2018 - 2019 Edition of Citi Perspectives for the Public Sector

Citi Perspectives for the Public Sector |  2018-2019 11 banks with substantial green assets and the “voluntary” Industrial and Commercial Bank of China (ICBC) green stress test as a taste of what is to come. Again, in the regulatory space, one aggressive move could force a global behavioral adjustment that plays out on the funding side. 9 12. The Risk Equation: In addition to the potential that ESG investors become an axe in any individual trade, there will also likely develop more downside market risk to not being green or sustainable. Consider the withdrawal from coal lending by many global banks, including Citi, or the move by the Government Pension Fund of Norway to withdraw from hydrocarbon fuels writ large. 10 Once ESG investors have activist- like status in the fixed income market, there will be increasingly meaningful downside to unsustainable behavior. Moreover, as government asset pools (which make up 12% of global markets) adopt higher sustainability standards, sovereign wealth funds, government controlled pension funds and maybe even eventually Central Bank reserve managers will introduce sustainability policies into their investment parameters, potentially making them large natural buyers of sustainability paper. While the above dozen points represent my best attempt to extrapolate current trends and themes five years into the future, only commitment from investors and issuers to make sustainability bonds flourish will deliver real results. Nevertheless, the likelihood of a trillion-dollar, mainstream and broad- based sustainability bond market is high. In parallel, ESG investors, ratings agencies and regulators will increasingly financially penalize counter-sustainable behavior, reinforcing core sustainability bond market objectives. There can be little doubt that if this market continues to grow and develop as described above, the United Nations and the world will move much closer to funding and achieving the objectives set out by the SDGs, making the world a better place. 9 Jones, Huw, “ EU to order financial advisors to think green: document, ” Reuters.com, March 5, 2018, https://uk.reuters. com/article/us-eu-banks-climatechange/eu-to-order-financial- advisers-to-think-green-document-idUKKBN1GH2ML 10 Sheppard, David, “ Norway wealth fund proposes to end oil and gas investment, ” Financial Times, November 16, 2017, https://www.ft.com/content/611c2e9e-cad9-11e7-aa33- c63fdc9b8c6c