support platform
financing transformation to regenerative agricultural practices development + catalytic capital alongside
Danone to fund supply chain conversion

Conservation • Sovereign Debt-for-Nature Restructuring Program • Concessionary capital in restructured
bonds to restructure expensive sovereign debt using bonds, provide first-loss to lower
green/blue bonds, tied to domestic NbS initiatives borrowing costs
• Enable priority focus on Caribbean SIDS
Natural assets
Structuring for • Platform for investment into Natural Asset • Concessionary equity investment and
NACs Companies: ~$2M investment in current ~$10M strategic LP role to enable IEG to build
equity round to enable IEG to continue developing scaffolding for Natural Asset Companies
their platform (e.g., SEC registration, bank
partnerships, process to list NACs
40
Backup | Examples of innovative finance vehicles in NbS
Market example Description Capital mobilization Climate impact
Terra Carta and the Coalition of development agencies, UN agencies, academics, NGOs, and investors launched the Little Goal to mobilize $10B by Not yet realized
Natural Capital Book of Investing in Nature with updates, analysis, and straight-forward guidance. Founding partners 2022
Investment Alliance include Lombard Odier, HSBC Pollination Climate Asset Management, and Mirova
Innovative Finance for Conversion-free cattle and soy production in South America protects forests as the industry expands. Commitment of $3B, with Not yet realized
the Amazon, Cerrado Mobilizes farm loans, farmland investment funds, corporate debt instruments, and capital market $200M+ in disbursements by
and Chaco (IFACC) by offerings to facilitate sustainable production. Partners include The Nature Conservancy, Tropical Forest 2022; Goal to reach $10B
TNC Alliance from The World Economic Forum, and UNEP along with 8 financial and agribusiness companies of commitments and $1B in
disbursements by 2025
Environmental Defense Line of credit gives farmers a 0.5% discount from a farmer’s base rate if they meet soil health and $25M in pilot fund, goal to Not yet realized
Fund and Farmers nitrogen efficiency standards. EDF provides oversight on environmental criteria reach $500M over 3 years
Business Network via public markets
Dutch Fund for Climate Life-cycle approach to allow projects to grow and later obtain funding for full implementation. The SNV Mobilized $500M EUR from Reduced 40M tons GHG

and Development Netherlands Development Organisation and WWF-NL provide technical assistance for project private investors to date and helped to sustainably
(DFCD) development, while the Dutch Entrepreneurial Development Bank and Climate Fund Managers raise and (since 2019) manage 100K h.a. of land
provide funding through several instruments including grants, equity, and debt
Restoration Insurance RISCO will select sites, model value of floor reduction benefits, then generate revenues based on Expected to generate Pilot in the Philippines
Service Company modelled benefits to enable mangrove conservation and restoration in partnership with local >$10B in revenue from the targeting 3.4K h.a. of
(RISCO) communities. Options to monetize include an annual fee paid by insurance companies, or insurance sector and blue mangrove conservation
generation/sale of carbon credits to organizations carbon markets and 600 h.a. of restoration
to avoid / sequester 600K
tons CO2 over 10 years
ENCORE by Natural New biodiversity module in UN-backed ENCORE tool (Exploring Natural Capital Opportunities, Risks and Not yet realized Not yet realized
Capital Finance Exposure) enables banks / investors to explore to what extent their financial portfolio indirectly drives
Alliance (NCFA) species extinction risk and impacts ecological integrity. Focus is on mining and agriculture sectors
Partners include UNEP World Conservation Monitoring Centre and Finance Initiative and Global Canopy
41
Public policy response
Governments globally are tightening emissions regulations, increasing
demand for carbon offsets and incentivizing the uptake of nature-based
Key forces driving solutions
demand for Corporate commitments

carbon-credit Corporations (e.g., Danone, GM) are making net zero commitments,
including commitments to regenerative agricultural practices, which drives
producing NbS the need for supply chain transition financing
Tech company developments

Tech companies (e.g., Shopify, Stripe) active in the purchase of carbon
credits to meet their climate-related targets

Bank and investor products
Banks are developing impact funds and increasing investments in nature-
based solutions to respond to investor demand
Coalition convenings
Coalitions are amplifying momentum in nature-based solutions by
convening relevant stakeholders and mobilizing financing
42
Corporate commitments to regenerative agriculture in their supply chains are
also a key driver of growth (I/II)
Organization Goal/targets Actions
• Use its Sustainable Farming Program to collaborate with farmers in adopt resilience building practices
• Grow global network of 350 Demonstration Farms to enable further peer-to-peer learning
Regenerative farming
• Investments in innovative and sustainable agriculture solutions (e.g., potato peelings to manufacture low-
practices across 7 million
carbon, nutrient-rich fertilizer)
acres, approximately it's
• Sustainably source 100% of key ingredients, and expand to include key crops from third parties
entire agricultural
• Launching Food Innovation Hubs to develop local food systems
footprint, by 2030
• To date: Cover crops on 85k+ acres and 38% net reduction in GHG emissions, 100% sustainably sourced direct
crops in 28 out of 60 countries, achieved goal of 100% Bonsucro certified sustainable cane sugar globally
• Partner with farmers to implement and measure impact of regenerative agriculture principles
Advance regenerative • Engagement in programs to accelerate implementation of the principles (e.g., partnership with Soil Health
agriculture on 1 Academy and Understanding Ag to provide farmers with practical tools to implement regenerative

million acres of agriculture)
farmland by 2030 • Partnerships in advancing measurement and technologies to monitor outcomes
• Partnerships with academic institutions in soil health initiatives
• To date: $5.5M invested towards soil health and have 3 pilot programs initiated
• Focus on protecting soil, empowering a new generation of farmers, and promoting animal welfare
• Maintain close relationships with over 58,000 farmers worldwide and provide financial and technical
Net zero emissions support to over 100,000 farmers through the Danone Ecosystem and Livelihoods Funds
by 2050, and be • Joined forces with 4 per 1000 initiative to catalyze collaboration on soil health
a water impact • Launched soil health initiative with 6 million USD committed towards research on soil health
positive company • Developed partnerships to define guidelines and foster adoption (Farming 4 Generations, OP2B)
• To date: Converted over 150,000 hectares to regenerative agriculture (12% of direct sourcing),
established most comprehensive regenerative dairy program in the US, in 2020 reduced GHG footprint
by more than 1 million tons, half of reduction as a result of regenerative agricultures, and half of this
43
reduction was thanks to regenerative agriculture
Corporate commitments to regenerative agriculture in their supply chains are
also a key driver of growth (II/II)
Organization Goal/targets Actions
• Clear definition of standards and approach to improve soil, biodiversity and water
$1.3B invested by 2025
• 540 sourcing specialists and 4 500 support staff assisting with transition toward regenerative agriculture
towards regenerative
• Farmer Connect Program pilot studies at farms validate new technologies and nature-based solutions
agriculture practices
• Engage 500 000 farmers and 150 000 suppliers through Farmer Connect Program
and source 50% of key
• Offer premiums for regenerative agriculture goods
ingredients by 2050
• To date: no reporting on pilot outcomes
• Developed the Sustainable Agriculture Code in 2010 and have iterated and developed principles and
Drive sustainable implementation guides
sourcing for key crops • Set up a suite of Lighthouse Programmes to trial implementation of the Regenerative Agriculture Principles
to 100% • Established programs to educate smallholder farm owners using their Regenerative Agriculture Principles
• To date: Empowered 834,000 smallholder farmers since 2010

• Established rigorous environmental standards, Timberland Environmental Product Standards (TEPS),
Achieve 100% across all Timberland product categories
sustainability and net • Launched eco-innovation products made using recycled, organic or renewable (ROR) technologies like
positive environment leather from regenerative ranches, responsible natural rubber or 100% recycled materials
impact by 2030 • Partnership with Terra Genesis International (TGI) to build the world’s first regenerative rubber supply
system for footwear
• Materials will originate from regenerative, responsibly sourced renewable or recycled sources
100% responsibly-
• VF corporation, The North Face's parent company, uses tools such as the Higg Materials Sustainability
sourced apparel
Index (MSI) and Life Cycle Analysis (LCA) methodologies to identify the greatest opportunities to
fabrics by 2025
reduce the environmental impact of their key materials
More sustainably source • Developed Principles for Sustainable Agriculture (PSA) which describe The Company’s first principles for
100% of priority sustainable agriculture based on environmental, social and economic criteria
agricultural ingredients • To date: 56% of priority ingredients volume sourced sustainably 44
Tech companies are active in purchasing carbon offsets in order to meet their
target climate goals
Organization Purchases Actions
• Purchased the removal of 1.3 million metric tons of carbon from 15 suppliers across 26 projects around the
world in 2021, 1.1 million in forestry and 193k in soil
Removal of 1.3M • Reviewed 190 projects proposals during their RFP in partnership with third party technical and scientific
metric tons in 2021 experts, Carbon Direct and Winrock International
• Making all 190 carbon removal proposals publicly available and sharing learnings about their carbon removal
experience to catalyze wider action
• Carbon neutralization approach focuses on three actions: reducing deforestation, scaling removal of
carbon with NbS such as reforestation and agroforestry, scaling up carbon removal tech
• Direct investments in reforestation and agroforestry project development, as well as purchase carbon
No direct disclosure credits from nature-based carbon removal projects
• Exploring technological solutions to improve the accuracy of jurisdictional-scale measurement and
monitoring of deforestation

• Partnership with Pachama, who connects companies looking to offset their carbon emissions with
verified forest protection projects, to invest in the Jari Pará Forest Conservation Project and the Brazil
Invested in two forest Forest Conservation Project
protection programs • Brazil project expected to prevent 14.5 million tons of CO2 emissions via the protection of 300,000 hectares
of tropical rainforest
• Both are Verified Carbon Standard certified projects that will be monitored by Pachama using their machine
learning, satellite imaging, and remote monitoring technology
• Committed $8M to 6 carbon removal projects with the help of 13 scientific advisors as a part of the
$8M committed to 6 Stripe Climate program
carbon removal • May 2020, Stripe announced its first $1M carbon removal purchases from Carbon Capture, Charm
projects Industrial, Climeworks, and Project Vesta
• Launched Stripe Climate to allow users to direct a fraction of their revenue towards carbon removal 45
Six key factors have influenced the evolution of the
voluntary market to date
Rising pressure from consumers, shareholders and activists increase
Pressure from public pressure on companies to set realistic sustainability targets
and shareholders
Carbon credits play crucial role to offset emissions too expensive to abate
To fulfil own pledges and targets, governments can also engage with VCMs
Governments acting as
Price insensitivity and large volumes can immediately support impact
buyers of credits levels
Recognition of voluntary Direct links to compliance markets guarantee certain volumes and prices
standards in compliance Changes to regulations can quickly add/reduce significant credit demand
Periodic changes in buyer preferences for credits fulfilling certain criteria

Buyer preferences Trends to favor social/biodiversity components or strong additionality
proof
On macro level, project pipeline lagging demand due to ramp up time

Periodic oversupply On micro level, quality issues often surfaced with delay, reducing demand
for certain types (e.g., REDD, renewable energy)
Lax hurdles in early phases of market led to large supply of credits still
Overhang of low-quality,
held in registries but not finding voluntary buyers, dragging down average
old credits prices
Increases demand Reduces demand Mixed impact on demand

46
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Lecture 9 - Sustainable Financing

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Lecture 9 - Sustainable Financing

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Session 9 –

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100% integration Engagement with all

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Companies see an Quantifying value Trends evidence certain

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Generate returns and grow Risk to future profitability

Participate in emerging, growing Large & increasing risks and expenses of

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Two competitive 1 Sustainable leadership position in growing profit pools

of investors ranked climate (and other

Fewer of investors rank conflicts between ESG

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reported Companies need to define clearly which sustainability topics

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Source: ESG Data Convergence Initiative; BCG analysis 10

3. Fund the journey by connecting ambition to financial

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4. Emphasize financial benefits / risks and value

5. Develop and deliver a strong, crisp sustainability

Exhibit 4: Relative TSR versus peers on day of announcement 11

Honest ambition Proven achievements Clear accountability

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Resilient portfolios based on Products that support climate

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A Zero-carbon or near-zero C Adaptation initiatives

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infrastructure, and 5 Policy-setting Environmental Industrial Fiscal Monetary

Grants Debt Equity Special constructs

Funds disbursing capital to climate-friendly projects Emission trading

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Crowdfunding Efficiency contracting

1. Development finance institutions 17

Market attributes Instrument attributes Project attributes

All, esp. Devel'ing

All, esp. Devel'ing

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Inst. All Mostly NA,

Inst. Unclear – North Am.,

Inst. Depends on Variable,

Small Low Low Low Low Short Early

Market size Market volume (in $ bn) to indicate marketability

Cost of capital Cost of capital (interest rate in %) to indicate financial conditions

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Investment horizon Typical instrument maturity to indicate timeframe

Industry Industries that regularly use this instrument

≤$ $ 500m $ 2.5 bn $ 5bn- $ 10bn $ 25bn $ 50bn $ 75bn ≥ $100

Cost of capital None ≤ 5% 5-10% 10-20% ≥20%

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1. Depending on data availability 20

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Three core underlying root causes leading to an underdeveloped climate

Risk mispriced, not

Limited pipeline of Divergent ESG ratings,

Limited economic Legacy Lack of capabilities and

Market failure: Ambiguity & Products sub-scale,

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Sector Key decarbonization levers Key implications for climate finance

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