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This is a special branded episode from our sponsor, Citi.

Two different hurricane landfalls to the Gulf of Mexico. Some of the largest wildfires ever recorded.

Nearly 200 countries got together and signed the Paris Agreement.

L'accord de Paris pour le climat est accepté.

What's at stake is a livable planet. We're really destroying our one chance at that. When it comes to solving the global climate crisis, the path forward is clear. We must reduce greenhouse gases. As much as possible, as quickly as possible. And all of us can play a part in that. We can use energy-efficient light bulbs, get around on bicycles or buses, or simply adhere to the age-old reduce, reuse, and recycle. But to make a real dent on emissions worldwide, it's not just going to take public policy changes. It's also going to take across-the-board buy-in from the private sector. And that's exactly what's happening. Welcome to a special branded episode of Global Translations, presented by Citi. I'm your host, Heather Clancy. On this episode, we're exploring the intersection of big business and climate change. We'll dive deep into all the ways one financial sector leader is better measuring and analyzing climate risk. And how they're helping their clients decrease emissions through innovative and sustainable financing solutions. This year, we've seen many corporations, multinationals, and countries commit to reducing greenhouse gas emissions to net zero by 2050. And these commitments are not just driven by environmental reasons, they're sound financial decisions. I think it's critical and can be viewed through the classic opportunity risk lens. That's Valerie Smith. She's the chief sustainability officer at Citi, and she recently hopped on a call with me to talk climate risk mitigation and the low carbon transition. It's no secret that banks finance the highest carbon sectors that are major contributors to climate change. That's why they must play a critical role in this low carbon transition. But transitioning without a careful plan could cause massive disruption to the global economy and have a profound impact on vulnerable populations across the globe. And that's the other piece of the climate risk puzzle that many people aren't considering. To facilitate a low carbon transition, financial leaders like Citi are not only rethinking how they measure, manage, and analyze the risks of climate change within their client portfolios, but are also looking more closely at how their lending portfolios actually contribute to climate change.

Focusing on the risk piece, you know, we've been spending a lot of time at Citi looking at the financial risk to Citi and our clients from climate change and also to the climate change impacts that we are contributing to through our financing. So as the world's most global bank, one of the key financiers of the global economy, and that global economy has been built on old economy actors. And I think what we're looking at now is how do we take our traditional economic drivers and actors and transition them? And in doing so, if we're successful, we manage down climate risk, we manage up innovation, we help our clients to transition, we transition our business along with it. So that's the ultimate ambition. Also on our call was Mindy Luber.

She's the CEO and president of sustainability firm Ceres. At Ceres, Mindy leads a team that works to mobilize the most influential investors and companies, like Citi, to tackle the world's biggest sustainability challenges, climate change, water scarcity and pollution, and inequitable workplaces. And she knows a thing or two about this. Mindy has played a huge role in reframing the political conversation around climate change, focusing on jobs and the global economy. In 2015, Mindy was an influential advocate for the historic Paris Agreement, drumming up the necessary private sector support for the deal. Vogue magazine named her a climate warrior. Before Ceres, Mindy served as a regional administrator at the U.S. Environmental Protection Agency under President Bill Clinton. Here she is breaking down the high-stakes business of tackling climate risk.

We're right now living through a COVID experience, and nothing about it is good. It has shown us what systemic risk to our system looks like. And that systemic risk is jolting our economy, our humanity, the health of every one of the citizens, frankly, on our planet. We're certainly in almost all countries and continents around. the world. What we know is that climate can shake the system in the same way. The impacts of climate change over the next decade and beyond, and some of them are being felt today with the forest fires on the West Coast, the storms around the country, each of which are well over a billion dollar storms or fires. We're seeing the impacts of climate and how as it grows, it will become like COVID. It will be a systemic shock to our economic and public health system. And so hopefully there are lessons learned. We don't always learn well as a world community, but because we're seeing the implications of climate every day, how big, how fierce, how global, I believe the private sector and the public sector realize acting sooner rather than later is essential. Acting at a scale and pace, unlike what we've seen so far, is essential to get to that goal of net zero by 2050.

Let's talk numbers. 0.85 degrees Celsius. That's how much the UN Intergovernmental Panel on Climate Change says the average global temperature increased from 1880 to 2012. 19 centimeters. That's how much the global average sea level rose from 1901 to 2010. 2100. That's the year the average sea level rise is predicted to reach 40 to 63 centimeters. Also by the year 2100, climate models predict we'll have a global temperature increase of somewhere between three and four degrees Celsius. That means less sea ice, no coral reefs, less food, more hurricanes, more flooding, more droughts, and more fires. But we can still avoid all this. Here are some more numbers for you. 10 centimeters. That's how much lower sea level rise could be if we limit global warming to 1.5 degrees Celsius by reducing emissions. 197. That's how many nations worldwide signed the Paris Agreement, pledging to do just that. Tens of trillions. That's how much money Ceres estimates a worldwide low-carbon transition would generate in clean energy investment opportunities over the decades to come. The U.S. formally withdrew from the Paris Climate Agreement this year, but more than 2,000 American investors and companies, comprising a bigger group of leaders representing nearly 160 million people and $9.5 trillion in GDP, have signed on to the We Are Still In movement. Citi is among them. So the economic implications of this transition could be monumentally disruptive. And we need to look at how to mitigate that risk. What does a responsible transition look like? And also, how does a city help those carbon-intensive clients move from the place they are now to that greener place or cleaner place or however you want to describe it? Yeah, that's a great question. And I think

it's clear that that's where we are headed. That's where we have to head. Is it going to be a bumpy ride or is it going to be a managed transition? And for a bank like Citi, that involves developing and executing on pretty ambitious plans on both the opportunity and the risk side. So, you know, on the opportunity side, developing our recently released $250 billion environmental finance goal. So, you know, an ambitious goal to really ratchet up our financing of environmental and climate solutions. On the risk side, it involves essentially assembling the methodologies and the tools to analyze, measure, and manage down climate risk and climate impact. I think a couple of interesting developments that we're seeing in the financial sector are around the linkage of financing of our corporate clients to their sustainability performance and also around this emerging area of strategic advisory to our clients for transition purposes specifically. And the idea is that you are basically linking the terms of a bond, the terms of a loan, to whether our client meets certain key performance indicators related to environment, climate change, or other social indicators. So I see that as really beginning to develop our muscle memory as an economy to really, you know, intentionally connect performance to finance.

financing. Yeah. Yeah. Mindy, what's your perspective? I think we need to do a number of things. One is we need to set out a future plan. How do we get to 2050? What does our economy look like? How do we start financing manufacturers who are manufacturing electric cars or renewable energy? Where do we put our subsidies rather than supporting and propping up what I would argue is a fossil fuel economy that no longer works. And it's not working and we're seeing that. Coal companies' share price is no longer of interest to almost all investors. Oil companies' share price is substantially down. What we need to do is figure out how to finance the new economy. Citi putting $250 billion on the table to do that. That's exactly what we need all major players doing as well as our governments. We are on the precipice now with the kind of resources that are coming into the economy, both from the public and the private sector. We've got to make some very clear decisions because it really is a choice of two roads. One road will lock us in, in a way that our kids will only see what we're seeing now multiplied. More forest fires, more storms, more billions of dollars in damage every week versus a future that is about a cleaner energy system, cleaner transportation system, and one that has built equity into it along the way.

Val, you've referenced a couple of times the amount of money that you plan to spend to enable the transition. You've already spent $100 billion in terms of environmental finance. By 2019, you got to that goal four years early. How were you able to accomplish that? And why is Citi uniquely positioned

to help lead this transition? I think the unique positioning comes from our global footprint doing business in 160 countries with, you know, boots on the ground, wingtips on the ground, for banker speak, in 97 countries. So the $100 billion environmental finance goal was a financing and facilitating goal. So it includes underwriting that we do for clients to bring investors to the table. It includes investment banking advisory, M&A advisory, public offering advisory. It includes lending. So it's, it includes a whole assortment of financial products, green bonds. And when we started, just to sort of show you how quickly this market is growing. When we started the $100 billion environmental finance goal in 2014, the green bonds market was brand new. And it's the, the, the demand for green bonds by investors is the demand from our clients for to issue green bonds. And it's also the demand for renewable energy that I think really led us to achieve the $100 billion goal four years early.

Right. And of course, we just crossed the trillion dollar mark for green bonds in September 2020. So

quite an amazing, right? And not that many years.

Nope. Yep. So we've talked about climate risk, we've all referenced climate risk. How do you analyze climate risk? I think that there is a shift happening as we move forward. So let's unpack that a little bit. Why should financial institutions focus not just on understanding their own climate change related financial risks, but also how their lending portfolios contribute to that risk? Mindy,

you first on this one. Sure. You know, banks are bigger than their own individual portfolios. So banks have traditionally looked at the risk from their project financing of a coal plant or a pipeline project, or whatever it is, or renewable energy project. But the reality is, given the fact that climate is a unique risk, a systemic risk, meaning across the system of our economy, banks, given that they rise and fall based on the strength of the economy, must be looking at not only are they analyzing the risk to the portfolios in their oil and gas sector, or are they also equally analyzing the risk from climate change to their agricultural sector? Because we know that when there's a storm, when there's a storm, and a farm can only farm half of their crop, the implications across thousands of farms across our agricultural sector are severe. As it relates to an insurance sector, if all of a sudden, we're seeing dozens of billion dollar payouts, even if the bank is in financing a particular project, those billions of dollars impact the strength of the companies in the portfolio of the banks. To really attract... So it's really...

risk. A, we need to understand it as a systemic risk, something that cuts across the economy.

Yeah, I mean

And we've got to treat it as a material risk. And we're seeing more of that done in Europe.

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way possible, as well as acting on that risk. What we are seeing from the private sector is an irreversible movement to acting on climate because they see the implications. They know they're real. They know how severe they are. And they understand that the price, cost, and tragedies from climate change grow every day if we don't act now. And so we're seeing some of the world's largest companies, largest financial players, starting to integrate climate risk into how they evaluate their portfolios, what kind of decisions they make. Now, we're not moving at a pace that's quite ready to get us to net zero by 2050 or sooner. But the presumption that climate is a significant and real financial risk, that presumption is now dug in. And I don't think there's anything that's going to change or take

us backwards. I'd like to return to the topic of solutions and how we address these risks. Mindy, Ceres recently released a report that investigates banks' exposure to climate risk, but it also lays out a blueprint of innovative, sustainable financial solutions that ensure that banks like Citi aren't just walking away from high-carbon clients. Tell us about some of those critical financing solutions.

Sure. And the solution set has no limits, quite frankly. There may be $1.5 or $2 trillion being discussed in the Congress around an infrastructure bill, a bill to build back better coming out of COVID. Right now, we've got the opportunity of a lifetime to either lock ourselves into an economy driven by fossil fuels that's not working, that's slowing us down, that's polluting, that's creating the wrong jobs, or we can move to an economy that's the economy of the future. So the first thing we ought to do is make sure that that $1.5 or $2 trillion is spent in the interests of a future economy. It'll spur innovation around electric vehicles, around charging stations, around how to insulate our homes, around energy systems. I mean, Citi's $250 billion investment does that. We also need to make sure at a public and private level that equity is built into those solutions. Right now, pollution, damage from climate impacts the neediest in the worst ways. When we're spending the public dollars or any dollars, but particularly our public dollars, we need to make sure that we're thinking about how to build out better in a way that's about cleaner energy, cleaner technology, good jobs, good jobs for the right people, and really paying attention to equity because it does matter and it will make a huge difference as we move forward. It really does mean that we're going to have mass transit in communities that people don't own cars or have six car garages, but they deserve to get to work and get around and do so in less polluting ways. Now's the time to be the architects of our future that create good jobs, innovation, and take us in the

right direction. So building on what Mindy was just saying, what are some of the specific solutions that

Citi has brought to the table? So first of all, in sort of the circular economy space, we recently completed a green bond offering for our client Cal plant. And this offering was to help to finance the construction of a medium density fiberboard plant in Willows, California. The plant uses a waste product, an agricultural waste product called rice straw, which used to be actually incredibly environmentally damaging as it was disposed. It was either burned, you know, as a waste product, or farmers would flood their fields and the rice straw would decompose and release methane as it was decomposing. And so instead, what our client did was take that rice straw waste product, and, you know, is constructing a plant to turn that into medium density fiberboard for construction. And this plant will be the first commercial scale plant using rice straw to do this. Another transaction that we recently closed that is near and dear to my heart because it takes place in my home state of Virginia was for our client S-Power, which is developing the Highlander Solar Project. This is being developed in Spotsylvania County in Virginia and in an area that's called a remake of fiber mold plant being detailed. Let's do this. Take care. data center alley. So it has the world's largest concentration of data centers in this part of Virginia near Dulles Airport. And our client is building this solar project that's going to be

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a sort of virtuous cycle of companies setting renewable energy commitments and, you know, looking for more and more renewable energy to feed into the grid. Our technology clients building data centers and really having a demand to power those data centers with 100% renewable

electricity. Those are great examples. I love them. Mindy mentioned equity before as a measure of how successful these solutions might be or what they might look like. So beyond just what you're financing directly, what are some of the real world human impacts of those solutions? And what are you looking for when you do a project like that? When we announced our previous goal, the $100 billion

environmental finance goal, we, as part of that announcement said, we're not going to just measure the dollars that are contributed toward the goal as part of our financing. We are also going to seek to measure the environmental and also the social impacts of that financing, because we felt like that was like this human element was a missing part of the conversation. So we got to work figuring out how to do that. The environmental impacts were not as hard to measure, you know, for projects and types of financing where we really feel like we can see the end impacts of that financing. We measured greenhouse gas emissions that were avoided or mitigated. We measured the amount of renewable energy that our clients through our financing were putting into the grid. But we also managed for the projects and the financial transactions where we were able to, we measured the jobs that were supported. So, you know, as part of the $100 billion environmental finance goal for a subset of those transactions, we were able to measure the job supported, you know, nearly 200,000 jobs, clean energy, new economy jobs, you know, just from that subset. And we also looked at different ways to manage benefits to families as well. For example, the families that were served through green affordable housing. So I very much think that it's important to not lose sight of the environmental and social benefits and impacts as well, especially in the, in the green financing space, because there is absolutely not a trade off between environment and community benefits, they go hand in hand.

Thank you for that. I wanted to return to just to a thought that both of you raised earlier, which is on why it's important for the financial community to be aligning on, on their, their policies and on, on the way that they're acting, especially with respect to how they think about the Paris Agreement, how they, they look at where they're putting their money and, and assessing, assessing that. And in fact, Citi is part of a group, a couple of groups, the Paris Agreement capital transition assessment methodology. I'm just wondering if you can speak to why Citi is part of that methodology, and why it's so important for the financial community to be allied.

Sure, well, we've talked about the importance of, and I think, you know, financial institutions talk about this all the time, right? You, you manage what you measure. And it turns out that when you talk about measuring climate risk and climate impact associated with a bank's financing, there is not a tried and true methodology for doing that. So what we are doing is basically bringing the emerging different methodologies to the table to test them and to begin rolling them out and reporting on what we learn. You mentioned PACTA, the Paris Agreement capital transition assessment. This is a methodology focused on a bank's loans to more carbon intensive or carbon risky sectors. And what the methodology aims to do is to look at your loans to different industries, whether it's the energy sector or the cement sector. And to look at your loans, like for your loan portfolio, and for clients within that loan portfolio, where are they in terms of Paris Agreement alignment? Are they aligned? Is there a significant gap? And that starts to give you different information that you can use to reduce the gap and to bring, you know, to help support clients and whole industries to transition.

into Paris Agreement alignment. Great. Mindy, do you have any perspective on that alignment question on how the financial community really needs to be allying on these ideals?

Right. Well, when the Paris Agreement was being negotiated, we sat down with people like Val, and five or six of the most major banks in the world, and all those were U.S.-based, and put together a statement calling for a passage of a strong agreement and what it ought to look like. And why did they do that? I mean, why were banks weighing in on the Paris Agreement prior to that? It was very rare, if not never happened, where even one bank showed up for those kind of negotiations, let alone six of the banks together. But I think they came together for the obvious reasons that have only grown far more stark and far more severe. The overall economics, the overall impacts of climate change to our economy, to every sector of the economy, not just the energy sector, but to every sector. The implications are huge, greater than what we're seeing from COVID, and will impact everybody's portfolios. So the fact that banks are coming together to act on that speaks to who they are, and what they need to address, which is risk, risk to their portfolios and risk to the overall economy. So I think banks are digging in appropriately, because they see the risk to their portfolios. And they're also digging in to be part of the solution set, because they know, when they invest 100 billion or 200 billion, it is about the economy of the future, where I think there's money to be made. I don't know a lot of banks, and certainly Citi is not one of them, that are looking to lose money, they want to make money. That's a good thing. It's their job. And the economy of the future are the places where they're likely to make it. So the fact that we're seeing more action and consistent action and bold action by banks speaks to who they are and what their jobs are.

One of the things I was most curious about on my call with Mindy and Val was the role of the public sector in this transition. With so many countries worldwide contemplating green recovery plans to transform the post-pandemic world, what does the finance sector need from policymakers and regulators? And what will the critical public-private collaboration look like? I asked the experts.

I think that the question about public-private partnerships is an interesting one. It's an oft-used term and probably an under-investigated term. What I think it really speaks to is the requirement that we need to organize ourselves differently in order to affect really transformational change. And that's through working with our clients, with groups like Ceres and with Mindy, with our regulators as well and public policymakers. I think that what would help us is to have a price on carbon.

I think regulated industries, people, banks, other large sectors, they want clarity of what the market signals are. Until we have a price on carbon that appropriately and honestly evaluates the real cost of carbon pollution, it's hard to move forward with a level playing field where everybody's operating by the same rules. We need consistent policy that levels the playing field. As it relates to public and private partnerships, we need everything behind us to address this problem. And so Citi's $250 billion times dozens of other banks, the public sector's $1.5 or $2 trillion. That's real money. That could start getting us there. But we need consistent guidelines even there of what the clean economy looks like. How do we get there? How do we do it in a way that's equitable, that really is about using the right products, the right systems, and so on. I don't think the private sector could do it alone. I don't think the public sector could do it alone. Just look at green bonds. Five years ago, we didn't think much was going to happen with green bonds. And now they're oversold every time there's talk of a new green bond. That's an option and an opportunity for the private sector. The public sector could complement it with a green bank, putting more resources into both fixed income and equities. The partnerships have to be consistent with what are the goalposts? Where are we going? What do we want to accomplish? I think part of that will be done through public policy changes, part through regulatory changes, and then part through the leadership and action of the private sector. Great. Thank you. To close up, let's talk about the future.

and what a low-carbon economy actually looks like. Tell us how you imagine the best-case scenario to play out in 10, 20 years from now, and what sectors are leading the way. Mindy, you first.

Well, we talk about getting to a net-zero future by sooner than 2050, and I'm going to jump over that and say we could do it by 2040. We've already seen the electric utility sector shift from coal to gas to renewables, just moving away from the dirtiest options. That's the future. Keep moving away from the things that have created the climate problem, and oil is next, and their financial viability of the oil sector is growing weaker with or without regulations. Secondly, automobiles. I'm going to guess here whether it's 2030 or 2033. 2030, we're not going to see a new combustion engine vehicle coming off our assembly lines. We're going to see electric vehicles driving off the assembly lines in the United States and beyond because the transportation sector now is the second largest after the electric utility and energy sector, the second largest emitting sector, and by now it may be the first. So we've got to redesign what that looks like. Mass transit, cleaner energy, electric vehicles, trucks and buses that are electric. All of that's happening now, but we need to commit to by 2035, they're not going to be manufactured. People won't even have a choice to look at that. And then we have to look at the real economy. We need to look at things like cement and steel as we build out our roads, our highways, our bridges, all of which will be done under a new infrastructure bill. We're using the best resources, not the most polluting resources. Or the airline industry. How do we get their fuel to be less emitting? The technology is there. We need to invest the money. We need to create the rules and a level playing field. We're not going to be putting pollution in the inner cities where people have suffered the most. I mean, think about it. Tesla right now is several times more valuable as a company than Ford and GM together. Now, nobody could have imagined that, but that's the future of our economy. We're on our way, but we need the right systems incentives to get us there. So we could say by 2040, we're going to be a net zero economy.

Val, you get the last word. Tell us how you imagine the best case scenario to play out 10 or 20 years from now.

Well, I think about it in terms of 10, 20, 30, you know, even more years. And I think that so much in the climate change space is about risk. It's a very concerning area to be working in sometimes. And I think it's really important to sort of have that North Star out there of what we are ultimately aiming toward. And I think that that North Star is getting a lot brighter. So what does it look like? Our electricity system is 100% renewable, clean energy, probably mostly from, you know, the renewable energy sources. We've also already talked about from wind and solar, but you also have battery storage. You have hydrogen and, you know, some other sort of emerging technologies that could be a part of that clean energy future. Once you have completely decarbonized the electricity sector, then you electrify everything, right? You electrify transportation probably is job number one. And then you start to look at the, you know, the tougher areas. And I think this is already happening. How are we evolving our agricultural practices so that, you know, we have regenerative agriculture rather than agriculture that's, you know, contributing carbon emissions and, you know, leading to soil degradation? I think there are so many examples out there in the industrial space as well. And I guess I want to underscore a point that was made a moment ago by Mindy around, you know, this is not just about designing a green economy. It's around designing a more fair and equitable economy as well. And it's around designing a healthier economy.

What I love about both of your answers is that you're not just focusing on the bummer of the risks, right? We could be very depressed with this conversation, but the opportunities, the very real opportunities for economic growth, for new technologies, for innovation. And I love that. I love ending on that hopeful note. Follow the money and we'll turn this risk into opportunity. Val and Mindy, thank you both for joining us on Global Translations today. It's been a fascinating conversation.

Great. Thank you.

Thank you, Heather.

Thank you.

Citi has played a critical role in greening our global economy for years. From their support in developing the Equator Principles in 2003, to crafting the Green Bond Principles in 2014, and most recently developing the Poseidon Principles, a global framework to reduce GHG emissions within the shipping sector, the innovative financial leader leads by example, designing and implementing solutions that re-examine the way climate risk is analyzed and managed. Applying lessons from these impactful initiatives, Citi is uniquely positioned as the world's leading bank in driving the transition to a low-carbon economy. But it's going to take more than one bank to avert the climate crisis. Non-profit organizations like Ceres advocating for change, public policymakers and regulators making bold moves, and widespread private sector buy-in will play critical roles in facilitating a smooth transition to a greener world. Thank you for joining us on this special branded episode of Global Translations presented by Citi. We'll be back January 27th to discuss the future of work and labor supply. I'm Heather Clancy. Thanks for listening.

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