Executive
Perspectives
BCG is proud to be the Exclusive Consulting Partner of COP27

COP27: An Inside Perspective

November 2022

AGENDAOVERVIEW
Context
Key achievements
and remaining
challenges
Look ahead tonext year

DEEP DIVES
Insights & outcomesfrom key topics at
COP27
Overview of tworeports publishedahead of COP

1

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BCG Executive
Perspectives

Governments agreed in Glasgow to accelerate climate action but progress has been mixed
amidst global crises. COP27 began with gaps across the agenda and tempered expectations

COP27
delivered onloss & damage
but did too
little to avoid it•1

COP27 elevated the concerns of the Global South including adaptation, water, food, justtransition, and most importantly agreement to establish a finance facility for loss & damage•2

A shift to implementation - from pledges to pathways and projects – along with calls for
greater accountability from governments and corporates alike•3

A more sophisticated finance discussion (incl. packages for Indonesia and Egypt) andmomentum for reform of the IMF and MDBs but a +$3Tn finance gap remains•4

Engagement from business, finance and sub-national governments remained highwith a determination to lead evident across sectors•5

Context for negotiations was challenging, the mandate narrow, and expectations low so
progress on loss & damage was an unexpected win but COP28 faces a heavy lift•

Parties failed to increase national ambition (agreed at COP26) and little was done toclose the policy gap. So the goal of limiting global average temperatures to 1.5°C by 2100
remains, but it is very unlikely given emissions must fall 45% by 2030 but are set to rise 11%

6

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Nonetheless, +30k delegates including c.100 Heads of State (excl. China, India, Russia) and many
CEOs came for two weeks of negotiations, announcements and discussion. Six takeaways:

Looking ahead, the 'Biodiversity COP' in Montreal must build momentum for nature ahead of
COP28 in UAE where the world will need to deliver a response to a sobering Global Stocktake
See our Topic Deep Dives for progress and challenges across the COP
2

Several planetary tipping
points at risk before 2.0°C• Collapse of Greenland’s
ice sheet accelerates
warming & sea-level rise
• Die-off of the low-latitude
coral reefs, which
devastates fisheries• Collapse of the boreal
permafrost releases <100
GtCO2e of methane (20%of our carbon budget)
GLOBAL WARMING THRESHOLDS
<2OC

2-4OC

≥4OC
3

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CONTEXT | We are on track for 1.5°C warming by 2030 beyond which the risk of
breaching critical tipping points rises significantly

Rio Earth
Summitestablished
UNFCCC1

Parties committed to a collective temperature goalof "well below 2.0°C" and "best efforts" for 1.5°C but
allowed states to set their emissions targets andraise ambition every five years

1997

2015
2021

COP28 in UAE must
respond to the Global
Stocktake of progress
towards Paris goals

2022

2016

1992

Kyoto Protocol marked 1st commitment
to reduce GHG emissions

Click for our
Executive
Perspectives on
COP26
COP26 in Glasgow focused on the targets andcollaboration required to keep 1.5°C alive and decisively broadened the COP in theprocess

2023

Marrakech Partnership created High-Level Climate
Champions (HLC) to mobilise non-Party stakeholders

Sharm el-Sheikh elevated theconcerns of the developing world

It has since evolved from…

To…

Focus on negotiations, goal-setting and states

Greater private-sector engagement, broader policy
coordination, more tracking and implementation
4

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COP27 came between the ambition-raising of '26 and the stock take due at '28

At COP26 in Glasgow, parties agreed to accelerate climate action but progresssince has been mixed amidst compounding global crises
However, compounding crises reduced political will for climate action in 2022
August 5, 2022

February 24, 2022

August 16, 2022

US Inflation Reduction Act

War in Ukraine

Food insecurity

Biden signs ~$740B bill to, amongst others,
combat climate change

Russia forces launch full-scaleinvasion of Ukraine

Huge relief as Ukrainian grain shipped but the foodcrisis isn't going anywhere
September 15, 2022

October 27, 2022

October 27, 2022

Fossil fuels to peak by 2030

Energy crisis

Economic crisis

IEA says renewable investments now double
fossil fuels', and fossil use will peak by 2030

World facing first truly
global energy crisis

Risk of Global Recession in 2023
rises amid simultaneous rate hikes

Sources: Press releases

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

Some bright spots kept 1.5°C alive post Glasgow

5

COP27 began with substantial gaps to action across the climate agenda
1

Mitigation

2

Pledges and policies falling short of the Paris
Agreement despite scientific consensus on risk

Adaptation

3

Inadequate focus and funding for adaptation
with a Global Goal on Adaptation needed+2.6-2.8°C

Loss & Damage

Failure to address loss and damage threatening tofatally undermine trust in the process

Current policies

for vulnerable regions ($B)

90% Mitigation

1000+2.4°C

580

Full implementation of 2030 NDCs

Well below 2°C, pursue 1.5°C
Paris Agreement goal

4
Finance

5

1800

Projected L&D costs

<10%

435

of climate funding is dedicatedto Adaptation, but need 11-15%

116

Climate finance flows have to grow
+20% p.a. over the 2020s

Current annual
climate finance

Measurement,
Lack of common metrics andReporting & Verification mandatory disclosure

2020

290

2030

2050

$0.6Tn$4.0Tn<10%

Annual climate finance required by2030 in 1.5°C scenarios

Businesses estimated1 to bemeasuring their CO2e footprint fully

6

COP27 elevated the concerns of the Global South beyond mitigation• Agreed to establish first-ever Loss & Damage financial facility in response to long-time demand• Launch of the Sharm El Sheikh Adaptation Agenda to catalyse non state actors• African Business Leaders Forum elevated business leadership in the Global South• Dedicated day for agriculture raised expectations of systemic approach to food systems

2

COP27 marked a shift towards implementation and accountability• South Africa published Just Energy Implementation Plan endorsed by international partners• $20B Just Energy Transition Partnership agreed by Indonesia and international partners, potential for
additional agreements with Vietnam, Senegal, India to follow• Egypt announced $15B "Nexus on Water Food and Energy (NWFE)" package of mitigation, adaptation& development projects, with novel joint approach on all three topics• Regional Finance Forums identified 450+ projects requiring $600B of financing• UN Secretary General called for zero tolerance of greenwashing in a report on net-zero• Meaningful support for food systems - $15B from IFC, Gates Foundation, others; FAST initiative launch• Italy launched Climate fund with €4.2B/5 years; US-Egypt launched $150m for adaptation in Africa

3

COP27 saw a more sophisticated finance discussion and growing demands for reform• GFANZ published sector guidance for net-zero transition planning by financial institutions• Demands for reform of the IMF and multilateral development banks gathered pace, with French
President Macron and Barbados Prime Minister Mottley collaborating on Bridgetown Initiative

4

Engagement from business, finance and sub-national governments remained high• 33K registered for COP27 the second highest number after 38K at COP26 in Glasgow• Business participation was high at the conference and the fringe e.g., Terra Carta, Bloomberg• Business coalitions gathered pace e.g., concrete/cement added to First Movers Coalition

5

Negotiations unexpectedly delivered on loss and damage but leave much to do for COP28• See page 8

6COP27 failed to increase national ambition or close the policy gap. Whilst back-sliding on Glasgow
Pact was avoided, reaching 1.5°C in warming is now all but inevitable• See page 9

7

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Six takeaways
from COP27
with selectexamples1

Decision text

Formal negotiations
require consensus
amongst 197 Parties
to the Convention
and to the Paris
Agreement

Negotiating tracks

The "decision text" represents the politicalconsensus at the COP including progress madeand the way ahead• There were no major negotiating
outcomes on the agenda at COP27 andprogress was mixed across key tracks✓ Goal of limiting warming to 1.5C remains
in the text despite challenges• Agreement to develop a 'framework' for
the Global Goal on Adaptation but lackof clarity on how developed countries will
double adaptation finance by 2025

✓ Decision to set up a dedicated fund andnew funding arrangements for loss &damage✓ Calls on the shareholders of themultilateral development banks to
implement reforms to scale and improve
development and climate finance×

No reference to the need to peakemissions this decade×

Glasgow text on phase-down coalremained unchanged, not extended toother fossil fuels• The Mitigation Work Programme has
not yet delivered strong outcomes toreduce emissions this decade but haslaunched a process• No progress on the post-2025 collective
finance goal – the successor to the$100Bn target

8

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5

Negotiators made unexpected progress on loss & damage and reiterated
the commitment to 1.5C but there were mixed results elsewhereEmissions are still set to rise 11% by 2030 despite incremental pledges made at
COP27, and are required to fall by 45% for a chance to limit warming to 1.5°C

6Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

Emissions projections based on current policy vs 2030 targets made at Glasgow
GtCO2e per year60

2However, currently in-force policies put us at a
projected 11% increase in emissions vs. 2010 levels
53Gt

50

Emissions will increase 11% above 2010 levels based on current policies e.g.,
ICE phase out, fossil fuel subsidies. This puts on a path to 2.2°C-3.4°C by 2100
Emissions will flatline based on countries' aggregate ambition for 2030
e.g., NDCs. This puts us on a path to 1.9°C-3.0°C by 2100

40

30

1

Emissions must fall 45% below 2010 levels by 2030 for a 50% chance of limiting
global average temperatures to 1.5° above pre-industrial levels as required
under the Paris Agreement, and this includes some 'overshoot' mid-century.

By 2030, annual GHG emissions needto fall by 45% against 2010 levels tolimit warming to 1.5 °C
26Gt

20

We face a huge gap in both ambition and policy. The world can emit a further
460 GtCO2 to have a 50% chance of limiting warming to 1.5°C. We are on
course to exhaust that 'carbon budget' by 2035 based on current policy
Note: 1.5C refers to average global temperatures but there are regional differences,e.g. current global average is +1.1C but Europe is at +1.9C

0
2010

2015

2020

2025

2030

Note: Emissions-to-temperature modelling is probabilistic. We typically refer to theP50 scenario i.e. 50% chance of achieving a given temperature goal

1. Aims to limit average global temperature increase to "well below 2°C" and "pursue efforts for 1.5°C" above preindustrial levels
Note: The policy pathway includes both climate-positive and climate negative policies. Inputs on NDCs & policies vary by country – for example, US IRA is included as a current policy. For details please see here.
Source: IPCC AR6 Working Group I & II reports; UNEP Emissions Gap Report 2022; UNEP Adaptation Gap 2022; UNFCCC; European Environment Agency; Climate Action Tracker

9Looking ahead | Several topics rising up the agenda in the coming year

CentralquestionCentralquestion

Food systems

Water

NatureHealthHow can we increase foodproductivity and resilience
whilst reducing its impact
on climate & nature?

How can we reduce thewater-related impacts ofclimate change, andleverage it for mitigation?

How can we leverage nature
for climate action, whilst
protecting our planetary
boundaries?

How can we make ourhealth systems more
resilient to climate change
and reduce their impact?

Energy transition

Global stock-takeLoss & damage

Accountability

How can we phase out fossil
fuels in a just way? What is
the role of gas?

How can we respond to theglobal stocktake to put theworld on track this decade?

How should the financial
mechanism be structured
and who should contribute?

How should we trackprogress on and ensurethat pledges are kept?

10

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Non-exhaustive

AGENDAOVERVIEW
Context
Key achievements
and remaining
challenges
Look ahead tonext year

DEEP DIVES
Insights & outcomesfrom key topics at
COP27
Overview of tworeports publishedahead of COP

11

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

BCG Executive
Perspectives

Adaptation & Resilience | Urgency and the importance of data, planning,finance & private sector participation established but funding falling short

B

Loss & Damage | Commitment to set up a financial support structure for themost vulnerable by COP28 was an unexpected win

CFinance | Scaling private finance will be critical to reaching the $3.4Tn
required, with public finance playing a crucial role to unlock it

DFood systems | Emerging investment made to catalyse adaptation solutions
in food & agriculture, though mitigation potential remains understated

E

Energy Transition | Strengthening country ambitions backed by concreteannouncements, but commitments still far below needF

Heavy Industry | Step forward for cement decarb. but tangible action at scale
yet to be seen; methane reductions roadmap builds on existing pledges

G

Green Hydrogen | Strong pre-COP momentum in nascent market continues
with additional targets, initiatives and funding

H

Carbon markets | Strong surge in voluntary initiatives and greater scrutiny
over integrity of credits

I

Standards | Increasing expectations & clarity on net zero standards
and climate-related disclosure; regulators expected to follow suit
12

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9 key topics
from COP27:
achievements
and remaining
challenges

AKey facts

Key takeaways from COP27• A&R financing need is expected toreach ~$140-300B1 p.a. by 2030 indeveloping countries alone

A&R was at forefront of COP agenda (decoupled from L&D) and given unprecedented urgency, in a year that witnessed devastationof floods in Pakistan, severe drought and heatwaves in Europe, droughts in Kenya, and catastrophic impact from Hurricane Ian• For some 50 LMICs, annual needs
cost >1% of GDP

Mitigation alone acknowledged as no longer enough whichever climate pathway we are on. Government and business leaders urged tostep up adaptation planning and take action now to avoid cost of inaction• Only $28.6B flowing and growing at a
rate of $500M p.a., i.e., only 10-20%
of 2030 needs will be met

Set of target outcomes for public, private and civil society actors clearly articulated through Sharm el-Sheikh Adaptation
Agenda, raising expectations for greater regional, city & private sector intervention in an area currently heavily skewed towards national actors• Only 1/3 of nations have time-bound,quantified, adaptation targets

Call to action to business to build resilience to physical climate impacts: their physical assets, core operations and supply chain are at risk
with high potential cost of inaction; climate risk assessment and adaptation planning is increasingly critical

BCG@COP27

However, in terms of material action, whilst some pledges were made, still need increase in financial support and potential financial system
reform for LMICs to mobilise funding behind necessary adaptation actions; limited progress on the Global Goal on Adaptation

Key Announcements @ COP27

Charmian Caines, BCG global lead for
A&R, spoke at the COP27 Presidency
event on Shaping the way forward for
Adaptation

13

1

2

3

4

Launch of the Sharm-elSheikh Adaptation Agenda:
first comprehensive global
plan to rally both State andnon-State actors – incl.
businesses – behind a shared
set of 30 adaptation outcomesby 2030

African Climate Risk
Facility formed by 85
insurers to provide $14B ofcover to help climate
vulnerable communities
manage the financial risk ofclimate shocks and increase
resilience

Launch of the Nexus on
Water, Food, and Energy(NWFE) by Egypt with $15B
committed by MDBs; $5B will
go towards food & water
systems adaptation projects

Global Goal on Adaptation:
Agreement to develop aframework to guide delivery
and track progress;
additional request toStanding Committee toreport on progress indoubling adaptation finance

1. Likely a low estimate; Note: LMICs = Low and Middle-Income Countries; Source: UNEP Adaptation Gap report 2022; Sharm El-Sheikh Adaptation Agenda Technical Reports

13

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AA&R | Urgency of adaptation action established; call for increased planning,financing and private sector participation; funding for LMICs falling short

A

A&R | Governments and businesses must adapt to protect against climate
impacts, changes needed to accelerate private A&R funding & tech innovation

Essential for Governments, Cities, States to adapt to protect people, economy and ecosystems• Develop robust adaptation plans grounded in data & analytics and quantify the cost of inaction• Develop project portfolio against which public & private sector can mobilise funding for implementation• Heavy engagement of private sector and civil society needed in order to fund and deliver the necessarytransformations
Corporates need to integrate climate risk and adaptation planning into core business strategy
Climate-related disruption to business will require companies to leverage data and advanced analytics suchas BCG's Climate Impact AI platform to:• Map climate risks and hazards to company assets, operations and supply chains• Quantify operational and financial impact of climate risks• Define climate adaptation and resilience strategies to address risks and potential valuation impact
Changes needed to investment frameworks and systems to increase private capital flow
Traditional Climate financing models and structures are not fit for Adaptation & Resilience. We must:• Define frameworks and taxonomies to facilitate investments that include socio-economic returns,
recalibrate definition and profile of risk of projects to facilitate greater capital flows to A&R• Define project archetypes to effectively target intervention by different public & private players
Radical step up of private sector adaptation finance needed• Private sector share of global A&R flows was at 2% in 2020, and urgently needs to scale to meet the
between $140-300B annual need, especially in developing countries• Increased role for blended finance funds to leverage concessional funding and crowd-in private sector;
and scope for greater private sector participation in A&R planning, financing and implementation

BCG supported
UN Climate Champions topublish 4 technical reports
on achieving the Sharmel-Sheikh Adaptation
Outcomes by 2030

Read more on how corporate
leaders can secure businessagainst climate risk

BCG's AI proprietary platform
enables the quantification ofphysical and transition risks, helps
identify optimal A&R strategies

Grow innovation and technology solutions market• Venture and growth stage financing needed for companies developing innovative and tech-based A&R
solutions; e.g., agritech, climate monitoring systems, more resilient infrastructure materials
Source: Sharm El-Sheikh Adaptation Agenda Technical Reports ; BCG experience and analysis

14

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Business and Government leader implications

| What is
Damage?and increasing climate extremes have
TheExplainer
growing pressureofLossfood &
production
intensified
land degradation
across Africa
regional
The impactsof climate change
whichwith
we keyhave
not or variations
will not avoid

B

Severe floods
in Pakistan
September 19, 2022

Costs from climate impacts are rising exponentiallyand could incur $1.1 - 1.8Tn in damages by 2050

Heatwaves in
EuropeAlready incurred losses
Baseline estimated losses – 2.5°C warming
Severe estimated losses – 3.5°C warming

November 9, 2022

Slow on-set events intensifying
Africa droughts
more frequent,intense, andwidespread

Up to 40% ofworld's land
now degraded

November 3, 2022

Costs escalate with every tenth of a degree &are exacerbated by failure to adapt; some L&D
unavoidable given current warming levels$580B

April 27, 2022

Loss of livelihoods and human heritage
African heritage
sites threatened
as sea-level rise
accelerates
November 19, 2022

Climate-related
migration is on
the rise in North
AmericaNovember 19, 2022

$1,800B

$94B

$138B

Average
2000-2009

Average2010-2019$1,100B

$210B
$290B
2020

2030

Source: "Q3 Global Catastrophe Recap", October 2022, AON, World Meteorological Organization; Germanwatch

2050

15

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Climate impacts have cost $227B YTD from extreme weather

& Damagedelivered breakthroughon L&D
finance
TheLoss
growingpressure| COP27
of food production
and increasing agreement
climate extremes
haveintensified
degradation
across Africawith key
regional
variations
facility landin response
to long-time
demandfromdeveloping
nations

B

COP19

COP21

COP25

COP26

Warsaw International Mechanism for Loss
and Damage created as the main forum
for discussing L&D under UNFCCC
Article 8 of the Paris Agreement
recognised the importance of "averting,minimising and addressing" loss anddamageSantiago Network on Loss and Damage fortechnical assistance was established but
not operationalised

In Glasgow, developing countries proposed
a Loss and Damage Financing Facility but
developed countries rejected this out ofconcern it would render major emitters
liable for uncapped losses, and insteadreferred to the "mosaic of solutions" e.g.,early warning systems & insurance“Glasgow Dialogue” to discuss potential
funding arrangements was established

Shifting politics @ COP27
Going into COP27, observers saw progress on Loss & Damage as critical to the UN process, North-Southrelations and trust after failure to meet the $100B finance pledge and Europe sourcing gas in the face ofenergy crisis despite halting funding for fossil fuel projects in developing world
The G77 + China coalition of developing countries reiterated demand for formal funding arrangements tobe established under the UNFCCC architecture
Negotiations seemed stuck in a logjam as developed countries pushed to ensure big emitters like China are
included as potential contributors but excluded as recipientsThe EU was first to reverse their decision in the final hours of the conference and the fund was ultimately
agreed, leaving important questions like contributor base to be resolved by the transitional committee

A Breakthrough Decision• Agreement defied expectations of stalemate• Long-time demand of developing countries, on a matterof climate justice, was answered in symbolic deal that
can help rebuild trust• Current wording targets "developing countries
particularly vulnerable" to climate impacts – in nod tocalls to consider vulnerability in funding• Parties also agreed on arrangements to operationalize
Santiago Network to catalyse technical assistance todeveloping countries

Outstanding questions
Sources of funding – i.e., which countries
will pay into the fund?
Recipients of funding, which may prompt
discussion on the definition of 'development'
Quantum of funding – Countries only
pledged $350M, or 0.01% of costs alreadyincurred from climate disasters in '22; howwill the proposed fund meet the need torehabilitate losses & damages?

16

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History of L&D @ COP

Public Finance Flows | More progress needed to fulfil $100B pledge;
Replace with private sector
momentum towards greening of international financial systemC

Key takeaways from COP27• Developed countries mobilized$83.3B of their $100B pledge todeveloping countries in 2020, with$33.2B from MDBs1

Developed countries have made some commitments in climate finance at COP27 (incl for loss & damage, A&R, multilateralagreements for coal transition), despite still falling short of critical long-standing pledge to deliver $100B annually• Public finance was ~50% ($321B)
of climate finance flows in 20202

Growing recognition that public finance needs to be deployed in a way that complements & unlocks private finance.
There is an increasing push for reform of global financial institutions (World Bank, IMF), which are no longer fit-forpurpose to respond to climate crisis• Only 16% of the $3.8Tn required
annually for mitigation &adaptation is being deployed3• Emerging markets are receiving
only 27% of necessary flows

BCG@COP27

Financing need for Adaptation & Resilience is now taking central stage; however, it still faces a widening funding gap(only ~10% of $410-560B need was funded in 2020)

Key Announcements @ COP27
1

Veronica Chau emphasizes theimportance of finance deployment
during COP27
1.

UN Expert Group'Songwe-Stern' reporturges innovation tomeet $1Tn financing
need for EMDEs:
revamping MDBs,
expand access toconcessional finance,
innovative debt
repayment4

2

New pledges secured:• Adaptation Fund - $230M• Least Developed
Countries Fund andSpecial Climate Change
Fund, housed under the
Global Environment
Facility- $106M

3'Bridgetown Agenda' to reform global financial
institutions gaining momentum• Calls on IMF to issue $650B, potentiallyannually, to developing countries• Suggests debt restructuring – e.g., outstanding
loan repayments to be paused after climate
disasters• US & France aimed to help lead detailed
planning by World Bank meeting in April 2023

UN-HLEG Songwe-Stern Report, Nov 2022; 2. OECD Report "Aggregate Trends of Climate Finance Provided and Mobilised by Developed Countries in 2013-2020"; 3. 16% figure includes climate finance,transitional finance, and other financing flows to companies and investment vehicles that will have a climate impact; 4. EMDE = Emerging Markets and Developing Economies; MDBs = MultilateralDevelopment Banks Source: What Gets Measured Gets Financed; BCG experience and analysis

17

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Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

Key factsKey facts

Key takeaways from COP27• Private finance was ~50% ($310B)
of climate finance flows in 20201

Investors and banks are increasingly stepping up efforts to pursue the multitrillion-dollar financing
opportunities presented by the transition to a lower-carbon economy ($3.8Tn will be needed annually through2025 to attain net zero). However, for every one dollar deployed in 2020, five more were needed. Scaling private
capital deployment will be critical• Private finance was $13.1B of the$83.3B for developing countries in
2020, but EMDEs need ~$1Tnannually in private finance by
20302

Noticeable shift from commitments to transition planning, as public scrutiny increases andrecommendations for net-zero pledges become more stringent. Despite disassociating from UN's Road to Zero,
GFANZ responded to calls to move towards implementation by issuing new guidelines on transition planning formembers and portfolio companies• Private finance only accounts for
2% of global adaptation flows• Blended finance totaled $160B in
2021 with annual flows at ~$9B

BCG@COP27

Vinay Shandal spoke about grey-to-green
investing and the role of capital in catalyzing
emissions reductions in heavy emitters

Key Announcements @ COP27
1

Prominent private sector climate initiatives
were launched, including:• 18 FIs in the African Business Leaders
Coalition released joint statement with
Paris-aligned commitments and resilienceplans• 30 financial institutions ($8.9Tn AUM)
launched Finance Sector Deforestation
Action (FSDA) initiative to eliminate
deforestation by 2025 and to increase
investments in nature-based solutions

2

100+ new members
joined GFANZ
between COP26 and
COP27, and 300+
setting or
operationalizing
interimdecarbonization
targets

3

GFANZ released crosssector guidance for netzero transition
planning by financial
institutions (for banks,
asset owners,
asset managers,
insurers andservice providers) andinitiatives such as theirdata hub Net-Zero
Data Public Utility(NZDPU)

1. Climate Policy Initiative; 2. UN-HLEG Songwe-Stern Report, Nov 2022; Source: What Gets Measured Gets Finance; BCG experience and analysis

4

UN High Level
Champions andRegional
Commissions, withsupport from BCG,
announced pipeline of
450+ projects globally,
representing ~$600B
investment
opportunity across 80+
developing countries(incl. Africa) to tangibly
advance climate impact

18

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Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

C`Private Finance Flows | Scaling private capital deployment is critical;
momentum in private sector moving from commitments to action

Business implications

BCG thought leadership

Accelerate transition and green finance deployment, focus on achieving meaningful emissions reductionsin the real economy
Leading banks and investors are building capabilities around energy transition financing, but also in newer areas
such as blended financing in order to capture first mover advantage. Grey to green investment theses will become
even more critical as consensus grows about the imperative to finance real economy decarbonization. Partner withgrowing pools of concessional finance to pursue high impact opportunities in EMDEs
Develop a credible transition plan and build capabilities to deliver on themCommitments and targets are no longer sufficient – financial institutions will be expected to have credible transition
plans and associated demonstrable capabilities- notably upskilling, product and process innovation and data/IT
infrastructure; GFANZ has offered guidance on how to do so with emphasis on providing clarity on exactly how FI's
will engage with clients, deploy transition finance and align portfolios
Launch and scale efforts to finance adaptation and resilience across public sector and private sector clients
Climate impacts are happening now, companies and governments alike need to upgrade their operations,infrastructure and supply chains. All sectors are affected, but especially food & agriculture, commercial andresidential real estate, infrastructure, and companies with extensive supply chains. Insurance will play a critical roleboth to close the protection gap and invest in efforts to reduce risks, such as the "Global Shield" initiative launchedby G7 countries and several leading insurance companies
Build data and measurement capabilities, and support sector efforts to increase data coverage & quality
Regulators in EU, US are driving mandatory climate-related disclosures, as are major buyers e.g., US government
requiring CDP disclosures for larger contractors. Major gaps in private sector climate financing data clouds the full
picture on just how much money is actually flowing. Now is the time to invest in climate-related data, IT systems, &processes and disclosures. Sector level efforts such as the GFANZ NZDPU will help to drive greater coverage andquality data for the sector as a whole and enable transparency on financing flows
1. UN-HLEG report Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions"; 2. Emerging Markets andDeveloping Countries; Source: BCG experience and analysis

Read more on: What
Gets Measured
Gets Financed

BCG and HLC organized a seriesof regional fora to understandclimate initiatives and build amature and attractive projectpipeline
BCG supported HLC in
compiling 128 projects ofvarying maturity and deal
sizes from $10-500M

19

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

C

Finance Flows | Seek green finance deployment opportunities & focus ondelivering credible & meaningful transition

Food systems | Significant investment made to catalyse food & agriculture
2.3B
as adaptation solutions, though the mitigation potential understatedD• Up to 2.3B people lack access toadequate food• Agriculture and land use makeup around one-third of global
greenhouse gas emissions• Global yields of maize, wheat,and soybeans have declined 5%
from 1981 to 2010
• The agriculture sector absorbs
up to c.25% of the total losses &damages from climate disasters

BCG@COP27

COP recognized climate impact on food security, but large-scale transformation has not materialised
For the first time, COP hosted a dedicated Adaptation & Agriculture Day, which marked a significant step in recognition of theimportance of food systems; though in marrying the two topics, the potential of agriculture and land use to contribute to
mitigation was under-discussed
Initiatives & funding announced on agricultural R&D, trade, infrastructure suggest systems thinking taking root (e.g.,
Presidency initiatives FAST & I-CAN which address financing & nutrition)
There was also a strong call for addressing food security crisis and driving transformation in parallel to create resilienceand relief from present emergency. However, there was a missed opportunity for major corporate players & nations to commit
to substantial transformation, and key topics like diet shifts and food waste were inadequately addressed

Key Outcomes @ COP27 | ~$15B raised but nowhere close to $300B needed by 20302
1

2

investment in climatepositive food tech in
LMICs doubled to $8B

Shalini Unnikrishnan spoke about theimportance of a food systems focus tounlock progress in climate action

3

launched $6B financing
facility to support
sustainable foodproduction in countries
facing food instability

4committed $1.4B to
support smallholder
farmers in Sub-SaharanAfrica and Asia2

pledged $11M to scale
regenerative agricultural
practices20

1, LMICs = Low- and Medium-Income countries; 2. Annual investment required for food systems and land use transformation estimated to be £300-350B by the Asian Development Bank (2021)

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0
Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

Key facts

Business implications
Conduct thorough planning to adapt to climatic impacts
Extreme weather events like heatwaves and droughts are expected tocontinue to affect agricultural productivity. Given the current pace ofaction, disruptions to the supply chain and scarcity are likely to continue
Agrifood businesses need strong planning (including shifting of crop
types and investing in heat and drought tolerant varieties) to achieve
resilient and sustainable yields

BCG thought leadership
Project spotlight: BCG is
working with HLC on the
African Food Systems
Transformation Initiative(AFSTI) to implement highyielding, resilient, andadaptive farm practices

Read more:
BCG
Perspectives on
impact of war in
Ukraine on foodsystems

Collaborate across value chain to enable systems transformation
Private sector collaboration across the value chain – from production to
consumption – is essential to increase yield sustainably, maintainagricultural frontier, and limit increase in emissions due to land conversion
Collaborating across the full value chain can also unlock the potential offood systems as a source of sequestration and a nature-based solution
Unlock financing through innovative partnerships & policy changes
Actors in the food system can finance the transition by boldly partneringwith each other to share costs (e.g., in R&D) and leveraging blended
finance to direct capital to transformative ventures
Finally, policy support is needed that creates incentives for food systems
transformation (e.g., the upcoming US farm bill)
SourceLinked: BCG presented AFSTI at
the Food & Agriculture Pavilion at
COP27 alongside HLC andleading African smallholderfarmer aggregation organisations

Read more :UN Climate
ChampionsWhite Paper on
Food &
Agriculture
adaptation, codeveloped withBCG

21

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

D

Food systems | Work with actors across entire value chain to implement
adaptation solutions & reduce emissions

Key facts• IEA estimates we need 60% of
global power generation fromrenewables (RES) by 2030 toachieve net-zero by 2050. In 2021,
RES was 28.7%• Need minimum $4Tn investmentp.a. (for tech and infrastructure)through 2030 to reach net-zero by
20502• 0.3-0.6M jobs in power sector
could be lost, but net job creation
positive at +2.6-7.0M

BCG@COP27

Patrick Dupoux joined panel for Africa Just &Affordable Energy Transition Initiative launch

Major wins for JET-P and implementation support, some countries scaled up NDCs, but commitments
not enough to reverse the year's losses, as just transition debate for developing countries rages
Major JET-P wins for developing countries: $18-20B for Indonesia and South Africa's JET-P plan, which details financerequired to deliver low-end of NDCs and the distribution of $8.5B JET-P commitments through 2027, was officially endorsed
by IPG3
Strengthening climate commitments and calls: more ambitious NDCs from some countries, notably Vietnam; India's callfor phase out of all fossil fuels drew support but was not adopted; China's new renewable capacity installation up 25% to 165
GW; US will generate 85% of energy from renewables by 2030; Munich RE to end new oil & gas investments by April 2023
However, commitments (especially funds) still far below need: Indonesia needs ~$1.2Tn to fully replace coal withrenewables; South Africa needs $100B and funding terms which do not require sovereign guarantees; meanwhile role offossils and nuclear in just transition unresolved with strong opposing views even as there was insufficient focus onenergy efficiency

Key Outcomes @ COP27 | >$20B raised, with gathering momentum on critical support
1 Indonesia secures JET-P
agreement for $18-20B;
South Africa's detailed JETP plans officially endorsed;
RMI & Lion's Head Global
launch $15M project
preparation facility, and$75M Caribbean Climate
Smart Fund

2 Egypt launched Africa
Just and Affordable
Energy Transition
Initiative (AJAETI), withsupport from Uganda,
Ghana, Denmark,SEForAll & BCG

3 TCG, GWEC, WRI
convened Asia Clean
Energy Coalition, with
Google, Meta & Samsung,to accelerate corporate
renewable electricity
procurement in Asia inline with policy shifts

4 Coalition of philanthropic
funds incl. Bloomberg
Philanthropies & Sequoia
Climate Foundation
announced $500M toinvest in LMICs on justenergy transition in
3 years

1. LMICs = Low- and Medium-Income countries; 2. UN; 3. International Partner Group comprises governments of the UK, France, Germany, US and EU
Source: IEA Renewable Electricity Analysis; IEA World Energy Outlook 2021 People-Centred Transitions

22

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Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

EEnergy Transition | Strengthening country ambitions backed by concreteannouncements, but commitments still far below needBusiness implications
Opportunities for renewables are set to increase rapidly globallyWith major economies re-committing to energy transition, expect a
step-change increase in deployments, although current economic
challenges mean this may not be immediate as countries grapple with
inflation
Corporates and financial investors should look to support deployments
JET-P and other support announcements signal more de-risked
opportunities in developing world that should not be ignored
Now with >$28B committed for South Africa and Indonesia, clear
opportunity for private capital to augment capital needs for just transition,leveraging JET-P funds to de-risk participation (e.g., blended finance, etc)
Need to pay meaningful attention to and pursue opportunity pipelines inSouth Africa and Indonesia

BCG thought leadership
Project spotlight: BCG
supported the NBI in
South Africa to define what a
Just Transition could look like.
The study was a key input toSouth Africa's Just Energy
Transition Implementation
Plan ( JET IP). With precise &comprehensive detail about
projects, timelines and funding
required, this is now the'poster child' of best practices
for developing countries
looking to gain international
public and private support

Read more:
NBI-BUSA-BCG
study on what
it takes forSouth Africa toreach Net-Zeroby 2050 andensure a Just
Transition

Rising sense of urgency on climate action could raise expectations& scrutiny of corporate support for just transition"There is no scenario where we reach net zero but leave 1 billion people[in Africa] behind"- Damilola Ogunbiyi, CEO, SEforALL. Scrutiny of private
capital support for fossil fuels, and expectation to finance just transition indeveloping world (<2% today) will increase
Source:Read more: BCG's perspective
on how to ensure a holistic andjust workforce transition

23

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

EEnergy Transition | Broadening opportunity landscape, and heightening
expectations of corporate citizenship especially for private capitalKey facts• Hard-to-abate sectors make up
28% of CO2 emissions• Without action, these emissions
will grow 32% by 2050, based on
2021 policies• Decarbonization costs arehighly variable, ranging from $080+ / ton, however, sometechnologies more nascent

BCG@COP27

Simon Birkebaek presented on future ofgreen Hydrogen

Industry paradigm shift as 'hard-to-abate' sectors now present bolder ambitions & actions, landmark
announcements on methane from oil & gas; general concerns about scale and implementation
Breakthrough Agenda launch, a clean technology plan to help keep 1.5°C in reach, was a highlight for the Implementation COP.
First Mover's Coalition left a meaningful impression: membership more than doubled to 66 companies and 9 governments (vs.
33-1 at COP26), with first concrete successes, one signal among many that heavy industry is serious about decarbonization; Notable shift
towards seeing opportunities rather than risks, e.g., in cement industry (5x last year's numbers of low-carbon projects); push fromdownstream industries (auto, consumer goods) visibly moving up the value chain, but scale is insufficient
Oil & gas presented the Sharm El-Sheikh Methane Roadmap to reduce methane through capacity building, knowledge sharing andmeasuring & reporting tools standardization; East Mediterranean Gas Forum shared initiative that compiles best practices forcountries to incentivize emission reductions in the natural gas supply chain; but oil & gas lobbyist numbers drew ire$2Tn investment needed but weak business cases have limited funding; inflation and supply chain constraints could slow transition1

Key Outcomes @ COP27 | Limited fund commitments but expanding activity to drive progress
1

2

3

4

Breakthrough Agenda
launched 28 priority actions
to decarbonise power, steel,road transport, agriculture,etc

CIF launched Industry
Transition Programme to help
developing countries
decarbonize hard-to-abate
industries (with $500M)

HLC announced carbon
removals 2030 breakthrough:deploy CCUS facilities with
3Gt in CO2 removal capacity

First Movers Coalition
launched cement sector;
Africa Net Zero ConcreteGroup launched

Source: IEA; WEF Net Zero Industry Tracker 2022

24

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0
Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

F

Heavy Industry | Step forward for cement decarbonization but tangible
action yet to be seen, whilst oil & gas launched Methane Roadmap

Business implications
Economic headwinds notwithstanding, companies should progress
decarbonization and methane reductions now, using incentives
While the economic challenges mean customers may have tighter
budgets and some supply chain bottlenecks persist, industrial firms
need to build partnerships and leverage existing government incentives(e.g. Inflation Reduction Act, RePowerEU, EU innovation funding,
Infrastructure Investment and Jobs Act, etc) to start deploying lowcarbon solutions, anticipating growing requests from their customers,delivering on their commitments. Likely scarcity for some materials(e.g., green steel) will reward early movers. Need to watch developments
in regional competitiveness given skewed incentives (e.g., US vs. EU)
Consider investing in improving and/or scaling technology
solutions to drive down marginal abatement costs
With technical solutions being increasingly proved as viable, companies
need to rapidly work at scaling commercial solutions even within theadverse economic context, building competitive advantage for the next
cycle; changes in demand are likely to occur more quickly than supply
can follow
Explore opportunities to co-invest in technology solutions to move yourbusiness up the learning curve and to help bring down costs
SourceBCG thought leadership
Project spotlight:
BCG is the Knowledge
Partner of the First Movers
Coalition led by the US State
Dept. and the World
Economic Forum, bringing
together >60 companies with
ambitious commitments to
procure low-carbon materials,
covering aluminum, aviation,
carbon dioxide removals,
cement & concrete, shipping,steel, and trucking. Recently
8 governments have joined
the initiative. More details
about FMC can be foundhere.

Read more:
BCG'sperspective on
how to decarbonise hardto-abate sectors– including
setting long-termtargets based on
emerging
technologies

Read more: BCG's
perspective on
how to target
hard-to-abate
sectordecarbonisation
throughaddressing supply
chain ofconsumer-facing
industries

25

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

F

Heavy Industry | Despite economic headwinds, industry needs to build on
momentum and start implementing decarbonization solutions, with partners

Key facts

Several announcements and clear show of will to accelerate H2 transition,
as more projects and support unveiled• Low-carbon H2 is a critical
decarbonization lever but is now arelatively more expensive solution& is therefore selectively applied

H2's importance for net zero re-emphasised, given H2’s ‘last mile’ ability to reduce scope 1 and 2 emissions to zero>$6B in commitments and some development initiatives announced for hydrogen in developing countries incl. $0.4B Egypt,$1.6B World Bank, >$4B EU. Established funding in US and emerging funding in EU improving business case for commercial viability
and could even spur export from developing countries like South Africa, Namibia and in MENA. However, large investment gap
persists –$3-10Tn needed through 2050 ($10Tn for a net-zero pathway). Also uneven progress on offtake – while Inflation Reduction Act
supports production in the U.S. and RED II addresses offtake issues for the EU, offtake challenges remain unresolved in other markets• Green H2 economics improving,targeting $1.5-3/kg pre-support
production cost by 20303• $3-10Tn investment needed
through 2050; $1-3Tn is required
for low-carbon, incl. blue H2

BCG@COP27

Shift to hydrogen is new opportunity for some developing countries to export to energy importing and decarbonizing economies,
but pipeline still nascent: >1200 projects announced, but only 29 material projects have cleared planning stages (i.e. 2% of projects)

Key Outcomes @ COP27 | >$6B raised as market momentum builds, but large investment gaps4
1

2
Breakthrough Agenda
launched 2030 target toscale up green H2 capacityby 850GW to align with
1.5°C pathways

Patrick Herhold joined a FAB-led
panel to discuss green Hydrogen3
Egypt & Norway launched
100MW plant with EBRD($410M); Egypt & EU
signed partnership onhydrogen & renewables,

4
CIF launched Industry
Transition Programmefor developing countries
incl. announcement ofWorld Bank $1.6B GreenH2 project

Germany announced
additional €4B funding for
H2Global fund; IFC
announced Hydrogen
Development Partnership(H4D)2 with $2-3B
concessional finance tocatalyse private funding

1, LMICs = Low- and Medium-Income Countries 2. Hydrogen for Development Partnership (H4D) with 3 key pillars: (a) developing knowledge and data in emerging markets, (b) strategy & roadmap development(including pre-feasibility and feasibility studies for specific projects), (c) concessional finance to catalyse private sector funding 3. Green H2 pre-production costs are significantly higher than grey hydrogen
although IRA reduces figure significantly in US, bringing cost to parity or better; 4) Moreover, Worldbank launched H4D, Hydrogen for Development, initiative.

26

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0
Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

G

Low-carbon H2 | Strong pre-COP momentum in nascent market continues
with additional targets, initiatives and fundingBusiness implications

BCG thought leadership
Project spotlight:

Pursue footholds in nascent market with rapidly building
momentumHydrogen's role as a ‘last mile’ decarbonization lever for a net-zero
future is clear and building momentum in the project pipeline suggests
growing confidence in market uptake. Corporates and financial
investors should look to secure footholds, e.g., partnering withupcoming hydrogen producers to start securing supply.

Developed detailed scenariosand plan through 2050 andbeyond with costs and impact
across industry sectors for
the Federation of German
Industries to identify paths to
net zero

Read more: BCG's perspective on theworld's ability to meet the demand for
low-carbon fuels and the associatedrenewable energy requirement

De-risk initial investments by partnering and building consortia
across value chain
As technology and costs continue to improve, today companies andcountries alike can look to partner / build consortia along the valuechain as a risk-sharing mechanism to ease entry into the space.
A criterion to choose partners is to look for those who understand policy& financiers' landscape and move in early. We expect early investors toreap higher returns1; the winners will be those who invest in building up
expertise and credentials early in this $3 -10Tn cumulative-investmentby-2050 opportunity (IEA).
1, For more information, please see https://media-publications.bcg.com/BCG-Low-Carbon-Hydrogen-Is-High-Stakes-Investment-Opportunity-Nov-2022.pdf

Read more: BCG's perspective on how to
be an early adopter of low-carbon fueltechnology

27

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

G

Low-carbon H2 | Continued momentum in nascent market; with
opportunities for companies and countries alike

H

Carbon markets | Strong surge in voluntary initiatives and greater scrutiny
over integrity of credits

Key facts
77% of emissions are not covered by carbon
market mechanisms (MtCO2e)~51,190~11,860(16%)~95(0.2%)~39,235(77%)

Overall GHG Regulatory
emissionsregimes

Voluntary
markets

Emissions
not covered

Jurisdictions covered by regulatory regimes areconcentrated in Europe and Latin America

UN guidance affirms the 'mitigation hierarchy' – focus on value chain emissions reductions first, then use
carbon credits for beyond value chain emissions and removals to neutralise residual emissions
Voluntary carbon markets (VCMs) are increasingly being leveraged by developed countries to fundtransition projects in emerging markets
Increased scrutiny on additionality & permanence as credibility checks, as VCMs continue expansion into
nature and biodiversity credits
More refined corporate appetite for carbon credits with growing focus on co-benefits e.g., people & nature
As regulated markets develop, the 'equivalence' of different pricing schemes needs to be addressed

Key Outcomes @ COP27
13

Key: Green = existing regime; yellow = planned regime

UN HLEG's1 guidance affirms credits do notcount towards interim emissions reductions, but
are for beyond value chain mitigation

African Carbon Markets Initiative (ACMI) was
launched with the ambition to produce 300m
credits, $6B revenue and 30M jobs by 2030

2 US announced the Energy Transition Accelerator(ETA) with intent to fund transition in poorer
countries by offering carbon avoidance offsets tocorporations – details to be worked out

4 LEAF Coalition announces issuance of first-everjurisdictional REDD+2 credits, with supply
commitments from Brazil, Costa Rica, Nepal andEcuador

1. HLEG = UN's High-Level Expert Group on Net-Zero Commitments of Non-State Actors; 2. Reducing emissions from deforestation and forest
degradation in developing countries; Source: World Bank Carbon Pricing Dashboard

28

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Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

BCG perspective

Voluntary markets

BCG thought leadership

Take tactical steps to ensure integrity of credits, especially for NBS credits UN HLEG report call out additionality and permanence as minimum criteria1• Use credible standards based on project type
• Ensure a % (20% is seen as min.) of credits are set aside in buffer pool for insurance• Conduct rigorous additionality tests (e.g., prior consideration, investment analysis)• MRV2/Registration: Ensure offset projects are properly tracked
Leverage more economical, high-quality offsets issued by Global South projects
Schemes such as LEAF Coalition offer high-integrity projects at (currently) low rates on thevoluntary market

Regulated carbon markets (RCMs)
Resolve tensions between development of RCMs and the global trading system
EU CBAM levies carbon prices on imports for the first time, extending RCMs tothird country producers; US IRA (while not an RCM) will impact supply chains with strong local
production requirements
These regimes can have a huge impact on export-dependent LDCs – understanding & mapping
supply chain emissions will be essential for managing trade as more RCMs come online
1. Additionality refers to the principle that projects should show emissions reductions would not have happened without financial incentives/credits; permanence is aconcept that safeguards against reversal events like deforestation, floods, earthquakes etc.; 2. MRV = Measurement, Reporting, Verification

Read more: BCG's perspectives on
trade implications of the EU's Carbon
Border Tax

29

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

H

Carbon markets | Take steps to ensure integrity of credits and prepare forinteraction between voluntary and regulated markets

Key takeaways from COP27

Key facts• At the global level, 91% of GDP iscovered by national net-zero targets

As Net-Zero pledges and targets become mainstream, they suffer from growing credibility issues. COP27 called for more integrity ontransition plans, accountability and transparency on implementation, and harmonization across standards• More than 1/3 of large companies
have set net-zero targets, but 65%of those do not meet the minimum
robustness standard

While the landscape of standards remains fragmented, consolidation is happening to streamline effective and consistent practices inclimate and sustainability target-setting, transition planning and disclosure. The UN High Level Expert Group (UN HLEG) on Net-Zero
Emissions built a unified understanding of what the highest standards of environmental integrity entail for non-state actors, alignedwith SBTi guidance which is considered best practice, on issues like carbon offsets, fossil fuels development, deforestation or lobbying• Most corporates leverage multiple
reporting frameworks andstandards to disclose climate risks

Harmonization of voluntary standards provides ground for adoption of tighter regulations, leading to mandatory standards. This
trend is well underway for climate-related disclosures, for a steadily increasing scope of non-state entities, value chain emissions andsustainability indicators to cover% of companies using reporting
framework1
69% 72%

Key Announcements @ COP27
80%

68%
48%
38%
24%
15%

Multiple
2019

30

2020

1

2

3

4

UN High Level Expert Group defined 10
recommendations for net-zero pledges of
non-state actors, aligned with SBTi guidance.
Highlights include setting 1.5 °C-aligned, interim,
absolute emission reduction targets, covering all
emissions across the value chain (Scopes 1/2/3);
excluding carbon offsets from the accounting ofinterim targets; ending the development of new
fossil fuel production capacity; eliminating
deforestation from value chain; annually disclosing
emissions and progress; working with MDBs tofinance the just transition of EMDEs; and calling forstronger climate regulation.

Biden Admin
to require climate
disclosure through
CDP: Major suppliersof the U.S. federal
government will be
required to publicly
disclose GHG
emissions, climaterelated financial risk,
and set sciencebased targets

EU Parliament
adopts Corporate
Sustainability
Reporting Directive(CSRD), extending its
predecessor's
directive (NFRD) tosmall mid-caps,
requiring more
specific quantitative
KPIs incl. on Scope 3
emissions, anddouble-materiality

CDP
Incorporates
ISSB's climate
disclosure
standard: >18,700
companies currently
disclosing through
CDP, adoptionof ISSB's standard
will provide clear &comparable data

1. Data from IFAC/AICPA & CIMA: The State of Play in Reporting and Assurance of Sustainability Information 2019-2020; GRI: Global Reporting Initiative; SASB: Sustainability AccountingStandards Board; TCFD: Task Force on Climate-Related Financial Disclosures; N = 1283 corporates with ESG reports. Source: Net Zero Tracker; Net Zero Commitments by Businesses,
Financial Institutions, Cities and Regions; Whitehouse Factsheet; EU Parliament News; BCG analysis

30

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Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

IStandards | Increasing expectations & clarity on net-zero standards
and climate-related disclosure; regulators expected to follow suit

I

Standards Implications

Business implications
Build a more comprehensive & rigorous net-zero strategy
New standards expect companies and financial institutions to go beyond GHG Protocol-aligned
emissions accounting and SBTi-aligned targets to consider how all business activities effectemissions. E.g., Adherence will require:• Aligning lobbying and advocacy to positive climate action• More robust and transparent net-zero transition plans, governance & incentive structures

BCG product spotlight
CO2 AI, co-developed by BCG and CDP, is a patented AIpowered SaaS tool that allows companies to reliably
quantify and effectively reduce environmental footprint

Anticipate increased accountability to investors and the public, e.g.:• More "hard data" on how climate risks drive decision-making of portfolio managers• Greater transparency to drive public pressure campaigns and potential lawsuits• Increased need to demonstrate incremental progress
Position for success in net-zero execution and disclosure by:• Enhancing climate data and governance capabilities (e.g., via BCG's CO2 AI)• Ensuring appropriate leadership, skills and human resources, and enablement capabilities• Anticipating expense associated with growing climate disclosure cost (e.g., if passed, U.S.
SEC1 regulation will require a form like the 10-k and must be audited)• Advocating and shaping green policies and regulations
Prepare for an evolving regulatory landscape• Baseline current regulatory requirements, adopt forward-looking view to "future proof"
against upcoming regulations• Assess regulatory impacts on suppliers, engage suppliers today to reduce climate andnature-related risks
1. Securities and Exchange Commission

CO2 AI by BCG is fully compliant with the GHG Protocol
and supports other sustainability criteria, such as GRI and
TCFD, also a CDP gold accredited provider for SBT services

31

BCG Executive
Perspectives
AGENDAOVERVIEW
Context
Key achievements
and remaining
challenges
Look ahead to nextyear

DEEP DIVES
Insights & outcomesfrom key topics at
COP27
Overview of tworeports publishedahead of COP

32

Context
There has been a proliferation of net-zero campaigns for non-state actors since
the Paris Agreement in 2015. This has prompted greater scrutiny around therobustness of net-zero pledges and skepticism around greenwashing

Key takeaways

2 landmark
reports
published during
COP to increase
integrity &ambition

The HLEG issued 10 recommendations for non-state actors. Highlights include:
setting interim, 1.5°C aligned targets; focusing on supply chain emissions
and using high-integrity carbon credits after; planning to end use &support for fossil fuels; eliminating deforestation by 2025

Read here: UN High-Level Expert Group's
recommendations on how to develop more robust
net-zero emissions pledges for non-state actors

Context
Developed countries have been unable to deliver on the promise of mobilizing$100B per year in climate finance for developing countries. Further, emerging
markets, excluding China, needs $1Tn per year in external climate finance
The COP26 and COP27 Presidencies and the HLCs launched the independent
high-level expert group in July '21 to outline how to scale climate finance in an
urgent and sustained manner

Key takeaways• Close gap between investors & investment opportunities• Revamp MDBs and triple their annual flows• Expand concessional finance through special drawing rights, voluntarycarbon markets and philanthropy etc.
• Create tailored solutions for debt-constrained countries

Read here: The Independent High Level Expert
Group on Climate Finance on how to scale up
investment for climate and development

33

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

In response, the UN Secretary-General appointed a High-Level Expert Group(HLEG) to produce guidance on setting credible, accountable net-zero pledges

UN-appointed group defines new recommendations for net-zero commitments

CONTEXT
UN appointed groupasked to makerecommendations toaddress the "deficit ofcredibility" of net-zerotargets; resulted in 10
recommendations forbusinesses, financial
institutions, cities
and regions

Announce a
net-zero pledge
with interim
targets modeled
to 1.5 °C

Align lobbying
to positive
climate action

1

6

Account for all
GHG emissions(incl. non-CO2)
across value
chain

Eliminating
deforestation &peatland loss by
2025

2

7

Use carbon
credits only forbeyond value
chain mitigation1

Annually
disclose verified
emissions data,targets andprogress

3

8

Create anddisclosetransition plans
to support a justtransition

Scale
investments inclean energy
transition indeveloping
countries

1. Mitigation action or investments outside of a company’s value chain.
Source: United Nation's High-Level Expert Group on the Net-Zero Emissions Commitments of Non-State Entities

4

9

Include targets
aimed at ending
the use & support
of fossil fuels

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

Recommendations

5

10

Regulators:
consolidate
regulatory
standards aroundguidance34

Songwe-Stern report from the UN Expert Group defines a new climate financeroadmap, critically recommending institutional reform of MDBs

KEY INSIGHT$1Tn in externalfinance needed
annually by 2030 in
EMDCs other than
China

Copyright © 2021 by Boston Consulting Group. All rights reserved. BCG Executive Perspectives updated 15 November 2021 Version 2.0

Report breaks down the primary vs secondary financing sources and priority areas to unlock $1Tn
goal e.g., $400-500B by 2030 for low carbon transport infrastructure, with MDB being primary financier

Four pillars to realize investments

Mobilizing private
finance at scale: build
on GFANZ and Climate
Champions' work toestablish much closer
interaction between
investors andinvestment
opportunities

1

2

Revamping the
MDBs: Alignshareholders' visions
and move forward
strongly at upcoming
MDBs annual meetingsto triple annual flows in
the next 5 years (from$60B to $180B)

Delivering andexpandingconcessional finance:
Expand low-costfinance throughinnovative ways e.g.,
special drawing rights,
voluntary carbon
markets andphilanthropy to double
concessional financefrom rich countries by2025 from 2019 levels(from $30B to$60B)

Source: Finance for climate action: scaling up investment for climate and development

3

4

Tackling
indebtedness with
tailoredsolutions: Expand
access to low-cost
official liquidity
facilities; Include
systematic debtsuspension clauses inloan contracts in theevent of a natural
disaster (pioneered by
Barbados); Expand theuse of debt-forclimate/nature swamps

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