UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS · Citi is one of the world’s largest financial institutions, operating in all major established and emerging markets. Across these

Citi is one of the world’s largest financial institutions, operating in all major established and emerging markets. Across these world markets, our employees conduct an ongoing multi-disciplinary conversation – accessing information, analyzing data, developing insights, and formulating advice. As our premier thought leadership product, Citi GPS is designed to help our readers navigate the global economy’s most demanding challenges and to anticipate future themes and trends in a fast-changing and interconnected world. Citi GPS accesses the best elements of our global conversation and harvests the thought leadership of a wide range of senior professionals across our firm. This is not a research report and does not constitute advice on investments or a solicitations to buy or sell any financial instruments. For more information on Citi GPS, please visit our website at www.citi.com/citigps.

UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALSPathways to Success – A Systematic Framework for Aligning Investment

Citi GPS: Global Perspectives & Solutions

June 2018

Citi GPS: Global Perspectives & Solutions June 2018

Jason Channell Head of Social & Responsible Investment Research

+44-20-7986-8661 | [email protected]

Elizabeth Curmi Global Thematic Analyst

+44-20-7986-6818 | [email protected]

Zoe Whitton Head of Australian ESG Research

+61-2-8225-4811 | [email protected]

Edward McKinnon Australian ESG Research

+61-2-8225-4898 | [email protected]

Tina M Fordham Chief Global Political Analyst

+44-20-7986-9860 | [email protected]

Contributors Rupert Rink Ying Qin

Catherine Leigh Cunningham

June 2018 Citi GPS: Global Perspectives & Solutions

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UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS Pathways to Success – A Systematic Framework for Aligning Investments

Although there is much in the world to be proud of, we still face enormous societal, environmental, and economic challenges. Even in this day and age, more than 2 billion people — a quarter of all humankind — lack access to even the most basic elements of life that most of us take for granted, such as clean water, sanitation, and energy, while 800 million people — more than one in ten of us — remain undernourished. At its most extreme, the picture is infinitely worse; 700 million people, again, almost one in ten of us, still live below the poverty line on less than $1.90 per day, a sum that many of us spend on a coffee without a second thought. More than 40% of children younger than age 14 (800 million) still lack access to a 'complete' education, and are denied the opportunity to reach their full potential. Beyond the obvious impact on their own lives, what benefits might almost a billion extra well-educated people bring to the world?

The 17 United Nations Sustainable Development Goals aim to tackle the challenges, issues, and injustices facing the world by 2030, but the goals themselves are complex. They are arguably all inextricably linked, with numerous feedback loops, not all of them positive. Trillions of dollars of capital wants to invest sustainably but struggles to translate an investment philosophy, which desires alignment with the SDGs, into a practical investment strategy given that complexity.

This report tries, as far as possible, to simplify the SDGs — to examine those interlinkages, to determine the driving forces and resulting benefits, and thereby determine a set of critical paths — our so-called 'pathways to success' — which can lead quickly and most effectively to the achievement of the goals. It allows us to identify who is best placed to do what, from the public sector to the private sector to the investment community, and what their route in might be. We examine the goals individually, attempting to lay out both the incremental financial cost/opportunity of achieving the goal, and the human benefit that might be gained by solving it. In a world of scarce resources, it also provides an indication of which paths might achieve the broadest human benefit for the least financial cost though this does not mean these are the most important — it is not by accident that all roads on our 'pathways to success' lead to the eradication of poverty.

We identify incremental physical investment needs or opportunities in water, energy, and the circular economy alone of $1.5 trillion per year, while social investment areas of education, health, and hunger add up to an annual incremental opportunity of $800 billion. To be sure, these are enormous sums, but much smaller than the sums of capital looking to invest sustainably and tiny in relation to the human benefits that could be achieved. We also examine the innovative financial instruments and frameworks needed to allow that capital to flow to aid in the achievement of the goals.

The SDGs represent the challenge of our generation but a challenge which we should embrace, as the benefits for those suffering most, as well as to the whole global community, would be immeasurable if we were to succeed. By identifying the lowest hanging fruit, the feedback loops, the critical paths, the scale of the opportunity in both human and financial terms, and who might do what, we hopefully break the sometimes daunting SDGs down into a roadmap — a framework which allows all elements of society, from policymakers, to corporates and the financial community, to set out in partnership down a pathway to a better, fairer, wealthier, more inclusive, cleaner, and more sustainable world that we can be truly proud to leave for our children.

© 2018 Citigroup

A Framework for investing in the UN SDGsThe first step to building a framework for investing in the SDGs is to group them together by primary area of focus, then try to break down whether it is a ‘cause’ or an ‘effect’.

Affordable and Clean Energy

Clean Water and Sanitation

Responsible Consumption and Production

Sustainable Cities and Communities

CAUSE

Life Below WaterLife on Land

Climate Action

Good Health and Well-being Zero Hunger

Quality Education

No Poverty Peaceful and Inclusive Societies

Reduced Inequalities Gender Equality

Industry, Innovation and Infrastructure Decent Work and Economic Growth

Environmental/Physical

Economic


Economic

Social Social

EFFECT

SDG1

SDG2

SDG3

SDG4

SDG5

SDG6

SDG7

SDG8

SDG9

SDG10

SDG11

SDG12

SDG13

SDG14

SDG15

SDG16

Next, we identify the linkages and interaction between the different SDGs

SDG1 SDG2 SDG3 SDG4 SDG5 SDG6 SDG7 SDG8 SDG9 SDG10 SDG11 SDG12 SDG13 SDG14 SDG15 SDG16

Environmental/Physical Social Economic Negative or postiveNegativeStrongModerate

StrongModerate

StrongModerate

A Framework for investing in the UN SDGs

Investment opportunities

• Recycling • Waste minimization • Waste management• Energy from waste

• Renewable energy• Energy efficiency• Energy storage

• Water treatment• Sanitation• Desalination• Distribution

networks

• Transportation• Telecommunication

• Research and Development

• Private education• On-line learning• Educational

infrastructure• Educational media

• Pharmaceuticals• Biotech• e-doctors

• Agricultural technology

• Fertilizers

Source: Citi Research, United Nations

Combining the two, we can derive a series of ‘critical pathways’ for SDGs


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Contents Introduction to the SDGs 7 What Are the SDGs? 7

Section 1: Examining the UN Sustainable Development Goals 10 How Do Investors Use the SDGs? 11 Pathways to Success 15 Impact and Opportunity 25 Making it Happen 35 Summary and Conclusions 43

Section 2: The 17 UN SDGs 47 SDG 1: No Poverty 48 SDG 2: Zero Hunger 53 SDG 3: Good Health and Well-Being 59 SDG 4: Quality Education 64 SDG 5: Gender Equality 68 SDG 6: Clean Water and Sanitation 75 SDG 7: Affordable and Clean Energy 80 SDG 8: Decent Work and Economic Growth 85 SDG 9: Industry, Innovation, and Infrastructure 91 SDG 10: Reduced Inequalities 95 SDG 11: Sustainable Cities and Communities 102 SDG 12: Responsible Consumption and Production 108 SDG 13: Climate Action 114 SDG 14: Life Below Water 119 SDG 15: Life on Land 124 SDG 16: Peace, Justice, and Strong Institutions 129


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Introduction to the SDGs What Are the SDGs? The UN Sustainable Development Goals (SDGs) were put in place in 2015 to take up the baton from where the UN’s Eight Millennium Development Goals (MDG's) left off, and to finish what they did not achieve. The SDGs consist of 17 goals which aim to address, by 2030, the biggest challenges facing society, the planet, and humankind — or as the UN puts it, 'People, Planet, Prosperity':

People: 'We are determined to end poverty and hunger, in all their forms and dimensions, and to ensure that all human beings can fulfil their potential in dignity and equality and in a healthy environment.'

Planet: 'We are determined to protect the planet from degradation, including through sustainable consumption and production, sustainably managing its natural resources, and taking urgent action on climate change, so that it can support the needs of the present and future generations.'

Prosperity: 'We are determined to ensure that all human beings can enjoy prosperous and fulfilling lives and that economic, social, and technological progress occurs in harmony with nature.'

The UN Sustainable Development website also goes on to highlight Peace and Partnership, the latter being key to achieving the goals, and noting that without the former, there will be little sustainable development — and we note, vice versa.

Figure 2. The UN's 17 Sustainable Development Goals

Source: United Nations

Figure 1. The UN SDGs

Source: United Nations


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Beneath these 17 goals are 169 specific targets, which attempt to break down the 17 goals with the UN also specifying which indicators it believes are the correct ones to assess progress towards each individual goal or target.

At the heart of the goals is the eradication of poverty, which if successful, could help to tackle so many of the other challenges facing the world; this concept of interlinkage between the goals is a recurring focus of this report. Inclusivity is also a strong thread running through the goals — not only in the obvious headline SDGs of Inequality and Gender Equality, but within most goals there is specific reference to ensuring access or inclusivity for disadvantaged or at-risk groups.

The goals themselves cover an enormous breadth of areas and subjects, from the physical and environmental, to social and human, to economic, policy and governance. Moreover, when one starts to delve down into the 169 targets, and the even more numerous indicators which lie beneath each of them, the sheer scope and scale of the project can seem overwhelming. This is a recurring theme which we encounter with corporates, and in particular investors – how do they align their business practices with the SDGs, both to aid in the achievement of the goals, but also potentially to benefit financially from business areas which, if tackled, will grow dramatically? Most importantly, where to start?

The complexity though does not end there. While each of the 17 goals may seem relatively self-evident at first glance, when one starts to work through the goals it becomes quickly apparent that they are not individual and discrete goals; for example, how can one claim to have eradicated poverty, without succeeding in eliminating hunger, providing energy, water, and sanitation to all, and without 'solving' decent work and economic growth? How can one tackle climate change without succeeding at Affordable and Clean Energy, Sustainable Cities and Communities, Industry and Infrastructure, Life on Land and Life below Water, and via Responsible Consumption and Production? These are just a few examples of the numerous interlinkages which pervade the goals.

Moreover, not all of these interlinkages are inherently positive; significant negative feedback loops exist. Climate Action for example is 'easy' to tackle if we spend $9 trillion, but its interaction with Affordable and Clean Energy is obvious — we can decarbonize very quickly, but at an enormous (headline) cost — and the provision of universal access to energy is also readily achievable, but will push the cost of the energy up considerably, making it inherently less affordable (if at all). And this is not just at a human level — if energy costs to industry rise significantly, what will this do to Decent Work and Economic Growth, as rising company costs leave less for investment? Industry, Innovation, and Infrastructure would also likely suffer similarly from greater cost constraints within corporates. These are not highlighted as the key negative feedback loops – just as examples that not only are all of the goals inextricably linked, but that many of these linkages are negative, rather than being one big virtuous circle.

Different groups use the SDGs for different purposes. Some entities use the SDGs to help society and address enormous social issues, while others identify investment trends and likely growing demand for products and services. While some will be at the charitable/not-for-profit end of the spectrum, others will be unashamedly seeking growth and profit while most may be somewhere in between. The same is true for the investment community — at the so-called 'impact' end of the spectrum, some investors may be more concerned with societal returns than financial ones, while the other end of the spectrum is unashamedly 'following the money'.

The eradication of poverty and inclusivity are strong threads running through the SDGs

The goals cover an enormous breadth of areas and subjects with 17 goals broken down into 169 targets and even more indicators

The interlinkages between goals are inherently positive but significant negative feedback loops exist

Different groups use the SDGs for different purposes


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But that is not to sound negative, and not for a moment to suggest that we shouldn’t try to achieve the goals, or indeed that we can't succeed at many of the goals by 2030. The purpose of this report is to try, as far as possible, to simplify the SDGs — to break them down into similar groups, to examine those interlinkages, to determine the drivers and results, and thereby to determine a set of critical paths which can lead quickly and most effectively to their achievement. It allows us to identify who is best placed to do what, from the public sector to the private sector to the investment community, and it attempts to lay out both the cost of achieving the goal from an incremental perspective, and the human benefit that might be achieved by solving it. This then allows us to look at what our most pressing challenges are, where the biggest financial opportunities are, and perhaps most importantly, where we can achieve the greatest human benefit for the least financial cost.

We are acutely aware that some will disagree vehemently with this approach, at our seeming to 'prioritize' some goals over others (we absolutely are not), or to imply that some are 'bigger' than others — or even that they can be separated at all. We actively welcome that debate and feedback. The goals are used by such a diverse range of groups, and for such wildly differing purposes, that to produce a framework applicable to all, and which works for all is nigh on impossible. We are simply driven by recurring feedback from investors who are trying to align their investment processes with the SDGs, who want to invest sustainably, but are baffled by the enormity of the task, their breadth and reach, and are unsure of how to think about the SDGs collectively, the scale of the opportunities, and where they should start.

By identifying the lowest hanging fruit, the feedback loops, the critical paths, the scale of the opportunity in both human and financial terms, and who should do what in what order, we can hopefully break the sometimes daunting SDGs down into a roadmap for all elements of society, which can help us build a better, fairer, wealthier, more inclusive, cleaner, and more sustainable world both for this generation, and for our children.

How to Use this Report:

Section 1 of the report examines what the UN Sustainable Development Goals are as a concept, what they are used for, how they are used, and by whom. We then examine the interactions between the goals, both positive and negative. We break the goals down into three groups focusing on the physical/environmental, social, and economic, and then further break the goals down into what we see as 'drivers', and those which are more the 'results' of other goals. Finally in Section 1, we use this analysis to derive so-called 'pathways for success', which highlight entry points into investing in the SDGs, which goals those investment areas can drive, and which SDGs those in turn drive. Each of the goals has both a financial and a human number associated with it, which are derived in Section 2. The 'human' number reflects the current number of people currently affected by the goal, or the lives of whom would be improved by its achievement. The 'financial' number is designed to highlight either the cost of achieving the goal, the avoided liability of achieving it, or in some cases the financial benefit of achieving the goal.

Section 2 of the report contains a four-page section on each individual SDG, describing what the SDG is, why it is an SDG (i.e., what is the problem it is trying to address), what the UN sub-targets and indicators are, what our chosen metrics are to derive the financial and human figures described above, what those figures are and how we get to them, and finally an examination of where geographically the greatest opportunities lie.

The purpose of this report is to try to simplify the SDGs to determine a set of critical paths which can lead quickly and most effectively to their achievement

We hopefully can breakdown the sometimes daunting SDGs into a roadmap for all elements of society


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Section 1: Examining the UN Sustainable

Development Goals


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How Do Investors Use the SDGs? While hopefully also useful to governments, development agencies, and supra-national organizations, the main focus of this report is on the private sector, in particular the corporate and investment communities (especially the latter), as to how they can best align their business and investment processes, not only to help aid the achievement of the goals, but also to potentially benefit from aligning with the trillions of dollars which will need to be mobilized to achieve them — thereby offering scope for both a societal as well as a financial return — for the benefit of all stakeholders.

Differing Investment Philosophies For the purposes of development, the SDGs are a uniform project, outlining the system-wide achievements needed in order to reach suitable levels of well-being globally. While this provides a framework for targeting development activity and funding for development agencies, funders, and other stakeholders, for investors the SDGs are unlikely to be a uniform project. Investors will use and interact with the SDGs in very different ways depending on their motivations, philosophies, and mandates therefore understanding the different approaches to ESG (Environmental, Social, Governance) investing is a critical starting point. In the table below, we break this down into five different approaches to ESG or sustainable investing.

Figure 3. Differing Approaches to ESG Investing

Source: Citi Research

At its most simple level, the SDGs can be used as a communication framework to frame existing activities and allow communication of the balance of investment activities in a way which is more meaningful to stakeholders than sector tilts or asset allocation.

• The use of ESG themes and information primarily as a reporting tool on alignment of current activityESG Communication

• The use of ESG information, trends and themes to generate investment advantages and performanceTactical ESG

• The use of investment to achieve social or environmental outcomes in the real worldImpact Investing

• The practice whereby large investors span the whole market, and can invest to achieve or avoid certain outcomes, and exert influenceUniversal Ownership

• Investment seeking alignment with a certain ethical position or code, rather than impact, historically often a position affiliated with a religion, but increasingly aligned with social liberalism

Ethical Investing

The SDGs are a uniform project, outlining the system-wide achievements needed in order to reach suitable levels of well-being globally


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The use of the SDGs as an impact framework is perhaps the most obvious use case, given that they were originally conceived to guide development efforts; as such they provide a clear set of pathways and end goals around which investment activity might be structured.

However the SDGs can also be used in a tactical sense, as they inherently provide a guide to investment themes and 'megatrends' — indicating that the attentions and finance of the world’s governments and other stakeholders are likely to flow in specific directions. Clearly investing alongside these shifts might present the opportunity to run ahead of the curve, anticipate structural change, or simply identify sizeable funding flows into particular industries, assets, or commodities which an investor could then 'piggy-back' on. While this also potentially provides capital to help achieve that goal, it is important to consider the concept of additionality (more later), as while ultimately the end point might be similar, the motivations and philosophies can be very different.

Taking agriculture as a thematic example, the tactical ESG investor might note that if SDGs relating to food and hunger are to be met, significant increases in fertilizer use along with improvements in agricultural technology will be needed, which might be used as a thematic to support investment in promising agricultural technology or well-established agricultural goods providers. Investing in commodities which are used in battery manufacturing represents another recent example, where prices rose dramatically driven by the expected longer-term shifts in mobility and the rapid rise of electric vehicles.

Universal owners are investors that, by virtue of their size, end up owning a broad range of investments across potentially a whole national, regional, or even global market. A universal owner is likely to use the SDGs as an impact framework, albeit from a slightly different angle. On a national basis, the SDGs basically outline a list of desired system-wide improvements. In order to support the health of the economic system they operate within, the universal owner may choose to invest in line with relevant goals in a holistic, or sometimes more targeted impact-oriented manner. Moreover, universal owners often have the potential to drive systemic change by virtue of the influence provided by their scale and reach.

Finally, the ethical investor may use the SDGs as a set of priorities to be incorporated into an ethical position or approach, or as a way to translate an ethical stance into investment priorities. As discussed above, the SDGs effectively outline a set of improvements needed such that basic human rights and needs can be satisfied, and as such they are a strongly ethical project. This is subtly different from the impact investment approach outlined above, as the ethical investor may divest regardless of whether or not they believe their divestment will make little impact on real world outcomes or investment returns.

Investment Relevance vs. Investment Focus

This differential between impact and financial return is important to understand. While some investors may be purely at the impact end of the spectrum of philosophies, such as charitable or not-for–profit entities, others may be entirely at the other — unashamedly following the money – while most might be somewhere in between along that sliding scale.

It is worth noting also that these two philosophies are not usually mutually exclusive, and while often there may be no direct trade-off between the two in the real world, they tend to present somewhat of a spectrum when it comes to investment mandates and focus. Secondly, investors differ in the extent to which they consider ESG issues such as the SDGs a concern.

The use of the SDGs as an impact framework is perhaps the most obvious use case but they can also be used in a tactical sense

A tactical investor could use the SDG’s as a guide to investment themes

Universal owners are likely to use the SDGs as an impact framework

The ethical investor may use the SDGs as a set or priorities to be incorporated into an ethical position or approach

Some investors play at the impact end of the spectrum of philosophies while others are at the follow the money end


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Some investors consider these to be an overarching concern — something which has to be managed regardless of investment returns, often in order to match the desires of important stakeholders such as the ultimate asset owner. Others consider issues such as the SDGs to be central to their investment strategies, while others still may be less concerned with the impacts, focusing more on financial returns. This range of approaches and philosophies is demonstrated in Figure 4.

Figure 4. Differing Investment Philosophies and Approaches


The Importance of Additionality

Figure 4 introduces again this important concept of additionality, which effectively refers to whether or not an investment would have taken place anyway under a business as usual scenario, or whether it is genuinely 'additional'. For example, continuing to invest in shares in a utility may be framed as an investment supporting SDG 7. However, this investment is not adding additional capital to the energy access problem, so it is hard to frame it as an investment which achieves genuine impact. By contrast, investing directly in new energy infrastructure might be framed as an additional investment, particularly where this investment decision was partially made on the basis of its impact. Most investments in listed companies are not going to be additional — it is hard to argue that the capital is incremental to a business as usual case, and so the investment can’t be categorized as achieving an SDG. Instead it can be viewed as being merely aligned with it. Accordingly, it is important for investors to clarify their investment philosophy in terms of whether or not they wish their investment(s) to demonstrate additionality or not.

Summary In summary, getting clarity on how the use of SDGs fits in with an investor's mandate and investment philosophy, and on the point of additionality, is in our view critical to establishing an internally-coherent strategy. It makes little sense to pursue an impact-focused SDG strategy if the investor’s mandate is returns-focused; conversely, it makes little sense to use the SDGs purely as thematic guides if impact investing is part of the mandate. Not only will an aligned SDG approach and investment philosophy lead to a more congruent approach, it will also make it easier to communicate to internal and external stakeholders, and potentially to raise the appropriate forms of further capital. While this may seem obvious, we have seen numerous examples of investors embarking upon engagement with the SDGs (which is obviously a good thing) but without first having considered which approach is most relevant to their investment philosophy.

Impact

Ethical InvestingChoosing to invest or divest in a non-

additional way, based on SDG priorities

Impact Investing and Universal Owners

Investing actively and additionally to achieve certain outcomes attached to

the SDGs

Returns

ESG BrandingUsing the SDGs primarily as a

communication framework for existing returns-driven activity

Tactical ESG Using the SDGs as thematic

indicators, and actively investing or divesting to take advantage of these

trends

Overarching concern Investment concern

Objective

SDG Focus

Additionality is whether an investment would have happened through business as usual or is genuinely additional

Getting clarity on how the use of SDGs fits in with an investors mandate and the point on additionality is critical to establishing an internally-coherent strategy


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While this report does not attempt to be all things to all people, we hope to frame the SDGs in a manner which can be useful to investors (and hence corporates) at both ends of the impact and returns spectrum, as well as for those somewhere in-between. When we move on to deriving our 'pathways for success', we highlight both the financial opportunity presented by the SDG which hopefully aids those investors focused more on financial returns, as well as laying out the potential human impact of achieving the goal for those with more of an impact focus. Combining these approaches then provides a useful tool for those investors — arguably the majority — who are situated somewhere in-between, and moreover also allows us to compare the potential human impact against the cost of opportunity, which offers a tool for allocating scarce capital most effectively, or 'impactfully'.


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Pathways to Success Grouping the SDGs Having considered our investment philosophy, the first step to building a framework for investing in the SDGs is to try to group them according to their primary area of focus. We have chosen to use three broad groupings as follows:


Social/Human

Economic

Not all of the SDGs of course fit perfectly into any one group, and indeed given the numerous interactions examined later, it is possible to argue that many belong in two, if not all three categories. Many will likely disagree with our classifications, but we welcome this debate — it is not meant to be a perfect categorization, rather to identify the primary area of relevance, the interactions come later.

Figure 5. Our Perception of the Primary Focus of Each SDG



SocialEconomic


Quality Education

Good Health and Well-Being

Zero Hunger

Industry, Innovation and Infrastructure

Sustainable Cities and Communities Affordable and

Clean Energy

Responsible Consumption

and ProductionClimate Action

Peaceful and Inclusive Societies

Reduced Inequalities

Gender Equality

No Poverty

Decent Work and Economic Growth

Life on Land

Life Below Water

After considering investment philosophy, the next step is to build a framework for investing in the SDGs by grouping them according to primary area of focus


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We can already hear the howls of protest, but bear with us. Remember, what we are trying to do is to find starting points and paths towards a successful conclusion of ALL of the goals, identify who should tackle what, and in what order. Sustainable Cities and Communities offers the perfect example — its financial opportunity alone as outlined Section 2 of this report demonstrates the scale of the interactivity; yes, it is definitely about the social aspects of clean cities devoid of pollution, with no slums and no poverty, where all the population is well educated and healthy — but it is at least as much about the physical infrastructure required, be it housing, transportation, communication, energy, or water. In our approach, we have chosen to look at which elements are the biggest drivers. If you tackled education, health, and all the other social ills of unplanned urbanization, would it fix, or help to fix all of the physical issues mentioned above? No, it wouldn’t. Indeed it would have a relatively limited effect on them. However, if we tackled the physical/environmental aspects of universal access to water and clean power, clean and efficient transportation with no pollution, housing for all, telecommunications, and universal Internet access, it would also contribute enormously to reducing (if not eliminating) poverty, inequality, slums, and boosting economic growth, decent work & economic growth, education, and access to financial services via the Internet if nothing else, as well as enormous associated health benefits. So yes, the two are inextricably linked, but in this instance one definitely helps to drive the other. In an ideal world with unlimited funds, we would do everything concurrently, but in the real world, we are trying to find starting points and maximize overall results.

Having identified which bracket we feel each SDG predominantly fits into (or where its primary driver is located), the second step of our approach is to try to break down the SDGs into cause and effect, much as our social/physical infrastructure example for sustainable cities above does. Again, there are many grey areas, but as the approach evolves hopefully our plan will become clearer. Figure 6 not only categorizes each SDG by our view of its primary focus, but also splits it into 'cause' and 'effect' — these could equally well be termed 'drivers' and 'resulting effects'.

In our approach, we have chosen to look at which elements are the biggest drivers

Once we identify the drivers, we then try to breakdown the SDGs into ‘cause’ and ‘effect’


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Figure 6. Separating the SDGs by their Primary Focus, and by ‘Cause’ and ‘Effect’


Our categorizations in Figure 6 are likely to require further explanation. Taking the three groups in turn, our reasoning is as follows:

Environmental/Physical: Climate action is achieved via clean energy, responsible consumption and production, and building sustainable cities and communities. These will also have material impacts on Life on Land and Life Below Water, as will Clean Water and Sanitation. Trying to work backwards on the above hopefully highlights the efficacy of this approach, in that the reverse simply doesn’t follow — you can’t 'do' Climate Action, and have Sustainable Cities result.

Economic: While you can change policies which will of course have an effect, the most effective route in our view to achieving Decent Work and Economic Growth is by investing in Industry, Innovation and Infrastructure; to us, one clearly drives the other, rather than the other way around.

Economic

Social


Economic

Social


Clean Water and

Sanitation

Quality Education

Good Health &

Well-Being

Zero Hunger


Sustainable Cities and

Communities

Affordable and Clean

Energy


and Production

Climate Action



Gender Equality

No Poverty


Life on Land

Life Below Water

EffectCause


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Social: Short of investing in helicopter money drops (which arguably still wouldn’t work), it is complex to invest directly in Zero Poverty, or Reduced Inequalities in all its forms. However, if we tackle No Hunger, provide Quality Education to all, and ensure Good Health and Well-Being, we will have made significant strides towards these goals. Moreover, if we do this in combination with tackling the 'cause' elements of both the physical and economic groupings (e.g. energy, water, industry, innovation), we will have made even greater progress. Furthermore, more peaceful and inclusive societies should also result.

We recognize that one can theoretically invest in Climate Action by buying carbon offsets, or conservation bonds to aid Life on Land — our approach is to focus on whether the goal is primarily a driver goal or a resulting goal. A recurring feature of this report is that while everything is potentially a driver, and potentially interconnected, our ultimate aim is to simplify a process which we believe is hindering adoption and alignment by virtue of its complexity, and hence we must sometimes make difficult decisions and categorizations.

The very astute will have noticed from all of the previous analysis, that there are only 16 goals, when there should of course be 17. This is because we have left out goal 17, namely 'Partnership for the Goals'. It is only by all working in concert — the public sector, private sector, the financial community, and individuals — that we will be successful in tackling these goals. Moreover, it is equally arguable that peaceful and inclusive societies are a pre-requisite for the private sector actions that need to be taken to tackle the 'causal' effects outlined above.

And so we start to see a picture emerging; in our opinion some SDGs are more of a driver, while others are more of an outcome. Yes there are complex feedback loops between them all as we shall see later in a more detailed discussion of interactions, but there is a distinction. Moreover, some goals, such as Peace Justice and Strong Institutions are overarching drivers, and are a pre-requisite for tackling ALL of the causal effects, and hence the resulting SDGs.

Who Does What? Breaking the SDGs down like this also starts to highlight who is best placed to do what. Clearly the so-called 'effects' wouldn't just happen by themselves, if we addressed the 'causes' on the left hand side. They require public policy to help the causes which are addressed on the left to translate into the positive effects identified on the right. So, facilitating the achievement of the 'effects' is, in our view, predominantly the responsibility of governments, both national and local, as well as at a supranational level, via appropriate policy.

The causes, or perhaps we should called them controllable variables, on the left-hand side are much more the preserve of the private sector. These are areas that the private sector and corporations, as well as the financial community, can invest directly in, to facilitate achievement of the goals — in an ideal world earning both a financial and a societal return.

Having said that, the causes of the left-hand side are not solely the preserve of the private sector — the public sector must put in place accommodative policy frameworks which allow the private sector to invest, reduce risks, and hence the cost of capital, thereby providing least-cost solutions and leaving room for an appropriate return based on that cost of capital/risk. This could be at its highest level by ensuring political and regulatory stability and the rule of law, ensuring stable and liquid financial markets and the creditworthiness of the country, region or city, down to determining the individual micro aspects of a particular public private partnership (PPP) or concession framework for a single asset in a city.

Public policy is needed to help causes to translate into positive effects

Private sector and the financial community can also help by investing directly to facilitate achievement of the goals


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Governments can also help by putting in place longer-term infrastructure plans which will also allow private capital to invest in long-term, capital-intensive asset-backed projects which can both help achieve the goals, and provide a financial return. This framework indicating focus areas for both public and private actors is depicted graphically in Figure 7.

Figure 7. Cause and Effect Areas, with Reference to Which Sectors of Society Might be Best Placed to Tackle Them


Economic

Social


Economic

Social



Quality Education

Good Health &

Well-Being

Zero Hunger


Sustainable Cities and

Communities

Affordable and Clean

Energy


and Production

Climate Action



Gender Equality

No Poverty


Life on Land

Life Below Water

EffectCause

PUB

LIC

POLI

CY


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This chart should not be looked at in an either/or sense; we recognize that education must also be a result of public policy, as must health and many other SDGs on the left-hand side, but while public policy is important to all, the areas on the left are those which private capital can have the largest effects via direct investment, whereas it may struggle to gain direct exposure on the right.

Building a Critical Path So, we are starting to build a picture of what drives what, and who is best placed to be responsible for tackling which areas. To really turn this into an actionable framework requires more granular examination of the actions that both public and private actors can take, and of the more numerous interactions between the goals.

Sustainability Sudoku Despite our simplistic starting point, the reality is that the interactions between the SDGs are much more widespread, and extremely complex; most are likely to be linked with multiple other SDGs, and the interactions can be strong, weak, and not always positive — some will have negative implications for other goals. Indeed there even exist contradictions within individual SDGs, such as Clean and Affordable Energy — moving to a cleaner energy mix is, at least in the short term, likely to make electricity less affordable.

Given this complexity it is perhaps not surprising that investors struggle to translate an investment philosophy which desires alignment with the SDGs, into a practical investment strategy. Understanding these interactions is critical to determining an appropriate investment strategy, and to aid this we have developed a matrix, as shown in Figure 8, which shows our views of the linkages, their strength, and their direction of influence.

Interactions between SDGs are widespread and extremely complex

Our matrix attempts to show the linkages between SDGs, their strength, and their direction of influence


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Figure 8. Assessing the Drivers and Interactions Within the SDGs


Figure 8 highlights the extraordinary breadth of the interactions between the differing goals, and undoubtedly requires some explanation. It is not intended to capture every single interaction between the goals; as we have highlighted previously, they are arguably all interlinked. The chart above is intended to highlight the driving effect between the goals rather than every possible interaction. The chart should be read left to right, taking the SDG on the left-hand side, and examining whether it is a driver of each of the goals along the top of the matrix. The color scheme is as used before, i.e. blue if it is a driver from a social perspective, green for drivers in an environmental/physical sense, and red for economic.

The matrix highlights the driving effect between the goals


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Starting at the top left-hand side of the chart, eradicating or No Poverty will help to drive Zero Hunger, and reading one line down, vice versa. However, as one example of a relationship which does not necessarily work as a driver in both directions, reading down a few lines shows that in our opinion while SDG 4 Education drives the eradication of poverty, the latter does not in itself drive education — undoubtedly there is a link, but one is more of a driver than the other way around.

As well as positive interactions, there are also potentially negative connotations. For example, growing more food to achieve Zero Hunger (SDG 2) could also have a negative effect on climate change (as agriculture is responsible for 10-12% of total anthropogenic greenhouse gas emissions)1, Life on Land (as we expand land used for agriculture), and Life Under Water (given the potential pollution from agricultural activities). But as we have seen, achieving zero hunger is critical to eliminating poverty — everything seems to matter, and you can't impact one without affecting many of the others.

Where to Start? So, we seem to be back where we started, with a potentially amorphous mass of 17 goals, 169 targets, and numerous indicators, all of which interact inextricably with each other, in varying directions and degrees — but, we've come a long way. If we take our 'causes' and 'effects', as highlighted earlier, and combine them with the more detailed analysis of primary interactions, we can derive a series of 'critical paths' as shown in Figure 9. The driver arrows follow the same color convention as our previous three categories, namely green for environmental/physical, blue for social, and red for economic. On the left-hand side of the chart, we have identified the primary industries where private capital investment can engage with the 'driver' SDGs, either to help achieve the goals, and/or benefit via the capital which will flow to aid their achievement. As before, this list is not exhaustive, and there will be many other routes 'into' the various SDGs — this is purely intended to demonstrate the thought process and to provide a starting point, and we welcome further suggestions and debate.

1 IPCC, 2014: Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Edenhofer, O., R. Pichs-Madruga, Y. Sokona, E. Farahani, S. Kadner, K. Seyboth, A. Adler, I. Baum, S. Brunner, P. Eickemeier, B. Kriemann, J. Savolainen, S. Schlömer, C. von Stechow, T. Zwickel and J.C. Minx (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.

In the matrix, there are both positive interactions and potentially negative connotations

Taking our ‘causes’ and ‘effects’ and combining them with detailed analysis of primary interactions, we develop ‘critical paths’


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Figure 9. Critical Path Analysis for Investing in the SDGs



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While we do not intend to describe every pathway, it is perhaps helpful to examine one or two key examples. Tackling Clean Water and Sanitation and Clean and Affordable Energy, in combination with Responsible Consumption and Production, will flow through to Climate Action, and Life on Land and Life Below Water in a physical (green) sense. That trio will also flow into Sustainable Cities and Communities, as will the social (blue) issues of Quality Education, Good Health and Well-Being, and Zero Hunger, critical elements of building a sustainable city.

Our initial two goals, water and energy, when combined with investment into transport, telecommunications, and research & development (R&D) form the key inputs into Industry, Innovation and Infrastructure, which in turn feeds again into Sustainable Cities and Communities. The lower grouping of 'social' SDGs relating to education, health and hunger all clearly feed across into poverty and inequality in a 'social' (blue) sense, with hunger (via agriculture) also having a clear physical/environmental (green) impact on Climate Action and Life on Land and Life Below Water.

R&D forms an economic (red) input into Industry, Innovation and Infrastructure, which with Quality Education are significant drivers of Decent Work and Economic Growth. The importance of cities, generating 80% of global GDP as highlighted in our recent Citi GPS report Sustainable Cities is demonstrated by the bi-directional financial linkage between Sustainable Cities and Communities and Decent Work and Economic Growth.

Peace, Justice and Strong Institutions and Partnerships for the Goals frame the entire process, and are connected to all of the goals, as highlighted in Figure 9 — we cannot hope to achieve sustainable development without an effective and inclusive governance system, without peace, or without all parties working together in partnership.

We recognize that this approach is simplistic, but it is deliberately so; the vast majority of the innumerable charts which try to comprehensively show the broad range of interactions and feedback loops between the SDGs look more like the kerfuffle caused by a kitten that has found its way into a bag of wool; it is that very complexity which in our opinion makes this simplified process so necessary. Certainly our conversations with investors imply that there is a distinct need for a more simplified approach. Clearly individuals and organizations can choose to adapt and elaborate on this methodology to capture further levels interactive complexity if required, and we welcome feedback and those ideas as we attempt to evolve this approach further.

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Impact and Opportunity In Section 2 of this report in a more detailed analysis of the individual SDGs, we derive two very important numbers for each goal, namely:

The number of people that could be (directly) impacted if we were to successfully achieve the goal (or in some cases specific elements of the goal), and

The annual incremental investment needed to meet the particular SDG (or the specific element of the goal).

As before, this is a highly subjective exercise — there are numerous indicators for success, there are differing numbers of people affected by differing elements even of one individual goal, and the costs vary widely depending on which indicators we choose to signify 'success'. At its most extreme, we could argue that for climate change, the number of people affected is everyone, so let's just use 7.6 billion — but this is true for many of the goals, for example eradicating or No Poverty theoretically helps everyone. But this approach isn’t particularly helpful — it does not provide any relative measure of the scale of the problem, how widespread it is, or how deep it goes. The same is true for the financial metric — for Industry, Innovation and Infrastructure, we could just take the $76 trillion of global GDP, as it affects everything — but it doesn’t give us any relative sense of the scale of the problem, of the avoided liability if we 'fix it', or of the cost of addressing it. The detailed discussion of which metrics we have used for each SDG and why is included in the respective sections in the second part of this report. Figure 10 below summarizes those indicators, both financial and human, with the resulting figures.

For each goal, we derive the number of people that could be directly impacted if we were to successfully achieve the goal and the incremental investment needed to meet the goal


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Figure 10. Citi’s Indicators

SDG Goal Human Opportunity Indicator Human Indicator (Billions of

People)

Financial Opportunity Indicator Financial ($ Trillion per

Year) SDG 1 No Poverty Population under the International

Poverty Line ($1.90), as of 2015 0.7 Cost of closing the poverty gap 0.38

SDG 2 Zero Hunger Total population that is undernourished

0.8 Additional annual economy-wide investment required between 2016-

2030 to achieve zero hunger

0.20

SDG 3 Good Health and Well-Being Total number of people that will see Good Health and Well-Being benefits,

if SDG 3 is achieved

1.0 Mean annual cost to materially achieve Good Health and Well-Being

0.25

SDG 4 Quality Education Total number of additional children that will able to complete pre-primary, primary, and secondary education, if

SDG 4 is achieved

0.8 Additional annual cost to ensure all children can complete pre-primary, primary, and secondary education

0.34

SDG 6 Clean Water and Sanitation Population that do not have access to safely managed sanitation (and

drinking water) in 2015

2.4 Incremental investment need to safely manage Clean Water and Sanitation

0.08

SDG 7 Affordable and Clean Energy People without access to clean cooking fuels

2.8 Additional annual investment needed to provide universal access and clean

energy to all

0.39

SDG 9 Industry, Innovation and Infrastructure Population with lack of access to infrastructure

4.0 Boost to GDP from investment in infrastructure and a 10% uplift to

global R&D budget

0.72

SDG 11 Sustainable Cities and Communities Global population that lives in cities 4.0 Investment opportunity in cities 2.10 SDG 12 Responsible Consumption and Production Population that will gain with better

waste management practices 2.0 Contribution of moving to a circular

economy by 2025 1.00

SDG 13 Climate Action Population exposed to climate conditions exceeding deadly threshold

at least 20 days a year

2.2 Additional investment needed for Sustainable Development Scenario, relative to investment needs of IEA

New Policies Scenario

0.30

SDG 14 Life Below Water People living in SIDS and LDCs (minus LLDC)

0.7 Financial requirement to conserve fisheries and coral reefs

0.04

SDG 15 Life On Land People living in countries with less than 15% forest cover (2015)

1.7 Required conservation investment 0.07

Note: The 2.4 billion people in SDG 6 refer to the proportion of people who do not have access to improved sanitation; the proportion of people who do not have access to safely managed drinking water is lower at 2.1 billion. The financial figure for SDG 15 is the average taken of the funding gap for global conservation of $50-$190 billion. The 2.8 billion people referred to in SDG 7 refers to the population lacking access to clean cooking fuels, while those lacking access to electricity is lower at 1.06 billion. SIDS = Small Island Developing States; LDCs = Least Developed Countries; LLDC = Land-locked Developing Countries. Source: Citi Research

We do not intend to discuss every number above, but it is worth highlighting a few. As an example, taking Zero Hunger, 768 million people are currently undernourished and the additional investment required to achieve Zero Hunger is estimated at $198 billion per year. Measuring both human and financial opportunities for SDG 12 (Sustainable Production and Consumption) is particularly difficult given that this SDG could affect a number of different people and have an effect on different sectors. For our analysis we measure the population that will gain if better waste management practices (2 billion) are put into place and the incremental annual increase in global GDP (estimated at $1 trillion per year) if we moved to a circular economy.2 For more information on each of the indicators please refer to the separate sections for each SDG at the back of the report.

Examining both the human and financial indicators graphically produces the following charts, which give a better relative sense of the opportunities.

2 WEF, 2014. Towards the Circular Economy: accelerating the scale-up across the global supply chains. Note: Circular economy refers to an economy in which resources are kept in use for as long as possible and at the end of service life, are recovered and products and materials are regenerated.


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Figure 11. The Human Opportunity Represented by the SDGs Figure 12. The Financial Opportunity Represented by the SDGs

Source: Citi Research Source: Citi Research

SDG 5 (Gender Equality), SDG 8 (Decent Work and Economic Growth), SDG 10 (Reduced Inequalities), and SDG 16 (Peace, Justice and Strong Institutions) are not included in the previous table as meeting the goals of these SDGs is more of a policy and governance issue. The indicators chosen to measure the impacts of these four SDGs are particularly difficult and are not directly comparable to other SDGs (see figure below for our chosen indicators).

Figure 13. Citi’s Indicators

Sustainable Development Goal Human Opportunity Indicator- Definition

Human Indicator (Billions of

People)

Financial Opportunity Indicator Financial ($ Trillion)

SDG 5 Gender Equality Global female population 3.7 Growth in GDP if we pursue gender equality assuming we close 50% of gender

labor gap by 2030

6% of GDP in advanced countries (in 2030)

SDG 8 Decent Work and Economic Growth

Population classified as unemployed or in vulnerable

employment (2017)

1.6 Global GDP growth rate per year for sustained economic growth

3.5%

SDG 10 Reduced Inequalities Population classified as unemployed or in vulnerable

employment (2017)

1.6 If the income share at the bottom 20% increases by just 1 percentage point, then

GDP growth is expected to increase by 0.38ppts in the following 5 years

Growth to GDP

SDG 16 People living in Fragile States 2.1 Cost of corruption per year 2.0 trillion per year


SDG 5 (Gender Equality) aims to achieve gender equality and empower all women and girls. It is very difficult to invest directly into this SDG, however other SDGs such as Quality Education can help achieve this goal. In our Citi GPS report called Women in the Economy II we state that removing barriers to women entering the labor force and realizing the broader aims of SDG 5 would reap significant economic dividends. Our estimates suggest that the growth impact of implementing a Women’s Economic Empowerment Agenda could be as much as 6% of GDP in advanced economies by 2030 and the human impact of gender equality is obviously far reaching — where women benefit, so do their families, communities, and countries.

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SDG 8 (Decent Work and Economic Growth) is designed to promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. This SDG stresses “full and productive employment, and decent work, for all women and men”, which requires more than just job creation but also the transition of people in vulnerable employment3 to productive, quality jobs. Currently there are over 1.4 billion people in vulnerable employment and 200 million people which are unemployed. Both Sub-Saharan Africa and Southern Asia have vulnerable employment rates of 72%, but the number of people in vulnerable employment is much greater in Southern Asia. The impact of achieving SDG 8 will be hugely significant economically, as the goal speaks to the overall progress of the global economy itself. However this is difficult to capture in monetary value. Therefore we use the global growth rate needed to sustain a “healthy” economic trajectory, which our Citi Research Strategist has identified as between 3-3.5%.

SDG 10 — Reducing Inequality within and among countries — is particularly difficult to assess. Over the years global inequality (at least between countries) has decreased significantly. The population living below the international poverty line has decreased steeply since 1993. However as our analysis shows, inequality within countries has risen across the same period. Solving inequality is not particularly easy. There have been many discussions about the use of Universal Basic Income as a solution to rising inequality, however as described in the back section of this report, this measure is particularly controversial and its long-term success has yet not been tested in any country. We believe that safeguarding and improving the standard of living for the poor as well as the middle class could help reduce in-country inequality. Ensuring good employment for all that includes social protection and additional benefits to other assets would be one way to ensure a fairer and more equal society. The IMF claim that just a one percentage point increase in the income share of the bottom 20% could increase GDP growth by 0.38 percentage points over the following five years. This shows that there are huge additional benefits to society if we could ensure good employment for all (even for the poor and most vulnerable in society). It is important to note that to achieve this would require investment in other SDGs including Quality Education, and Good Health and Well-Being.

Much of SDG 16 (similar to other SDGs mentioned above) emanates from government action and the development of strong public institutions and the rule of law. As shown in our indicators above currently over 2.1 billion people live in fragile states. Out of the 2.1 billion people, 625 million are in the most fragile states — 80% of which live in Africa. We think this clearly demonstrates the potential scale of impact that implementing SDG 16 (or failing to do so) can have in terms of global population. Our financial indicator references the IMF’s estimate on cost of corruption per year which amounts to $2 trillion.4 This aligns well with estimates from the OECD as well as our own calculations using the World Bank Ease of Doing Business Index.5 Meeting the goals of this SDG are imperative if we are to succeed in meeting the goals of other SDGs as without good governance sustainable development would be harder to achieve. 3 The ILO classifies vulnerable employment as own-account work and contributing family work, which is subject to high levels of precariousness. People in vulnerable employment are more likely to be engaged in informal employment, and have less access to benefits from regular incomes and job security. 4 IMF,2016. Corruption: Costs and Mitigating Strategies. 5 We used the World Bank Ease of Doing Business Index to estimate the economic gap of underperforming countries to the median performance .OECD estimates the costs of corruption for economic, political and social development exceeds 5% of global GDP ($2.6 trillion).


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Mapping the Pathways – Cost and Opportunity The last stage in our process is to combine those human and financial indicators with our pathways for success. By applying these figures to our pathways to success graphic, we can start to see the relative scale of the costs or financial opportunities, as shown in Figure 14, and the human opportunity, as shown in Figure 15.

Figure 14. Costing Out the Pathways to Success


$300bn

$70bn

$40bn

$1,470bn

$803bn

$329bn

$470bn

$1,000bn

$390bn

$80bn

$340bn

$128bn

$250bn

$200bn

$200bn

$790bn

$380bn

Finally, we combining the human and financial indicators with our pathways for success


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Figure 15. Combining Potential Human Benefits with the Pathways to Success


2.2bn

1.7bn

700mn

2.0bn

2.8bn

2.4bn

800mn

1.0bn

800mn

700mn

4.0bn

1.6bn

1.6nbn

3.7bn

4.0bn


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The first, and most important thing to note about Figure 14 and Figure 15, is that the figures along the pathways are not supposed to add up. As an example, while it might be applicable to sum the financial opportunities of a circular economy with energy and water in Figure 14 to achieve an environmental opportunity figure of $1,470 billion per year, this figure is bigger than the combined 'benefits' of taking Climate Action, and Life on Land and Life Below Water. This reflects the fact that each SDG is a separate entity, and while they interact, the entirety of a goal may not interact fully with the entirety of another goal, i.e., they may only overlap in certain aspects of the goal, and hence should not necessarily add up. The same is true for the human indicators in Figure 15. Hence Figure 14 and Figure 15 should simply be used to give a sense of what the potential entry points are for corporates and in particular investors, and to give a sense of the relative scale of the investment needed, or the human opportunity.

The conclusions that could be drawn are numerous, but we highlight some key observations below.

Financial Opportunities

The physical and environmental opportunity represented by water, energy and the circular economy equate to around $1.5 trillion per year.

The direct 'social' investment areas of education, health and tackling hunger add up to an annual opportunity of almost $800 billion per year.

The greatest single financial node is represented by Sustainable Cities and Communities at around $2.1 trillion – this is perhaps unsurprising given that, as highlighted in our Citi GPS report Sustainable Cities report, cities represent a concentration of many of the worst environmental and social issues facing the world, with over half of the global population now living in cities, and cities themselves responsible for 80% of global GDP. This investment figure includes both the global incremental investment required in investing in physical infrastructure ($329 billion per year) and global investment required in social infrastructure ($1.75 trillion per year).

Human Opportunities

As before, the human figures along the paths are not designed to add up. As an example, the 2.4 billion people cited alongside Clean Water and Sanitation, is not the same as the water element of 'infrastructure — the 2.4 billion is related to the number of people that lack access to improved sanitation, and is a bigger figure than the 2 billion who lack access to water which is included in the 'infrastructure' figure. While the former relates to our analysis to potentially standpipes, the latter is on our analysis relating to the provision of water and sanitation infrastructure, again much of it in cities. We could have made them the same — but as with the financial analysis, while the goals often overlap, their focus on overlapping elements is often different.

We highlight several key takeaways as follows:

The greatest human opportunity appears to be in infrastructure where the provision of clean energy (both electricity and for cooking) and access to the Internet could have enormous implications for around half the global population (4 billion), with important implications for poverty and inequality.

This opportunity is followed by reliable and safe water and improved sanitation services, which could benefit some 2.4 billion people.

The conclusions that could be drawn are numerous, but we highlight some key observations below

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This opportunity is followed by reliable and safe water and improved sanitation services, which could benefit some 2.4 billion people.

Poverty at a headline level appears to be the issue which affects the least number of people, but while this may be the case in purely numerical terms (i.e., the number of people impacted), to focus solely on this would dramatically miss its significance; arguably the elimination of poverty is the single most important goal, and we are absolutely not saying that this is the least significant — if anything it is exactly the opposite, the single most important goal. Certainly on the UN's Sustainable Development website, poverty is a fundamental thread running through all of the goals and is given a highly prominent position. We return to this issue of significance and non-linearity later.

Making the Most of Scarce Resources By comparing the financial opportunity, cost, or avoided liability of each goal against the number of people impacted, we can form an admittedly crude linkage between the two. This is in no way intended to convey that some lives are more important than others, or that some issues are more 'deserving' than others — it is simply designed as a tool which, in a world where financial resources are scarce, might help in the decision process of allocating capital to help the largest number of people.

Figure 16 plots the financial cost or opportunity against the number of people affected, while Figure 17 turns this into an assessment of the cost per capita of achieving each goal.

Figure 16. Mapping the Financial Opportunity Against Human Impact Figure 17. Implied Per Capita Opportunity/Cost

Source: Citi Research Source: Citi Research

Perhaps the 'greatest' opportunity for impactful investment is in water and sanitation – not only as it affects 2.4 billion people, but because it appears to do so at the lowest per capita cost. Over 2.4 billion currently do not have access to improved sanitation, however the incremental additional cost to reaching SDG 6.1 and SDG 6.2 is relatively low ($79 billion per year) when compared to other SDGs. According to Hutton et al. (2016), current levels of investment can cover the capital costs of achieving basic access to sanitation and drinking water however SDG 6 goes beyond basic sanitation and drinking water and refers to safely managed water and

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adequate and equitable sanitation for all. Therefore the additional investment included in this report refers to the incremental cost needed to reach this milestone.

Another thing which is less obvious, but nonetheless important and which offers a significant ray of hope, is that it is the physical/environmental challenges which are amongst the lowest cost in per capita terms. Water, energy, infrastructure, as well as Climate Action and Life on Land and Below Water are all low in a relative per capita sense, and these are the areas which are perhaps best-suited to private capital, as their physical nature presents the potential for investment to be asset-backed. While the creditworthiness of the regions in which the investment is required remains one of the biggest stumbling blocks, as described later, if risk mechanisms can be put in place to elevate credit quality levels, the investment dollars are there looking for both sustainability related-investments, and long-dated, asset-backed income streams which many of these investments could provide.

At the other end of the spectrum, SDG 1 (No Poverty) seems to be the highest in terms of the cost per person, however this is measuring the total cash injection needed to move people out of poverty rather than the incremental investment needed as measured in the other SDGs. It is important to note that investing in Zero Hunger, Good Health and Well-Being and Quality Education are imperative if we are to ensure that people remain out of poverty. Moreover, as discussed later, this only assesses the costs, and not the enormous benefits to the whole of society — a unarguably much bigger figure across a much bigger population than that calculated above.

SDG 11 ( Sustainable Cities and Communities) also appears to be expensive on a per capita basis, but as highlighted previously, this captures so many other individual goals within it, and affects more than half of the global population. Cities represent a concentrated melting pot of the many of the biggest social and environmental problems facing the world, and hence a high cost is perhaps not surprising. Moreover, not tackling it would have huge implications for the future, with the ultimate risk that this could lead to breakdowns in society, and ultimately drive factors like mass migration. The cost of achieving the goal should undoubtedly be seen in this context of the even greater future costs, both human and financial, if we do not tackle it.

SDG 4 (Quality Education) appears relatively expensive on a per capita basis, but once again, this is not to suggest for a moment that we shouldn’t tackle it — it has perhaps one of the greatest reaches of all of the SDGs, and is critical to the achievement of so many others. While the number of individuals benefitting is calculated according to those children incrementally who would receive pre-primary, primary, and secondary education at around 800 million, it is quite obvious that the benefits to the whole of society would be enormous — and hence the financial benefits would be dramatically greater than the cost figure of providing it (which we have used) and to the benefit of all of us, not just the 800 million. As previously mentioned, the same is equally true of poverty — while the per capita cost might be at the higher end in a relative sense, the benefits to all of society would unarguably be enormous, and we believe far bigger than the cost of doing so.

This highlights just one limitation with this analysis of what is an extremely complex area — when considering the financial aspects of an SDG, should we take the cost of fixing it, or the financial benefit (or avoided liability) of fixing it? The latter is usually a far more complex figure to calculate given all of the feedback loops and interactions, but is potentially much larger, and a comparison of the two, in combination with the (of course) highly important human element offers scope for future work.

Physical/environmental challenges are amongst the lowest cost in per capita terms

Although No Poverty seems to be the highest in terms of cost per person, it doesn’t assess the enormous benefits to the whole of society

Both the cost of fixing the issue in an SDG and the financial benefit (or avoided liability) of fixing it needs to be considered


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Furthermore, we should remember when comparing goals that they are not 'equal' and should not purely be judged on 'size'. Another layer of complexity is presented by the fact that it is the depth of the problem which is in so many cases the real issue, i.e., how far away from 'success' on each goal how many people are. The depth or extent of the issues is not uniform within an SDG, and the hence the costs of addressing it are not linear. While the 700 million people in SDG 1 are reflected as existing on less than $1.90 per day, some will be significantly further below this amount than others, and hence helping individuals move above the poverty line will not be a uniform cost. Clean and Affordable Energy provides perhaps an equally good example of the non-uniformity of the costs. While providing access to power might be relatively cost-effective in a city, it can be disproportionately expensive to provide it to individuals in remote rural locations, especially where populations are highly dispersed. How much on a per capita basis will it cost to deliver power and clean cooking fuels to the last individual in the most remote location? While distributed renewables provide further hope for addressing this challenge, it still remains a challenge.

The key point here is that just because a goal holistically might appear to offer the greatest human benefit for the least financial cost, this is not necessarily true for all elements of the population. For example the cost per capita might be uniform and the lowest for goal 'A', whereas for goal 'B', it may be that we could solve the problem for half of the affected population relatively inexpensively (and at a lower per capita cost than goal 'A'), while the other half might be dramatically more expensive. Hence we should exercise caution in allocating scarce financial resources to the apparently lowest per capita cost goals purely on that basis, as it may be that the capital could be best addressed first to eliminating a proportion of another goal. In this way we might achieve the broadest, fastest progress for the largest number of people, across multiple goals. This also serves as a useful reminder that while 'solving' a goal completely would be wonderful, we can still make an massive impact on an enormous number of people, while appearing not to have achieved the goal completely. Equally important though is the theme running through the UN SDG program, that no-one should be left behind, and that all lives are equally important — we of course concur with that sentiment entirely, and only refer in this sense to allocating scarce resources most effectively for the maximum benefit, which would in turn, as we have seen, have so many potential knock-on positive effects on other goals.

So, much work remains to be done, and caution should be exercised when applying our necessarily limited analysis to impact-related investment decisions. However, we hope that this analysis will further the debate on the implementation of the SDGs in the investment community, and welcome feedback and suggestions as we look to evolve this approach further.

The depth of a problem is another level of complexity when comparing goals

Despite a goal holistically appearing to offer the greatest human benefit for the least financial cost, it might not be true for all elements of the population


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Making it Happen We have examined the goals, looked at the potential costs of fixing them, estimated how many people's lives could be improved, and we have looked at who should tackle what, in potentially in what order. But how do we actually make it happen? What are the mechanisms and instruments which will allow the investment to flow, and the changes to be made to tackle these greatest issues facing the world?

Political and Regulatory Stability and the Rule of Law As we have discussed in many of our other Citi GPS reports, while money is not the be-all and end-all, if we assume that the will is there to tackle these issues, the key to making the changes is getting the investment to flow. As we have also highlighted, there is literally trillions of dollars of capital which is looking to invest in sustainability-related areas, reflecting the changing values of society and looking for a societal return as well as a purely financial return. Moreover, infrastructure represents the key to solving many of the SDGs, and there are equally vast sums of capital, such as pension funds and insurance companies, that are crying out for long-dated, asset-backed income streams to match against their liabilities, and to which infrastructure investments lend themselves so well.

However, the key to getting the money to flow is an appropriate balance of risk and return. Simplistically, the greatest opportunities to benefit the greatest number of people via the SDGs lie in emerging markets, where risk is perceived by investors to be much greater. While the money could theoretically flow, the returns in many of these markets would have to be so high in order to offset the risk, that they would make the projects prohibitively expensive and financially inviable.

Accordingly, the single greatest impact which governments and institutions can have, in our opinion, is to provide a stable political and regulatory backdrop, and to promote the rule of law, end corruption, and develop stable, liquid, and deep financial markets. This would significantly reduce the cost of capital and dramatically increase the quantum of external finance available to tackle the issues presented by the SDGs. Stable and transparent regulatory regimes within those industries which will see the bulk of the financial investment are also of paramount importance.

Long-Term National Social Plans, Targets, and Infrastructure Plans Governments, both local and national, can also help to create the right backdrop for external investment by putting their plans into a longer-term perspective, and by sticking to, and delivering on, those plans. If investors can see a coherent, well thought out longer-term plan, how their investment will fit into that plan, and if they can believe that governments will stick to that plan, they will be far more comfortable investing — and will do so at a lower cost/return. As an example, building an airport might be an obvious area of development for a region, but unless it fits into a broader infrastructure plan with a metro railway to get passengers there, and an associated plan to boost the services necessary to attract businesses into the towns and regions it serves (such as high speed broadband, reliable power, strong transport links etc.) the project runs the risk of being a white elephant.

The key to making changes is getting investment to flow

And the key to getting the money flow is an appropriate balance of risk and return

A government providing a stable political and regulatory backdrop, promoting the rule of law, ending corruption, and developing stable, liquid and deep financial markets is a key to managing risk in emerging markets


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The same is equally true of 'social' investment projects – if an investment in education can be seen in the context of a longer-term plan to provide access to education and boost literacy for example, investors can feel more comfortable that they are investing in a coherent longer-term structured plan, rather than just a one-off injection of capital; it gives them context that their investment will not be alone, and that it has room to grow, thereby providing the scope for a valuable return on that investment.

Innovative Financial Instruments The financial community also has its part to play, and not just in terms of the provision of capital. By developing and growing the market for innovative new forms of finance, institutions can help to make the large sums of capital keen to invest in these projects flow more easily. Two key examples of this are both green bonds and social bonds, which are potentially perfectly aligned to boost investment in the areas critical to achieving many of the SDGs such as water, clean and affordable energy, education, and health, while urban wealth funds could dramatically help sustainable cities and many other goals as a result. Having showcased them in previous Citi GPS reports such as our Energy Darwinism 2 report we do not go into too much detail here, but provide a hopefully helpful overview below.

Green Bonds

Recent years have seen the emergence of the so-called ‘green bond’. Green bonds are a fixed income instrument, the proceeds of which will be used exclusively to finance 'green projects', defined as any activity or project which promotes progress on environmentally sustainable activities, and is in accordance with the recently launched 'green bond principles' outlined below:

1. Use of Proceeds: The finance raised by the green bond must be used for environmentally friendly and sustainable projects such as renewable energy, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation, clean transportation, sustainable water management, and climate change adaptation.

2. Project Evaluation and Selection: The green bond issuer must outline the decision-making process it intends to adopt in determining the eligibility of projects to receive proceeds, in terms of the specific category of project, the criteria which makes the project eligible, and the environmental sustainability objectives.

3. Management of Proceeds: The proceeds should be credited to a sub account and tracked as they are invested with a high level of transparency. The use of an auditor or other third party to verify allocation of funds and tracking is encouraged.

4. Reporting: Issuers should report at least annually on the use of proceeds, in terms of which projects have been financed. The principles also recommend the use and disclosure of qualitative and quantitative performance indicators of the expected environmental sustainability impact of the investments.

Green bonds are used exclusively to finance ‘green projects’

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Types of Green Bonds

There are four main types of green bonds: The most popular and mainstream is a regular fixed income bond which has a full guarantee by the Issuer, however the “use of proceeds” of the bond can only be used for “climate friendly” projects, as mentioned above.

1. Green Use of Proceeds Bond: the most common type, a normal fixed income bond with recourse to the issuer, the proceeds of which must be used for environmentally friendly/sustainable projects.

2. Green Use of Proceeds Revenue Bond: non-recourse to issuer, linked instead to income streams.

3. Green Project Bond: Linked to a single/multiple qualifying green project, with no recourse to the issuer.

4. Green Securitized Bond: A bond with collateral and cash flows provided by multiple projects.

As Figure 18 shows, green bond issuance grew 78% in 2017 to $155.5 billion, with more than 1,500 issues from 37 different countries, taking the cumulative green bonds issuance to around $350 billion. France issued the largest single green bond ever for $10.7 billion, being one of three sovereign green bond issues in 2017 from around the world (Fiji and Nigeria being the other two). 2018 has started well, with notable features being Indonesia's issuance of a $1.25 billion green sukuk, the first sovereign green bond issued in Asia; however, Bloomberg reports that Hong Kong is planning an even bigger sovereign green bond plan of up to $12.8 billion, in which use of proceeds would be for green public works projects.

Figure 18. Growth in the Green Bond Market… Figure 19. …With Early Supranational Dominance Now Being Overtaken by Countries Such as the U.S., China, France, and Germany

Source: Climate Bonds Initiative Source: Climate Bonds Initiative

The Climate Bonds initiative forecasts $250-$300 billion of green bond issuance for 2018,6 implying another year of spectacular growth. The market for green bonds is still evolving, but the emergence of accrediting organizations and industry guidelines/best practices such as the green bond principles is helping to develop the market.

6 'Green Bond highlights 2017', Climate Bonds Initiative (2018).

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Given the potential focus of green bonds in terms of what they are used to finance, their applicability to cities is key, and we believe they will be an important factor in building the sustainable cities which will be needed to tackle to issues associated with rapid global urbanization.

Social Bonds Social bonds are very similar in concept to green bonds, differing only in terms of their use of proceeds, and offer further potential for cities in financing sustainable investment. Social bonds are defined in ICMA's Social Bond Principles (SBP) as 'any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance in part or in full new and/or existing eligible Social Projects and which are aligned with the four core components of the SBP.'7

The four components of the social bond principles are essentially the same as those for the green bond principles, the main difference being in terms of the eligible social projects. These are defined in the social bond principles as projects which 'directly aim to help address or mitigate a specific social issue and/or seek to achieve positive social outcomes especially, but not exclusively, for target populations'. It goes on to list potential projects such as affordable basic infrastructure such as water, sanitation, transport, basic services such as health and education, as well as access to finance, availability of affordable housing, employment, and food security, plus socioeconomic advancement and empowerment. Without listing all of the many possible groups here, targeted populations are clearly those which are economically and/or socially disadvantaged in some manner.

Clearly there is much potential overlap between green and social bonds, and those which intentionally blend both elements are known as sustainability bonds.

Another key element of social bonds can be the conditions which may be attached to payment of the coupon. While not necessarily the case, the coupon is often performance based, in terms of the performance against a specific social goal. For example, private finance is generated by a social bond, which is then provided to a not-for-profit contractor, tasked with reducing or eradicating a specific social issue (e.g. the number of prisoners reoffending within a certain timeframe). The 'coupon' can then be paid by the issuer (e.g., a government or local authority) to the bondholders based on the performance against certain pre-agreed metrics.

The four main types of social bonds are almost identical to the four types of green bonds highlighted earlier, but substituting 'social' for 'green'.

As Figure 20 shows, with close to $9 billion of social bonds issued in 2017 and about $12.5 billion issued cumulatively, social bonds are much smaller than the ~$350 billion green bond market, but are growing very quickly. As Figure 21 demonstrates, social bonds have been a much more public sector-centric product, with private issuance at a relatively small level. As awareness of this interesting new bond class comes through, we would expect growth to be significant, just as it has been in the green bond market. With the potential benefits of sustainable projects in cities, be they 'environmental' in energy, water, waste, transport, or more 'social' in nature, relating to education, health or law and order, the applicability of green and social bonds is very clear, and we would expect to see urban issuance (i.e. the 'sustainable muni' market) accelerate accordingly.

7 'The Social Bond Principles 2017', ICMA (2017).

Proceeds from social bonds are exclusively applied to finance or re-finance new and/or existing eligible social projects, as defined by the Social Bond Principles

The social bond principles are similar to the green bond principles — the main difference being in terms of the eligible social projects

The coupon of a social bond is often performance based

Social bonds issuance is much smaller than green bond issuance but we expect growth to be significant as awareness increases


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Closely allied with the emergence of green and social bonds is the emergence of green sukuk's, essentially an Islamic green bond, which complies with Islamic (Sharia) law via the absence of interest (riba), the 'return' being achieved via other methods, most typically via partial ownership of the underlying assets and hence a share of the revenue which those assets generate.

Figure 20. Social Bonds are Smaller But Growing (by volume)… Figure 21. …With the Public Sector Dominating Issuers

Source: ICMA Source: ICMA

A key driver of the growth in both green and social bonds is institutional demand, and it is here that the good news starts: demand for sustainability-related investments is growing dramatically. While much of the asset management industry is suffering from the so-called rise of passive investment (essentially low-cost trackers and exchange-traded funds (ETFs)), ESG-related assets have grown at a 12% compound annual growth rate (CAGR) in recent years.8 About 1,200 asset managers with $62 trillion of assets under management (AUM), which will include fixed income and alternatives, have signed the UN-backed Principles for Responsible Investment. While credit markets may be some way behind equity markets in terms of Sustainable and Responsible Investing (SRI) and ESG integration, it is picking up pace in what is a much larger market.

Twenty fixed income asset managers with over $19 trillion of fixed income assets under management (AUM), as well as 14 credit rating agencies have signed the "ESG in Credit Ratings Statement”, the purpose of which is self-explanatory. With the global bond market approaching $100 trillion in value, and being much larger than the equity market's $70 trillion, the scope for growth in sustainability-focused investments, especially given their shared longer-term investment horizon is clear.

While subject to the same hurdles and considerations affecting a country, institution or city's ability to issue municipal bonds, green and social bonds offer scope for entities to attract directly sustainability-focused capital, from potentially more 'motivated' lenders which may (though not necessarily) lead to cheaper rates of financing — a debate which we are sure will continue to rage for some time.

8 Global Sustainable Investment Review (2016), GSIA.

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Institutional demand has been a key driver for growth in both green and social bonds

Issuance of green and social bonds offers scope for entities to attract directly sustainability –focused capital


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Urban Wealth Funds

We don’t intend to labor the point in this report, as Urban Wealth Funds are the key message from our sister Citi GPS report, The Wealth of Cities, by Dag Detter and Willem Buiter, and feature heavily as a potential solution to the issues raised in our Sustainable Cities Citi GPS report. In the book of the same name which predates the GPS report, Dag Detter and Stefan Fölster observe that “Achieving a reasonable yield on luckily owned commercial assets could free more resources than most cities' current investment in infrastructure, including roads, railroads, bridges, water, electricity, and broadband. Most cities could more than double their investments with smarter use of their commercial assets.”9

The authors estimate that “governments around the world have an estimated $75 trillion of public commercial assets”. This figure equates closely to one year of global GDP, and contains everything from real estate to government-owned enterprises. Their calculation highlights that a higher return of just 1 percent on these assets would add $750 billion to revenues. In the context of global annual infrastructure investment of ~$2.5 trillion as discussed in Infrastructure for Growth, this could facilitate a 30% increase in global levels of infrastructure investments — and clearly the impact in terms of urban infrastructure investment would be proportionally much greater. Moreover, the impact of this spending on global economic growth, if conducted efficiently, could be considerable.

The essence of the Urban Wealth fund is that while cities may be well aware of their cashflows, both in and out, their current assets, and their liabilities, both long and short term, they rarely have any idea of the value of the their longer term assets. Often these assets may be poorly run and not earning nearly enough of a commercial return compared to their potential market value, and at the extreme may be vacant, given the impact which technology and automation has had on physical provision of civic services (e.g., telephone exchanges).

Most importantly though, if you have no idea of the value of your assets, it is not possible to generate an implied yield, and therefore to make informed decisions about whether to develop a waterfront from a partially used port or airport into a booming new residential district, building a new airport elsewhere or a smaller, newer, more efficient port somewhere else.

So how do you create an Urban Wealth Fund? The first step must be to form a proper schedule of assets, both long and short term, as well as liabilities, to build a fully-inclusive balance sheet based on current rather than historic values. The next step, while not imperative, but probably desirable, is to outsource the management of these assets to a well-qualified external third party (with the correct governance and oversight) which can manage the assets efficiently. Their task will be to compare the revenue generation (or cost saving) from these assets against their current market value to examine implied returns, to consider what alternative solutions are possible, and identify the biggest gaps between current returns and potential returns, thereby identifying the greatest opportunities.

9 ‘The Public Wealth of Cities: How to Unlock Hidden Assets to Boost Growth and Prosperity'; Detter & Fölster (2017).

Generating a yield on a city’s assets would free more resources than most cities’ current investment in infrastructure

A higher return of just 1 percent on these assets could add $750 billion to revenues and facilitate a 30% increase in global levels of infrastructure investments

Without knowing the value of a city’s assets, it is not possible to generate an implied yield

The first step to creating an Urban Wealth Fund is to form a proper schedule of assets, followed by outsourcing the management of these assets

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These greater returns (essentially more money either through income, or reduced costs) can afford a city much greater opportunity to either invest in further physical infrastructure, which if handled efficiently can produce a significant economic multiplier effect, thereby boosting employment and the economy, as well as potentially social benefits by the increased/improved provision of services to the populous, such as transport, telecoms, water, energy, or waste services.

However it could also be invested in a social investment fund which could be used to invest in social assets such as parks or leisure facilities, and/or invested in social schemes such as education, re-training, health, housing, or rehabilitation. All of these could potentially reduce the future costs of crime, health, and so on, as well as improve the overall quality of life for all the residents of a city, as examined in the later section on 'social infrastructure'.

Another potential benefit is that a group with independent oversight of assets may be more at liberty to do what is 'right' for a city from a longer-term perspective, being removed from the political pressures of taking to shorter-term vote-winning actions. Moreover, the correct independent structure can, with the right governance and oversight, reduce the risk of corruption, nepotism, and institutional inefficiency.

Conversely, an Urban Wealth Fund may be criticized by some as 'selling off the family silver' to what are perceived to be purely financially-orientated private interests — this does not have to be the case, since the assets (or the benefit of selling/moving/replacing or restructuring them) will still be 'owned' by the city. However, the right structure and oversight, and explaining the concept and benefits fully to voters, should help to alleviate (if not totally eliminate) these concerns. We believe Urban Wealth Funds to be certainly one of, if not the single biggest opportunity to facilitate investment and further the development of sustainable cities around the globe.

Elevating Emerging Markets to Investment Grade

The reality is that the most extreme instances of, and the prevalence of most of the issues which the SDGs are designed to tackle, are to be found in emerging markets, in particular in Asia, and especially in Sub-Saharan Africa. Many of these governments, both national and social, are operating on limited budgets which means that external capital becomes ever more important to solving these issues.

Moreover, the infrastructure-based nature of the many of the investments which will need to be made lends themselves particularly well to debt finance, which is significantly cheaper than equity and often matches the duration of the asset more closely. However, the stumbling block comes from the fact that many emerging markets are viewed as being sub-investment grade, that is their level of creditworthiness is not sufficiently good to attract, or even allow, foreign capital to invest, for all but the most adventurous of investors. Even if institutions can invest, as we saw before, it means that the returns will have to be so high as to offset the risk, that it either renders the project financially unviable, or at best costs the government far more to achieve its aims than it otherwise might have to.

For these reasons, much of the investment in emerging markets has been undertaken by Development Finance Institutions (DFIs). However, DFIs have in recent years often found themselves 'maxed out', being constrained alongside other financial institutions by regulations relating to the classification of investments and associated collateral rules.

Greater returns from assets can lead to investment in physical infrastructure or social investment funds

We believe Urban Wealth Funds are potentially the biggest opportunity to facilitate investment and further the development of sustainable cities around the globe

The highest prevalence of issues the SDGs are designed to tackle are found in emerging markets

Much of the investment in emerging markets has been undertaken by DFIs


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While a detailed subject which is covered in more detail in other reports such as Energy Darwinism 2, our belief is that DFI capital can be leveraged much further and more effectively. For example, rather than investing directly in a project, if DFIs could use their capital as a form of risk mitigation, by providing a collar-type mechanism or pain/gain sharing for example, this could elevate the creditworthiness of the project, allowing the trillions of dollars of private capital which is looking to invest in these assets, to flow. While simple on paper, the reality is often complex relating to local and single asset risk — but the potential of leveraging these DFI funds, using their local emerging market experience, combined with the pools of finance and funding expertise of the broader investment community, has the potential to unblock very sizeable sums of capital to invest in sustainability-related projects in emerging markets.

Partnership for the Goals

One of the other challenges facing investment in emerging markets, is as we have seen, that the creditworthiness of the location renders what might already have been unacceptable single-asset risk anyway, definitely uninvestable.

Here are simply referring to the lack of any of the risk mitigation benefits of the portfolio effect. If a fund decides that it wants to invest in, say, renewable energy in emerging markets, to aid SDG 7 (Clean and Affordable Energy), there are a limited number of listed vehicles with an equally limited market capitalization which make that investment difficult. Moreover, investing in this fashion may fail to demonstrate additionality, as highlighted earlier. While the institution could invest in for example a solar plant, this brings enormous single asset risk, especially given the potential issues with political and regulatory stability, and the creditworthiness of the local market.

However, if 10 institutions, instead of each financing one project asset each, were to club together, and finance those same 10 projects on a collective basis, they would effectively have spread their risk via the portfolio effect. If one or two projects failed, they would only have been exposed on a proportion of their investment, rather than their entire investment, which the first-mover, single asset investor would have been exposed to.

We believe that this approach, especially if designed in conjunction with the DFIs, using DFI capital as a risk mitigation tool rather than investing directly, has significant potential to marry the desperate need for infrastructure investment in emerging markets, with the equally vast sums of capital keen to invest in long-dated asset-backed income-generating investments. As such, we believe that it presents an enormously important opportunity to help tackle and solve many of the most important social, environmental and economic issues facing the world, reflected in the UN's Sustainable Development Goals.

Partnering on emerging market projects can spread risk among investors via the portfolio effect

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Summary and Conclusions While there is much for us to be proud of in the world, enormous societal, environmental, and economic challenges still face us, which urgently need to be addressed. Billions of people still lack access to even the most basic elements of life which most of us take for granted. Even in this day and age, 2.4 billion people still lack access to improved sanitation; 2.8 billion, representing more than a third of us, still lack access to electricity and clean cooking fuels, exposing themselves to levels of pollution which have significant impacts on their health; 800 million children — more than 40% of children aged 0-14 — still lack access to a 'complete' education, and hence are denied the opportunity to fulfil their full potential. Beyond the dramatic improvements to individual lives, what benefits might almost a billion extra well-educated people bring to the world? At its most extreme, the picture is infinitely worse; 700 million people, almost a tenth of the world's population, still live below the poverty line on less than $1.90 per day; an even greater number —800 million — remain undernourished.

So while there is much to be positive about in the world, enormous challenges still remain. The United Nations Sustainable Development Goals offer a set of 17 goals which aim to tackle the challenges, issues and injustices facing the world by 2030 – a challenge indeed, but one which we should embrace, as the benefits for those suffering most, and to the whole global community, would be immeasurable if we were to succeed. While we should aim high, even if we are not completely successful at all 17, getting close would still bring vast improvements to the lives of billions of people around the world, which would in turn bring numerous further benefits via the interlinkages between the goals, via economic multiplier effects, and by the broader impacts on peace, prosperity, partnership and inclusivity.

While the SDGs represent an admirable set of goals, their all-encompassing nature and resulting complexity, especially once one delves beneath the 17 goals to the 169 individual targets and innumerable sub-indicators beneath, can make them so complex that they are hard to put into action. The goals are in many ways inextricably linked, and not always in a positive sense — achieving some will have negative connotations for others. Indeed there even exist contradictions within individual goals, let alone between. Hence it is perhaps unsurprising that a recurring question that we hear from institutional investors is that while they are keen to align their investment philosophy with the UN SDGs, they are unsure how to do so, and especially where to start.

Part of the issue is that the SDGs represent different things to different people. For some entities, the SDGs represent a communication tool with which to frame their investments and activities. For others at the impact end of the investment spectrum, they provide a guide for where their investments and activities might have the greatest benefit on society or the environment, and these will likely be looked at through the exacting lens of 'additionality'. For others, the SDGs represent a thematic guide to likely investment trends over the next decade, which offer the opportunity to invest ahead of the curve, thereby generating greater growth or financial returns. So the focus can be on societal returns, or financial returns, or for many, potentially somewhere in-between. We make no judgement between these philosophies, and while our methodology clearly can never represent a panacea for all approaches, we have attempted to build a more systematic approach to aligning investment philosophies with the SDGs, which individual institutions should be able to adapt to their own purposes. While this report is hopefully thought provoking to everyone, from governments and policymakers, via supra-nationals to corporations and institutional investors, and even individuals, it is the investment community on which we focus in this report.

We continue to face enormous societal, environmental, and economic challenges which urgently need to be addressed

The UN SDGs aim to tackle the challenges, issues and injustices facing the world by 2030

The complexity of the SDGs makes it difficult for investors to align their investment philosophies with them

The SDGs can different things to different people, and can deliver societal returns, or financial returns, or something in-between


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We like to think of the SDGs as a roadmap to a better, fairer, more sustainable and more inclusive world, which can also help to identify many of the mega-trends and themes which will drive investment over the next decade and beyond. By trying to break down the SDGs into thematic groupings related to environmental/physical, social and economic goals, we attempt to highlight the primary focus of each SDG. Secondly, we break the goals down into those that we see as primary 'drivers' in achieving the goals holistically and those which are perhaps more resulting effects. Certainly there are significant actions which can be taken directly to help achieve the 'results' focused goals, but we observe that these are more, in our opinion, an area where change can best be driven by policy and regulation. Conversely, the 'drivers' represent a set of goals where we believe the financial community and private sector are best placed to invest directly to aid in the achievement of the goals.

We recognize that all of the goals are interlinked, and while some will feel our approach is overly simplistic, we believe that simply working on the basis that everything is linked, so we should do everything concurrently, gets us nowhere in unravelling the complexity of the goals, and does not lead to progress or an optimal outcome — it certainly does not appear to offer the best route to getting capital to flow. Moreover, it does not let us target scarce resources, in terms of capacity, attention, time and money, to those areas where we might have the greatest effect. By examining the more complex interactions between the goals, and highlighting what we see as the most important linkages between the goals, and the direction of the drivers, we have derived what we see as a set of critical paths which can lead to the achievement of all the goals – via the knock-on effects of improvements in some goals driving broader benefits elsewhere. With the aid of supportive central policies, mobilizing the vast sums of private capital which is keen to invest sustainably can, we believe, make a meaningful impact on progress towards achievement of the goals. In these paths, perhaps aptly, all roads lead to ending poverty and improving inclusivity and equality.

Understanding the individual goals in this context is therefore important — the range of their impact can be enormous, across different sectors of society and the environment, and hence judging the scale of the potential impact of 'success' is complex. By examining each goal individually (as we do in Section 2 of this report), and choosing two indicators – one human, and one financial — we can gain a sense of how many people achieving a goal might directly benefit, and what the cost, or in some cases the benefit, opportunity or avoided liability of achieving that goal, might be. By applying these costs and benefits to our so-called pathways to progress, we can see how many people following a particular path might benefit, and what the cost, opportunity or economic benefit of doing so might be. We can understand what other areas our activities and investments will also influence, and we can devise either targeted impact approaches, or more integrated strategies which can achieve maximum impact across a range of, or indeed across the whole spectrum of SDGs. This hopefully provides investors with a tool which they can use when considering how their particular investment philosophy regarding the SDGs might best be put into practice.

In terms of the human impact (at a purely headline level), it is many of the physical/environmentally-focused SDGs which have the potential to impact the greatest numbers of lives. Energy, Water and Sanitation can benefit 2.8 billion and 2.4 billion people directly – and both will have an obvious follow-on impact on progress in Industry, Innovation and Infrastructure, Sustainable Cities, as well as notable impacts on Climate Action, and Life on Land and Life Below Water.

Our framework breaks down the SDGs into thematic groupings and those that are drivers vs. resulting effects

Trying to do everything concurrently could lead to suboptimal outcomes, especially given scarce resources — examining complex interactions between goals helps us to find critical paths which can lead to the achievement of all the goals

By applying these costs and benefits to our so-called pathways to progress, we can see how many people following a particular path might benefit, and what the cost, opportunity or economic benefit of doing so might be

The greatest impact on human lives tend to come from the environmental/physical-focused SDGs


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But this is not to suggest that these goals are the most important; we fully recognize that while other goals might impact fewer people directly, the situation those individuals find themselves in may be infinitely more severe, and the knock-on effects of success would benefit a far greater number indirectly. For example, while poverty might appear to impact the fewest number of people in headline terms, it is arguably the most important of all of the goals, and addressing it is to the undoubted benefit of all humankind. Hunger also affects fewer people at a headline level than other goals – but it would be hard for anyone to argue that access to clean and affordable energy is more important than having enough to eat.

In purely financial terms, the physical and environmental opportunity represented by water, energy and building a circular economy equate to around $1.5 trillion per annum — an enormous sum, in industries which can offer potentially attractive returns on long-dated asset-backed investments, and which can also benefit vast numbers of people around the world, offering both financial and societal returns. The social investment areas of education, health and tackling hunger represent an annual incremental investment opportunity of $800 billion per year, again offering scope for both societal and financial returns. The greatest financial opportunity represented by any one single goal is in sustainable cities at $2.1 trillion, perhaps unsurprisingly, given that cities represent a concentrated melting pot of many of the greatest environmental and social challenges facing the world, affecting more than half of the global population.

With the right cognizance of the caveats which we raise in the report, we can also use these figures as one tool to consider how we might allocate scarce capital, in terms of what the cost per capita of achieving each goal might be. One promising aspect of this, is that it is the physical/environmental goals of water, energy and infrastructure which offer some of the biggest gains for the most people at a cost which is low in relative terms – we believe this offers significant potential since it is the asset-backed nature of the investments required to achieve these goals which are perhaps best suited to private investment.

While the social investments in poverty, hunger, health and education appear in headline terms to have higher relative per capita costs, we are not for one moment implying that this means that they offer less 'value', nor that we shouldn’t tackle them – far from it. As highlighted previously, eradicating poverty is arguably the most important single goal, and despite the costs, and the fact that the directly affected humans might be fewer than for other goals, the situation for those individuals is arguably more serious than for others challenged by other goals, and the financial and human benefits to all mankind of eradicating poverty would be enormous – offering a significantly higher number of impacted humans, and a significantly higher financial benefit than the headline figures used in our comparisons.

This highlights an important area for future work – looking at the not just the human benefits and financial costs, but also trying to assess the broader financial benefits, as well as the broader benefits to society as a whole. This though is of another order of complexity, and must at this stage remain a topic for a future report. While we have attempted to assess the broader economic benefit of many of the goals in this report, from the 6% uplift to GDP in advanced countries that could be unlocked by achieving gender parity, to the $2 trillion per year benefit that could be achieved by eliminating corruption, these are necessarily much harder to calculate, and more subjective.

While some goals look to impact fewer people directly, the degree of severity of individuals could mean the knock-on effects of success would benefit a far greater number indirectly

In purely financial terms, physical and environmental goals, social investments and sustainable cities are all large opportunities

The physical/environmental goals of water, energy, and infrastructure offer some of the biggest gains for the most people at a cost which is low in relative terms

Eradicating poverty is arguably the most important single goal and despite higher relative per capita costs for social investments, this does not mean they offer less ‘value’


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Some will undoubtedly disagree with our approach, while others will have suggestions, such as the above, for how it can be improved in future iterations. We recognize that it is not perfect, and we welcome the constructive feedback and to working with interested parties to further the debate and to achieve progress. The goals deal with extraordinarily precious concepts, and analyzing them, especially when incorporating a financial element, must be done so delicately. We recognize their importance, how precious they are, and how passionate views will be surrounding them. But in our opinion to not try to analyze the goals, their impact, their cost and their benefit because of that sensitivity, would be infinitely worse. We are not trying to imply that some goals are more important than others, that we should tackle some first, and absolutely not that any lives are more important than others — we are simply trying to undertake an objective analysis of the goals and their interactions, in the belief that it is only by simplifying this overwhelmingly complicated process, that the trillions of dollars of capital which is keen to invest sustainably, but is currently confused by the complexity of the goals, can flow to aid in their achievement. Our approach hopefully provides investors with a roadmap which, having decided on their investment philosophy regarding the SDGs, they can use to align their investment processes most closely, depending on whether they are targeting impact, financial returns, or a combination of the two.

All elements of society have their part to play in working towards the achievement of the goals. The financial community has a social duty to play our part in addressing these issues facing society, and not just from the provision of capital, but by innovating and hence allowing that capital to flow to tackle these challenges. Working to create innovative financial products such as green and social bonds, and to develop deeper pools of liquidity therein can play a meaningful part in achieving the goals. By working together, forming new partnerships between financial institutions, development banks and institutional investors, and by spreading risk and elevating emerging market credit towards investment grade, we can help to marry the extraordinary need for investment in EM's with the trillions of dollars of capital which is looking to invest sustainably, and in particular in long-dated, asset backed infrastructure investments. Corporates can play their part by aligning their businesses industrially, operationally and geographically to support the goals. Governments, policy makers and supra-nationals can play their part not just by ensuring political and regulatory stability and the rule of law, and by putting in place the right macro policies which can address the goals directly, but by incorporating accommodative regulatory policies and frameworks which will allow private capital to flow into the entry points highlighted in our pathways to success. Cities and regional authorities can play their part via that same stability, by putting in place longer term infrastructure and investment plans, and via innovative new structures such as urban wealth funds, all of which will aid investment.

The next 12 years offers us a generational opportunity to fix many of the biggest ills of our world. The political, institutional, corporate and individual will exists, and so does the capital — if we can marry the two with all sectors of society playing their part, we have the opportunity to make the world a better, safer, fairer, wealthier, and more inclusive place for ourselves and for our children.

We welcome constructive feedback on our approach and suggestions for how it can be improved in future iterations We are attempting to undertake an objective analysis of the goals and their interactions in an effort to simplify a complicated process

The financial community, corporates, individuals and governments all have a role to play in the achievement of the SDGs


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Section 2: The 17 UN SDGs


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SDG 1: No Poverty What Is It and Why Is It Important? Sustainable Development Goal 1 calls for an end of poverty in all its manifestations by 2030. It aims to ensure social protection for the poor and vulnerable, increase access to basic services, and support people harmed by climate-related extreme events and other economic, social, and environmental shocks and disasters. Unlike the success of the Millennium Development Goals that effectively cut extreme poverty in half (five years earlier than its 2015 target years), the “No Poverty” road is anticipated to be significantly more challenging. Poverty has transitioned from a period where it was focused in large, growing economies, to a time where poverty is primarily focused in several small economies facing profound fundamental challenges. SDG 1’s success will depend precisely on what happens in the poorest countries.10

Poverty reflects more than a deficiency of income and resources to ensure a sustainable livelihood. It is a multifaceted status that encompasses economic, social, cultural and political elements. Poverty is inherently interwoven with the lack, or absence, of fundamental human rights, whether associated, the consequence, or the cause. Its manifestations include hunger and malnutrition, inequality, social discrimination and exclusion, suppression, criminality, deprivation, and the inadequate access to education and basic services across the globe. Naturally, one can decipher the importance of SDG 1, but also grasp its mutual benefitting correlation with achieving many other SDGs, and sustainable development more generally.

During the era of the Millennium Development Goals, global poverty fell faster than ever before. In 2013, an estimated 767 million people lived below the international poverty line of $1.90 a day, a drop from 1.7 billion people in 1999, reflecting a decrease in global poverty population figures from 28% in 1999 to 11% in 2013.11 This success, however, was not equally distributed. While most significant progress was seen in Eastern and South Eastern Asia where the poverty rate declined from 35% to 3% between 1999 and 2013, in contrast, 42% of Sub-Saharan African people lived under extreme poverty in 2013.11

10 Gertz & Kharas (2018), Leave No Country Behind, Ending poverty in the toughest places 11 United Nations Economic and Social Council (2017), Progress towards the Sustainable Development Goals.


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Figure 22. World Population Living in Extreme Poverty, 1820-2015

Source: Our World in Data, Citi Research

Figure 23. UN Targets and Indicators for SDG 1

Targets Indicators 1.1 By 2030, eradicate extreme poverty for all people everywhere, currently measured as people living on less than $1.90 a day

1.1.1 Proportion of population below the poverty line, by sex, age, employment status, and geographical location (urban/rural)

1.2 By 2030, reduce at least by half the proportion of men, women, and children of all ages living in poverty in all its dimensions according to national definitions

1.2.1 Proportion of population living below the national poverty line, by sex and age

1.3 Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable

1.3.1 Proportion of population covered by social protection floors/systems, by sex, distinguishing children, unemployed persons, older persons, persons with disabilities, pregnant women, newborns, work-injury victims, and the poor and the vulnerable

1.4 By 2030, ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership and control over land and other forms of property, inheritance, natural resources, appropriate new technology, and financial services, including microfinances

1.4.1 Proportion of population living in households with access to basic services

1.5 By 2030, build the resilience of the poor and those in vulnerable situations and reduce their exposure and vulnerability to climate-related extreme events and other economic, social, and environmental shocks and disasters

1.5.1 Number of deaths, missing persons, and directly affected persons attributed to disasters per 100,000 population 1.5.2 Direct economic loss attributed to disasters in relation to global gross domestic product (GDP) 1.5.3 Number of countries that adopt and implement national disaster risk reduction strategies in line with the Sendai Framework for Disaster Risk Reduction 2015-2030 1.5.4 Proportion of local governments that adopt and implement local disaster risk reduction strategies in line with national disaster risk reduction strategies

1.a Ensure significant mobilization of resources from a variety of sources, including through enhanced development corporation ,in order to provide adequate and predictable means or developing countries, in particular least developed countries, to implement programs and policies to end poverty in all its dimensions

1.a.1 Proportion of domestically generated resources allocated by the government directly to poverty reduction programs 1.a.2 Proportion of total government spending on essential services (education, health, and social protection) 1.a.3 Sum of total grants and non-debt-creating inflows directly allocated to poverty reduction programs as a proportion of GDP

1.b Create sound policy frameworks at the national, regional and international levels, based on pro-poor and gender-sensitive development strategies, to support accelerated investment in poverty eradication actions

1.b.1 Proportion of government recurrent and capital spending to sectors that disproportionately benefit women, the poor and vulnerable groups

Source: UN (2018), Global Indicator Framework for the Sustainable Development Goals and Target of the 2030 Agenda for Sustainable Development, Citi Research

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6

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1820 1851 1882 1910 1941 1971 2002

(Bns)Number of people not in extreme povertyNumber of people living in extreme poverty


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Indicators Used in this Analysis Poverty is defined in either absolute or relative terms. While absolute poverty considers poverty in relation to the amount of money necessary to meet basic needs, relative poverty is explained by the economic status of other members in society. Relative poverty brought on the concept of the “income perspective”, which is widely implemented today through national poverty thresholds. However, it is broadly agreed that one cannot consider only the economic facets of poverty, as social, cultural, and political dimensions need to be understood and considered in order to create more effective programs for poverty alleviation.12

For the purpose of this research, such additional social, cultural, and political dimensions are not considered in the SDG 1 metrics, as they are caught beneath the other SDG reaches, in addition to the inherent difficulty in accurately balancing the accounting for such qualitatively natured variables. As a result, and to avoid double-counting, the Global Poverty Gap Index was deemed appropriate.13 The Global Poverty Gap Index is defined as the amount of money that would be theoretically needed to lift the incomes of all people under the extreme poverty threshold up to the international poverty line of $1.90 a day, expressed in international dollars using 2011 purchasing power parity conversion rates.14 Moreover, the global poverty gap index is not simply a binary detection as to whether persons fall above or underneath the international poverty line, but appropriately considers the depth to which individuals are below the poverty threshold.15 By incorporating the median global life expectancy and the median age of the world population within the global poverty gap index formula, one can holistically recognize the cost of closing the poverty gap over the impoverished population’s remaining life expectancy. Although we have used these indicators to express the problem in this report, we would emphasize that these are an intentional simplification of the goals and do not express their full depth of complexity.

Figure 24. Indicators Used In This Study

Human Indicator Value Units Global Population living under the $1.90 International Poverty Line 705 Million Economic Indicator Global Poverty Gap Index 160 $ Billion Median Global Life Expectancy 71.86 Years Median Age of the World Population 29.6 Years Cost of closing the poverty gap (calculated using above indicators) 380 $ Billion per Year

Source: The World Bank, Our World in Data, Statista, Citi Research

12 United National Educational, Scientific and Cultural Organization (2017), Poverty 13 The World Bank (2018), PovcalNet 14 Roser & Ortiz-Ospina (2018), Global Extreme Poverty 15 The World Bank (2005), Chapter 4. Measures of Poverty


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Investment Direction and Opportunities Most recent figures indicate that just over 705 million people lived below the extreme poverty threshold in 2015, representing 9.6% of the global population.14 A wide range of public, private, and commercial resources from both domestic and international sources are available to aid developing countries that help people living in poverty. Domestic public resources, namely governments’ tax revenue, are the largest source of potential aid, totaling $5.3 trillion in 2014, while domestic commercial finance was projected at $2.2 trillion.16 Although the financial flows from international sources is less than that found domestically, its bearing is potentially more impactful considering the targeted role it plays beyond its monetary value. Commercial resources, consisting predominantly of lending to the private sector and foreign direct investment, totaled $1.5 trillion in 2013.16 International official finance on the other hand, which includes numerous instruments used by governments and multinational organizations, reached $344 billion in 2013, while Official Development Assistance (ODA) peaked at $163 billion in 2013.16

Figure 25. Commercial Resource Flows to Developing Countries have Grown Rapidly in Aggregate (US$ Trillions, Constant 2012 Prices)

Source: Development Initiatives, Citi Research

As of 2015, the human opportunity associated in achieving SDG 1, defined by uplifting all people living below the $1.90 international poverty line, totaled 705 million people.14 Through using our holistic indicators, we calculate that $5.75 trillion (or $383 billion per year between 2015 and 2030) is required to uplift all 705 million people above the $1.90 international poverty line threshold for the remainder of their life expectancy. Jeffrey Sachs, a world leading economist and author of The End of Poverty (2005), famously quoted the cost to end poverty at $175 billion per year for 20 years, which equates to a total investment of $3.5 trillion17 – substantially lower than our forecast. However, defining the financial opportunity associated in achieving SDG1 is inherently challenging to compute, as a key element of the success will refer to “how” finances are distributed and managed, irrespective of its value.

16 Development Initiatives (2015), Investments to End Poverty 17 Sachs (2005), The End of Poverty

0.0

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1.5

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2.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Official Commerical Private


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A cash transfer alone will not suffice in eradicating poverty. Studies identify four major obstacles to development that contribute to persistent poverty, which will require attention from developing nations if they are to effectively uplift their impoverished people, namely: low government effectiveness; weak private sector; conflict and violence; and natural hazards and environmental risks.10

Secondly, investment must guarantee sustainable income-generating activities in order to wholly eradicate extreme poverty and unlock national poverty traps.18 This will expectedly require significant up-front investments (a per se “big push”), combined with ongoing support and training, coaching, consumption support, access to saving streams, and health services.18 As a result, an annual investment-drip is not likely to eradicate poverty in all its forms.

Figure 26. Average Annual Reduction in Poverty (Millions of People Moving Above the Poverty Line)

Source: Development Initiatives, Citi Research

Figure 26 illustrates regional annual poverty reduction rates and their required rate of reduction needed to end poverty by 2030. Sub-Saharan Africa faces the greatest challenge in ending poverty by 2030, hosting 32 of the 33 most impoverished countries, in addition to witnessing an increase in persons living in poverty conditions between 2002 and 2015. While East Asia and Pacific is on track to end poverty before 2030, South Asia and Rest of the World will need to maintain momentum to alleviate poverty, which will predictably become more challenging as they aim to reach the most impoverished people. Visibly, Sub-Saharan Africa will need the most rapid acceleration in progress, requiring a rate faster than that achieved by South Asia over the proceeding 15 years.16 Here lies the greatest challenge and opportunity.

The goal to end poverty in all its forms everywhere by 2030 is a steep challenge. Attaining No Poverty will need a new approach, as the poorest nations will require a different method in poverty alleviation, one that considers their landscape of conflict, fragility, and environmental vulnerability, not seen under the Millennium Development Goal (MDG) era. Improved granular data transparency within these regions is fundamental to ensure investments are distributed optimally. Similarly, investment streams, whether public, commercial, or private, must be managed according to their comparative strengths to maximize their impact in the most needed regions, i.e., Sub-Saharan Africa.16

18 Banerjee, Duflo, Goldberg, Karlan, Osei, Parienté, Shapiro, Thuysbaert, Udry (2015), A multifaceted program causes lasting progress for the very poor: Evidence from six countries

-5

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South Asia(Maintain Pace)

Sub-Saharan Africa(Accelerated Progress)

Other(Maintain Pace)

Average Annual Change (2002-2015)Required Annual Change (2015-2030)


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SDG 2: Zero Hunger What Is It and Why Is It Important? SDG 2 is attempting end hunger and enable access by all people, in particular the poor and people in vulnerable situations. Progress towards this in the past two decades from economic growth and increased agricultural productivity has seen the number of undernourished people drop by half. Many developing countries that used to suffer from famine and hunger can now meet the nutritional needs of the most vulnerable. However, major concerns still persist with some 795 million people still suffer from hunger, and more than two billion from micronutrient deficiencies.19

Almost 80% of the world’s poor live in rural areas, where there is a significant dependence on agriculture, fisheries, and forestry as the primary source of income and food.20 Ending hunger will require continued and focused efforts, especially in Asia and Africa. Over 90 million children under the age of five are dangerously underweight, and one in four individuals still go hungry in Africa.21

The importance of achieving this SDG will have a flow on effect across multiple other SDGs. While in this report, we want to keep each SDG mutually exclusive, poverty and zero hunger go hand in hand. The basic premise is that people who are out of extreme poverty are also free from hunger. Therefore if we assume that the $1.90/day poverty line is a threshold for extreme poverty, it also suggests those with an income of at least $1.90/day are also free from hunger. Hunger is essentially caused by a lack of entitlements or purchasing power. The achievement of SDG 2 will also create higher standards of living and healthier, more productive people.

Ending hunger and malnutrition relies heavily on sustainable food production systems and resilient agricultural practices. However, due to this reliance there remains a significant barrier to development in many countries. Supporting small scale farmers and allowing equal access to land, technology, and markets, while having international cooperation are vital to achieving the goal.

19 FAO. 2017. The future of food and agriculture – Trends and challenges. Rome. 20 FAO, 2017. Food and Agriculture – Driving action across the 2030 Agenda for Sustainable Development. Rome 21 UNDP, 2018. Sustainable Development Goals – Goal 2: Zero Hunger.


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Figure 27. Prevalence of Undernourishment in the Population (%) in 2014-16

Source: World Food Programme, Hunger Map 201722

22 FAO, IFAD, UNICEF, WFP and WHO. 2017. The State of Food Security and Nutrition in the World 2017.


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Targets Indicators 2.1 By 2030, end hunger and ensure access by all people, in particular the poor and people in vulnerable situations, including infants, to safe, nutritious, and sufficient food all year round

2.1.1 Prevalence of undernourishment 2.1.2 Prevalence of moderate or severe food insecurity in the population, based on the Food Insecurity Experience Scale (FIES)

2.2 By 2030, end all forms of malnutrition, including achieving, by 2025, the internationally agreed targets on stunting and wasting in children under 5 years of age, and address the nutritional needs of adolescent girls, pregnant and lactating women and older persons

2.2.1 Prevalence of stunting (height for age <-2 standard deviation from the median of the World Health Organization (WHO) Child Growth Standards) among children under 5 years of age 2.2.2 Prevalence of malnutrition (weight for height >+2 or <-2 standard deviation from the median of the WHO Child Growth Standards) among children under 5 years of age, by type (wasting and overweight)

2.3 By 2030, double the agricultural productivity and incomes of small-scale food producers, in particular women, indigenous peoples, family farmers, pastoralists, and fishers, including through secure and equal access to land, other productive resources and inputs, knowledge, financial services, markets and opportunities for value addition and non-farm employment

2.3.1 Volume of production per labor unit by classes of farming/pastoral/ forestry enterprise size 2.3.2 Average income of small-scale food producers, by sex and indigenous status

2.4 By 2030, ensure sustainable food production systems and implement resilient agricultural practices that increase productivity and production, that help maintain ecosystems, that strengthen capacity for adaptation to climate change, extreme weather, drought, flooding, and other disasters and that progressively improve land and soil quality

2.4.1 Proportion of agricultural area under productive and sustainable agriculture

2.5 By 2020, maintain the genetic diversity of seeds, cultivated plants and farmed and domesticated animals and their related wild species, including through soundly managed and diversified seed and plant banks at the national, regional and international levels, and promote access to and fair and equitable sharing of benefits arising from the utilization of genetic resources and associated traditional knowledge, as internationally agreed

2.5.1 Number of plant and animal genetic resources for food and agriculture secured in either medium or long-term conservation facilities 2.5.2 Proportion of local breeds classified as being at risk, not-at-risk or at unknown level of risk of extinction

2.A Increase investment, including through enhanced international cooperation, in rural infrastructure, agricultural research and extension services, technology development and plant and livestock gene banks in order to enhance agricultural productive capacity in developing countries, in particular least developed countries

2.A.1 The agriculture orientation index for government expenditures 2.A.2 Total official flows (official development assistance plus other official flows) to the agriculture sector

2.B Correct and prevent trade restrictions and distortions in world agricultural markets, including through the parallel elimination of all forms of agricultural export subsidies and all export measures with equivalent effect, in accordance with the mandate of the Doha Development Round

2.B.1 Producer Support Estimate 2.B.2 Agricultural export subsidies

2.C Adopt measures to ensure the proper functioning of food commodity markets and their derivatives and facilitate timely access to market information, including on food reserves, in order to help limit extreme food price volatility

2.C.1 Indicator of food price anomalies


Indicators Used in this Analysis In Figure 28 we highlight the UN targets and indicators for SDG 2. We have focused our analysis on a smaller sample of indicators. We feel the most significant target that needs to be achieved within this goal is ensuring those that are vulnerable and undernourished are given access to nutritious and sufficient food all year round. Our intention is to quantify indicators that explain the extent of the issue and the financial investment required to achieve the goal.

Determining the population that is undernourished varies depending on the data set used. We have taken the percentage of people that have an inadequate dietary energy intake. Using UN data from 2015, we estimated the total population to be 768 million.

For SDG 2, the methodology to calculate the investment required to achieve zero hunger by 2030 hinges on the relationships between investment, output, and the level of dietary energy consumption, on the assumption that hunger is mainly caused by poverty (lack of purchasing power).


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Figure 29. Targets Include Land and Conservation Policy and Investments

Indicator ID Rationale Progress Indicators ID / Value Prevalence of undernourishment 2.1.1 Gives a measure of the population that has

an inadequate dietary energy intake Volume of production per labor unit by classes of farming/pastoral/ forestry enterprise size

2.3.1 Gives broad measures of level of production required to meet growing

demand Human Indicator Population that is undernourished 768mn Gives a measure of the population that has

an inadequate dietary energy intake Economic Indicator Additional investment required annually to achieve zero hunger by 2030

$198bn/yr Gives measure of major class of investment needed to meet SDG


Scenario analysis done by the Food and Agriculture Organization of the United Nations (FAO), presents estimates of the additional annual investment required to eradicate world hunger. It suggests a two pronged approach involving social protection transfers and targeted pro-poor investments in productive activities to sustainably raise earned incomes in the longer term. The analysis suggests the average additional annual investment required from 2016 to 2030 for zero hunger is $198 billion. As seen in Figure 30 the additional investment remains at ~$450 billion until 2020, whereby it falls to ~$70 billion per year for the remaining 10 years.

Figure 30. Additional Investment Required to Alleviate the Poverty Gap and Zero Hunger

Source: FAO, IFAD, WFG 201523

23 FAO, IFAD and WFP. 2015. Achieving Zero Hunger: the critical role of investments in social protection and agriculture. Rome, FAO.


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In this scenario the bulk of additional investments will be provided to non-poor investors. The reason is that non-poor investors will require a return for the provision. Those that are undernourished are then expected to become capable of being remunerated for providing labor. The key requirement for this to be successful is that all income-earning opportunities need to be provided to those in need.

In Figure 31, we highlight the causal relationship linking investment with the prevalence of undernourishment. An increase in the investment in agriculture is the most effective way of increasing the purchasing power of the 768 million that are undernourished.

Figure 31. Causal Relationships Linking Investment with the Prevalence of Undernourishment

Source: FAO, IFAD, WFG 201524

Investment Direction and Opportunities Over the past 10 years, the agriculture sector has absorbed at least 25% of the total damage and losses caused by droughts, floods, and other climate extreme events.25 More investment is needed from, both public and private, and from domestic and foreign sources. Unfortunately, recent trends in government spending shown through the agriculture orientation index continue to fall, down from 0.38 in 2001 to 0.24 in 2013 and to 0.21 in 2015.26

According to a study done by AlphaBeta in 2016, business opportunities in food and agriculture could be worth over $2.3 trillion annually for the private sector by 2030. This opportunity will generate almost 80 million jobs by 2030, which represents 2% of the forecasted labor force. Of this, 90% of the potential job creation is located in developing countries.27

If effectively and efficiently delivered, social protection coverage can eliminate poverty and hunger quickly. Complimentary investments in productive activities, (i.e., agriculture), will substantially reduce reliance on such income transfers with the acquisition of greater earned income, whether from wages, net production income or returns to other productive assets.

24 Ibid 25 Ibid 26 UN, 2018. Sustainable Development Knowledge Platform Goal 2 27 AlphaBeta, 2016. Valuing the SDG prize in food and agriculture.


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According to a study done by the FAO in 2013, livestock takes up nearly 80% of global agricultural land, yet produces less than 20% of the world's supply of calories. This means that what we eat is more important than how much we eat in determining the amount of land required to produce our food.28

The direction of investment to meet growing demand needs to be channeled to increasing agricultural yields. This is fundamental to solving the prevalence of undernourishment; otherwise food price inflation will be a headwind to lowering the poverty gap, as discussed in SDG 1.

Figure 32. Global Surface Area Allocation for Food Production, 2013

Source: Our World in Data29

28World Bank. 2018. Atlas of Sustainable Development Goals 2018: From World Development Indicators. World Bank Atlas;. Washington, DC: World Bank. © World Bank. https://openknowledge.worldbank.org/handle/10986/29788 License: CC BY 3.0 IGO. 29 Max Roser and Hannah Ritchie (2018) - "Land Cover". Published online at OurWorldInData.org. Retrieved from: 'https://ourworldindata.org/land-cover'


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SDG 3: Good Health and Well-Being What Is It and Why Is It Important? Sustainable Development Goal 3 calls for action to ensure healthy lives and promote well-being for all, at all ages, by 2030. The World Health Organization defines health as “a state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity”.30 Appropriately, the targets and indicators for SDG 3 incorporate a wide degree of health issues many of which are pertinent to developing economies that lack the necessary healthcare infrastructure, but additionally targets that are of considerable concern to developed nations. SDG 3 aims to improve maternal and child mortality, end epidemics of major communicable diseases, and reduce non-communicable and mental diseases. Good Health and Well-Being also calls for strengthening, prevention, and treatment of substance abuse, road traffic injuries, as well as environmental factors including air, soil, and water pollution/contamination. Indeed, the human opportunity linked with achieving Good Health and Well-Being will be predominantly weighted with whether success is achieved in developing economies, but it is worth remarking that SDG 3 will require all nations across the globe to take action.

Health is core to human development. Just as health shapes development, development shapes health.31 Good health is not only of value to the individual as a major determinant of quality of life, well-being, and social participation, but equally healthy people are better able to contribute to the social, political, and economic development of their communities and countries. Between 2000 and 2011, an estimated 24% of income growth in low and middle-income countries was attributed directly to health improvements.32 As such, the success in achieving SDG 3 will significantly impact the achievement of other SDGs, and sustainable development more generally.33

Since the millennium, many of the SDG 3 health targets have experienced significant improvements globally. The global maternal mortality ratio declined by 37%, from 341 deaths to 216 deaths per 100,000 live births between 2000 and 2016.34 Within the same time period, new HIV infections across the world fell by 39% and HIV-related deaths fell by one third, with 13.1 million lives saved due to antiretroviral therapy.35 Global malaria deaths decreased from 839,700 in 2000 to 438,000 in 2015.36 Suicide rates marginally improved since the millennium, with 11.16 deaths per 100,000 individuals in 2016, compared to 15.35 per 100,000 individuals in 2000,37 while air pollution-related deaths fell by nearly 20% since 2000.38

On the other hand, worldwide road traffic deaths have increased by 46,000 fatalities since 2000, totaling 1.342 million in 2016,39 and deaths associated with substance

30 World Health Organization (2006), Constitution of the World Health Organization. 31 United Nations Development Programme (2015), UNDP HIV, Health and Development strategy 2016-2021 32 Jamison et al. (2013), Global Health 2035: a world converging with a generation 33 Eurostat (2018), SDG 3 – Good Health and Well-Being 34 Unicef (2018), Maternal Mortality 35 Roser & Ritchie (2018), Our World in Data - HIV / AIDS 36 Roser & Ritchie (2018), Our World in Data - Malaria 37 Roser & Ortiz-Ospina (2016), Our World in Data - Suicide 38 Ritchie & Roser (2017), Our World in Data – Air Pollution 39 Ritchie & Roser (2018), Our World in Data – Causes of Death


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abuse (alcohol and drug-use disorder) have increased by 15% between 2000 and 2016, globally.40


Targets Indicators 3.1 By 2030, reduce the global maternal mortality ratio to less than 70 per 100,000 live births

3.1.1 Maternal mortality ratio 3.1.2 Proportion of births attended by skilled health personnel

3.2 By 2030, end preventable deaths of newborns and children 5 years of age, with all countries aiming to reduce neonatal mortality to at least as low as 12 per 1,000 live births and under-5 mortality to at least as low as 25 per 1,000 live births

3.2.1 Under-5 mortality rate 3.2.2 Neonatal mortality rate

3.3 By 2030, end the epidemics of AIDS, tuberculosis, malaria and neglected tropical diseases and combat hepatitis, water-borne diseases, and other communicable diseases

3.1.1 Number of new HIV infections per 1,000 uninfected population, by sex, age and key populations 3.3.2 Tuberculosis incidence per 100,000 population 3.3.3 Malaria incidence per 1,000 population 3.3.4 Hepatitis B incidence per 100,000 population 3.3.5 Number of people requiring interventions against neglected tropical diseases

3.4 By 2030, reduce by one third premature mortality from non-communicable diseases through prevention and treatment and promote mental health and well-being

3.4.1 Mortality rate attributed to cardiovascular disease, cancer, diabetes or chronic respiratory disease 3.4.2 Suicide mortality rate

3.5 Strengthen the prevention and treatment of substance abuse, including narcotic drug abuse and harmful use of alcohol

3.5.1 Coverage of treatment interventions (pharmacological, psychosocial and rehabilitation and aftercare services) for substance use disorder 3.5.2 Harmful use of alcohol, defined according to the national context as alcohol per capita consumption (aged 15 years and older) within a calendar year in liters of pure alcohol

3.6 By 2020, halve the number of global deaths and injuries from road traffic accidents

3.6.1 Death rate due to road traffic injuries

3.7 By 2030, ensure universal access to sexual and reproductive health-care services, including for family planning, information, and education, and the integration of reproductive health into national strategies and programs

3.7.1 Proportion of women of reproductive age (aged 15–49 years) who have their need for family planning satisfied with modern methods 3.7.2 Adolescent birth rate (aged 10–14 years; aged 15–19 years) per 1,000 women in that age group

3.8 Achieve universal health coverage, including financial risk protection, access to quality essential health-care services and access to safe, effective, quality, and affordable essential medicines and vaccines for all

3.8.1 Coverage of essential health services (defined as the average coverage of essential services based on tracer interventions that include reproductive, maternal, newborn and child health, infectious diseases, non-communicable diseases, and service capacity and access, among the general and the most disadvantaged population) 3.8.2 Proportion of population with large household expenditures on health as a share of total household expenditure or income

3.9 By 2030, substantially reduce the number of deaths and illnesses from hazardous chemicals and air, water, and soil pollution and contamination

3.9.1 Mortality rate attributed to household and ambient air pollution 3.9.2 Mortality rate attributed to unsafe water, unsafe sanitation and lack of hygiene (exposure to unsafe Water, Sanitation and Hygiene for All (WASH) services) 3.9.3 Mortality rate attributed to unintentional poisoning

3.A Strengthen the implementation of the World Health Organization Framework Convention on Tobacco Control in all countries, as appropriate

3.a.1 Age-standardized prevalence of current tobacco use among persons aged 15 years and older

3.B Support the research and development of vaccines and medicines for the communicable and non-communicable diseases that primarily affect developing countries, provide access to affordable essential medicines and vaccines, in accordance with the Doha Declaration on the TRIPS Agreement and Public Health, which affirms the right of developing countries to use to the full the provisions in the Agreement on Trade-Related Aspects of Intellectual Property Rights regarding flexibilities to protect public health, and, in particular, provide access to medicines for all

3.b.1 Proportion of the target population covered by all vaccines included in their national program 3.b.2 Total net official development assistance to medical research and basic health sectors 3.b.3 Proportion of health facilities that have a core set of relevant essential medicines available and affordable on a sustainable basis

3.C Substantially increase health financing and the recruitment, development, training and retention of the health workforce in developing countries, especially in Least Developed Countries and Small Island Developing States

3.c.1 Health worker density and distribution

3.D Strengthen the capacity of all countries, in particular developing countries, for early warning, risk reduction and management of national and global health risks

3.d.1 International Health Regulations (IHR) capacity and health emergency preparedness


40 Ritchie & Roser (2018), Our World in Data – Substance Use


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Indicators Used in this Analysis We used the Stenberg et al. (2017) analysis in reference to our selected indicators. Stenberg et al. (2017) offers the most recent assessment of the additional investments needed to attain SDG 3 in low and low-middle income countries.41 The analysis developed projections for 67 countries from 2016 to 2030, representing 95% of all low and middle-income populations. The analysis was limited to low-income and middle-income countries, as these countries are faced with the greatest challenges in terms of increasing service provision and resource mobilization.41 Stenberg et al. modelled a progress scenario, reflecting advancement towards global targets but constrained by health systems’ assumed absorptive capacity, and an ambitious scenario, in which most countries attain the global targets.41 For the purpose of this paper, we concentrate on the human and financial metrics modelled under the paper’s ambitious scenario.

Figure 34. Indicators Used in this Study

Human Indicator Value Units Population materially exposed to Good Health and Well-Being benefits (backcasted from 2026-2030 figures)

951 Million

Economic Indicators Total additional spend on Good Health and Well-Being to materially fulfil targets under the Ambitious Scenario

4,079 $ Billion

Annual additional spend on Good Health and Well-Being to materially fulfil targets under the Ambitious Scenario

255 $ Billion per year

Source: Lancet41, Citi Research

Stenberg et al. (2017) additionally analyses and considers the interlinkages between Good Health & Well-Being with other SDGs, including SDG1, SDG4, SDG5, SDG7, SDG8, and SDG1641.

Investment Direction and Opportunities The human opportunity associated with achieving SDG 3 totals over 1 billion people by 2030, which, when backcasted to 2015, reflects 951.1 million people. Of this, 68% are connected with low-income countries and the remaining 32% within lower-middle income countries.41

41 Stenberg, Hansse, Edejer, Bertam, Brindley, Meshreky, Rosen, Stover, Verboom, Sanders, Soucat (2017), Financing transformative health systems towards achievement of the health Sustainable Development Goals: a model for projected resource needs in 67 low-income and middle-income countries.


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Figure 35. SDG 3’s Human Opportunity Will Extend to Over 950 Million People

Source: Lancet41, Citi Research

Moreover, if the ambitious scenario were to be fulfilled and the additional funds were used as described, Stenberg et al. forecasts 97 million lives could be saved and life expectancy could increase by as much as 8.4 years.41 The 67 countries would see a total gain of 535 million healthy life-years during the SDG period, with 81 million healthy life-years gained in 2030, alone.

The financial investment required to achieve SDG 3 is split between three incremental investment timeframes. The ambitious scenario would initially require annual additional investments of $134 billion per year between 2015 and 2020, increasing to $284 billion per year between 2021 and 2025, and reaching $371 billion during the years 2026 to 2030. This equates an overall investment of $4.079 trillion to attain the targets under SDG 3, over the 2015 to 2030 timeframe.41 Aggregated investments split between low-income, lower-middle income, and upper-income countries equaled 17%, 49%, and 34%, respectively.41 The additional costs represent a mean of 4.6% of projected GDP in 2030 and adding these costs to current health spending is projected to increase health spending as a share of GDP from a mean of 5.6% to a mean of 7.5%.41

Figure 36. Total Additional Cost (US$ Billions) to Attain SDG 3, Under the Ambitious Scenario

Source: Lancet,41Citi Research

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As illustrated in Figure 36, the largest human opportunity lies within low income countries, reflecting over 66% of the population. Of this, 26 of the 28 countries reside in Africa, in addition to Nepal and Afghanistan.42 From the perspective of the financial opportunity associated with attaining SDG 3, nearly half of the investment opportunity lies within lower-middle income countries, reflecting a required investment of nearly $2 trillion over the 2015 to 2030 timeframe.42 Unlike the human opportunity that was predominantly linked with Africa, the financial opportunity is relatively more equally spread across South and South East Asia, and Africa.

42 Stenberg, Hansse, Edejer, Bertam, Brindley, Meshreky, Rosen, Stover, Verboom, Sanders, Soucat (2017), Supplementary Appendix: Financing transformative health systems towards achievement of the health Sustainable Development Goals: a model for projected resource needs in 67 low-income and middle-income countries

https://www.thelancet.com/cms/attachment/2108586747/2082549143/mmc1.pdf

https://www.thelancet.com/cms/attachment/2108586747/2082549143/mmc1.pdf


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SDG 4: Quality Education What Is It and Why Is it Important? Sustainable Development Goal 4 calls for “inclusive and equitable quality education and promote lifelong learning opportunities for all” by 2030. Unlike its education-related Millennium Development Goal predecessor, the SDG 4 agenda is broader by scope, geographical coverage, and policy focus.43 While the Millennium Development Goal was focused on children and access to primary education within low-income and conflict-affected countries, Quality Education goes beyond this. Quality Education commits all countries to ensure equal opportunity in access to quality learning opportunities at all levels of education in a lifelong perspective, with further emphasis on education within the workforce and sustainable development, more generally.43

Education is a fundamental human right and is indispensable for the achievement of sustainable development, intertwined explicitly with fulfilling all the other 16 SDGs.44 To effectively create a sustainable world, society will be required to alter how it thinks and acts. Education will play a pivotal role in ensuring society acquires the knowledge, skills, values, and attitude to attain sustainable development.45 We address some of these issues in our Citi GPS report Education: Bank to Basics: Is Education Fit for the Future.

Quality Education is linked inherently to all other SDGs, though specifically mentioned under: Good Health and Well-Being (3.7); Gender Equality (5.6); Decent Work and Economic Growth (8.6); Responsible Consumption and Production (12.8); and, Climate Change Mitigation (13.3). Access to quality education empowers people to live healthier lives, help reduce inequalities, and reach gender equality, contribute further to society and the growth of the economy, and importantly, catalyze an eco-conscious societal lifestyle transition.46

Despite making progress, the Millennium Development Goal of attaining universal primary education was not met by 2015. 2014 saw two-thirds of worldwide students participate in pre-primary or primary education. However, enrollment figures in less developed countries reflected only 40% of children of pre-primary and primary ages.47 Indeed, global education enrollment rates have seen significant improvement since the millennium — 91%, 84%, and 64% enrollment in primary, lower-secondary, and upper-secondary education, respectively, in 2014 — like many other SDGs, progress was not observed equally. 2014 similarly saw more than 250 million youths not in formal education, including more than 60 million children of primary school age, of which 70% of these out-of-school children were accounted for in Sub-Saharan Africa and Southern Asia.47 Furthermore, despite the global majority of children attending pre-primary, primary, and secondary education, many students have not acquired basic skills in reading and mathematics. Recent learning assessment studies indicate in several Sub-Saharan African and Latin American countries that less than 50% of students who have attended primary education had attained a minimum proficiency level in mathematics and reading.47

43 United Nations Educational (2017), Scientific and Cultural Organization, Unpacking Sustainable Development Goal 4 Education 2030 44 SDG Compass (2015), SDG 4: Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all. 45 United Nations (2017), Education for Sustainable Development Goals. 46 United Nations (2017), Quality Education: Why It Matters 47 United Nations (2017), Progress of Goal 4 in 2017

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Targets Indicators 4.1 By 2030, ensure that all girls and boys complete free, equitable, and quality primary and secondary education leading to relevant and effective learning outcomes

4.1.1 Proportion of children and young people (1) in grades 2/3; (2) at the end of primary; and (3) at the end of lower secondary achieving at least a minimum proficiency level in (a) reading and (b) mathematics, by sex

4.2 By 2030, ensure that all girls and boys have access to quality early childhood development, care, and pre-primary education so that they are ready for primary education

4.2.1 Proportion of children under 5 years of age who are developmentally on track in health, learning and psychosocial well-being, by sex 4.2.2 Participation rate in organized learning (one year before the official primary entry age), by sex

4.3 By 2030, ensure equal access for all women and men to affordable and quality technical, vocational, and tertiary education, including university

4.3.1 Participation rate of youth and adults in formal and non-formal education and training in the previous 12 months, by sex

4.4 By 2030, substantially increase the number of youth and adults who have relevant skills, including technical and vocational skills, for employment, decent jobs and entrepreneurship

4.4.1 Proportion of youth and adults with information and communications technology (ICT) skills, by type of skill

4.5 By 2030, eliminate gender disparities in education and ensure equal access to all levels of education and vocational training for the vulnerable, including persons with disabilities, indigenous peoples, and children in vulnerable situations

4.5.1 Parity indices (female/male, rural/urban, bottom/top wealth quintile and others such as disability status, indigenous peoples and conflict-affected, as data become available) for all education indicators on this list that can be disaggregated

4.6 By 2030, ensure that all youth and a substantial proportion of adults, both men and women, achieve literacy and numeracy

4.6.1 Proportion of population in a given age group achieving at least a fixed level of proficiency in functional (1) literacy and (2) numeracy skills, by sex

4.7 By 2030, ensure that all learners acquire the knowledge and skills needed to promote sustainable development, including, among others, through education for sustainable development and sustainable lifestyles, human rights, gender equality, promotion of a culture of peace and non-violence, global citizenship, and appreciation of cultural diversity and of culture’s contribution to sustainable development

4.7.1 Extent to which (1) global citizenship education and (2) education for sustainable development, including gender equality and human rights, are mainstreamed at all levels in (a) national education policies; (b) curricula; (c) teacher education; and (d) student assessment

4.A Build and upgrade education facilities that are child, disability, and gender sensitive and provide safe, non-violent, inclusive, and effective learning environments for all

4.A.1 Proportion of schools with access to (1) electricity; (2) the Internet for pedagogical purposes; (3) computers for pedagogical purposes; (4) adapted infrastructure and materials for students with disabilities; (5) basic drinking water; (6) single-sex basic sanitation facilities; and (7) basic handwashing facilities (as per the WASH indicator definitions)

4.B By 2020, substantially expand globally the number of scholarships available to developing countries, in particular least developed countries, small island developing States and African countries, for enrolment in higher education, including vocational training and information and communications technology, technical, engineering, and scientific programs, in developed countries and other developing countries

4.B.1 Volume of official development assistance flows for scholarships by sector and type of study

4.C By 2030, substantially increase the supply of qualified teachers, including through international cooperation for teacher training in developing countries, especially least-developed countries and small island developing States

4.C.1 Proportion of teachers in (1) pre-primary; (2) primary; (3) lower secondary; and (4) upper secondary education who have received at least the minimum organized teacher training (e.g., pedagogical training) pre-service or in-service required for teaching at the relevant level in a given country


Indicators Used in this Analysis

UNESCO, the United Nations’ specialized agency for education, has published several comprehensive papers examining the human and financial implications associated with achieving SDG 4 by 2030. We used UNESCO’s 18th Policy Paper in reference to our selected indicators.48 The indicators model the additional annual financing required during 2015-2030 to reach universal pre-primary, primary, and secondary education in all low and lower-middle income countries. Low and lower-middle income countries face the greatest challenges in education provision and are the most likely to need external assistance.49

48 UNESCO (2015), Pricing the right to education: The cost of reaching new targets by 2030. 49 United Nations (2018), Global Indicator Framework for the Sustainable Development Goals


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Human Indicator Value Units Total additional student enrolment for universal pre-primary, primary, and secondary education

769 Million

Economic Indicator Total additional spend for universal pre-primary, primary, and secondary education

5,092.5 $ Billion

Annual additional spend for universal pre-primary, primary, and secondary education

339.5 $ Billion per year

Source: UNESCO (2015)48, Citi Research

Investment Direction and Opportunities Within UNESCO’s 18th Policy Paper, key findings indicate that in 2015 over 750 million children required enrolment to attain universal pre-primary, primary and secondary education in low and low-middle income countries. The majority of the out-of-school children, over 40%, reside within the primary education age group, followed by upper-secondary, lower-secondary, and pre-primary. This is forecasted to increase to over one billion children by 2030, with, similarly, primary education needing the greatest additional enrollment at nearly 500 million students.48

Figure 39. Number of Additional Students per Education Level to Reach Universal Education


Within this in mind, the financial opportunity to provide universal pre-primary, primary and secondary education is forecasted to cost just below $340 billion per year, between 2015 and 2030, translating to an estimate total additional spend of over $5 trillion.48

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Figure 40. Providing Universal Pre-Primary, Primary, and Secondary Education by 2030 Will Cost $339.5 Billion per Year Between 2015 and 2030


In absolute terms, the annual cost in achieving universal education in low income countries is estimated to more than triple, from $14 billion in 2012, to an average of $50 billion between 2015 and 2030.48 Low-middle income countries, associated costs are much higher overall due to greater populations and level of GDP per capita, leading to an expected doubling from $134 billion in 2012, to an average $289 billion over the 2015-2030 timeframe, equaling, when added to increase in low income countries, $339.5 billion per year.48

9%

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SDG 5: Gender Equality What Is It and Why Is it Important? Sustainable Development Goal 5 aims to realize the extremely ambitious—and highly impactful, from both human and the financial perspectives—of attaining gender equality and empowering all women and girls. The goal encompasses ending all forms of discrimination; eliminating all forms of violence including trafficking and other types of sexual exploitation; eliminating harmful practices such as child, early and forced marriage and FGM/C (female genital mutilation and cutting); recognizing and valuing unpaid care and domestic work; ensuring women’s full and effective participation and equal opportunities in decision-making in political, economic and public life; ensuring universal access to sexual and reproductive health and rights; reforms to grant women equal rights to economic resources, e.g., ownership of land and title, financial inclusion and inheritance; enhance access to enabling technology; and the adoption and strengthening of policies and the implementation of legislation to promote gender equality and the advancement of women and girls.

The economic rationales for gender equality are as follows (see Women in the Economy II Citi GPS report for more information):

1. If we raise Labor Force Participation (LFP), Average Hours Worked and Average Labor Productivity to parity for men and women, OECD GDP could in theory increase 20% and GDP generate by women could increase 50%.

2. If instead we only narrow the gap between men and women by 50% on LFP, Average Hours Worked and Average Labor Productivity, GDP would increase 8% in advanced economies and GDP by women would increase 20%.

3. Adjusting those numbers with a conservative assessment on the potential impact of gender policies and changes, GDP in advanced economies could increase 6%.

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Targets Indicators 5.1 End all forms of discrimination against all women and girls everywhere 5.1.1 Whether or not legal frameworks are in place to promote, enforce and monitor

equality and non-discrimination on the basis of sex

5.2 Eliminate all forms of violence against all women and girls in the public and private spheres, including trafficking and sexual and other types of exploitation

5.2.1 Proportion of ever-partnered women and girls aged 15 years and older subjected to physical, sexual or psychological violence by a current or former intimate partner in the previous 12 months, by form of violence and by age 5.2.2 Proportion of women and girls aged 15 years and older subjected to sexual violence by persons other than an intimate partner in the previous 12 months, by age and place of occurrence

5.3 Eliminate all harmful practices, such as child, early and forced marriage and female genital mutilation

5.3.1 Proportion of women aged 20-24 years who were married or in a union before age 15 and before age 18 5.3.2 Proportion of girls and women aged 15-49 years who have undergone female genital mutilation/cutting, by age

5.4 Recognize and value unpaid care and domestic work through the provision of public services, infrastructure and social protection policies and the promotion of shared responsibility within the household and the family as nationally appropriate

5.4.1 Proportion of time spent on unpaid domestic and care work, by sex, age and location

5.5 Ensure women’s full and effective participation and equal opportunities for leadership at all levels of decision-making in political, economic and public life

5.5.1 Proportion of seats held by women in national parliaments and local governments 5.5.2 Proportion of women in managerial positions

5.6 Ensure universal access to sexual and reproductive health and reproductive rights as agreed in accordance with the Programme of Action of the International Conference on Population and Development and the Beijing Platform for Action and the outcome documents of their review conferences

5.6.1 Proportion of women aged 15-49 years who make their own informed decisions regarding sexual relations, contraceptive use and reproductive health care 5.6.2 Number of countries with laws and regulations that guarantee women aged 15-49 years access to sexual and reproductive health care, information and education

5.A Undertake reforms to give women equal rights to economic resources, as well as access to ownership and control over land and other forms of property, financial services, inheritance and natural resources, in accordance with national laws

5.A.1 (a) Proportion of total agricultural population with ownership or secure rights over agricultural land, by sex; and (b) share of women among owners or rights-bearers of agricultural land, by type of tenure 5.A.2 Proportion of countries where the legal framework (including customary law) guarantees women’s equal rights to land ownership and/or control

5.B Enhance the use of enabling technology, in particular information and communications technology, to promote the empowerment of women

5.B.1 Proportion of individuals who own a mobile telephone, by sex

5.C Adopt and strengthen sound policies and enforceable legislation for the promotion of gender equality and the empowerment of all women and girls at all levels

5.C.1 Proportion of countries with systems to track and make public allocations for gender equality and women’s empowerment


A tall order, to be sure, but one with significant positive consequences backed by evidence of how even small government policy changes, especially when accelerated by gender-focused programming from international financial institutions (IFIs) and multi-lateral institutions and the private sector, can bear fruit. Of the 230 unique global SDG indicators, 53 (23%) explicitly reference women, girls, gender or sexual orientation, with 14 appearing under SDG 5. The benefits of increasing gender equality is backed by substantial evidence and linked with wider development goals, including boosting human development (Figure 42). Gender equality is associated with boosting human development as well as accelerating economic growth (Figure 43).


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Figure 42. Gender Equality is Associated with Boosting Human Development

Figure 43. Gender Equality is Associated with Faster Economic Growth

Source: Citi GPS (2017) Women in the Economy II. Data from United Nations Development Programme 201 5 Human Development Report

Note: GDP per capita growth was regressed on initial income to control for convergence. Years range from 1990 to 2010 Source: Citi GPS (2017), Women in the Economy II. Data from Development Indicators 2015, IMF staff estimates, and United Nations Development Programme 201 5 Human Development Report

What Holds Back Progress? Discriminatory social norms and cultural attitudes are part of the problem, constraining women’s ability to find decent work. Where they do work, women also are more likely to find themselves in more vulnerable occupations, a risk likely to be felt disproportionately by women as the automation of the labor force gains momentum. It is perhaps the phenomenon of unpaid care work which most significantly limits women’s ability to participate in paid employment, with OECD estimates suggesting that across regions, men perform one-half to less than one-fifth of the unpaid care (household tasks, caring for children and elderly relatives) that women do (Figure 44).50

50 OECD, 2014. Unpaid Care Work: The missing link in the analysis of gender gaps in labor outcomes.


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Figure 44. Male-Female Ratio of Unpaid Care Work, Regional Averages and High and Low Country Performers by Region, 2014

Note: Unweighted regional average. 69 countries are included. Source: Citi GPS (2017) Women in the Economy II. Data from OECD Gender, Institutions and Development Database

Removing barriers to women entering the labor force and realizing the broader aims of SDG 5 would reap significant economic dividends. Based upon Citi Research estimates as well as the work of the United Nations High-Level Panel (See Box on UNHLP Toolkits) the growth impact of implementing a Women’s Economic Empowerment Agenda could be as much as 6% of GDP in advanced countries by 2030.51

Why Is It an SDG and What Is the Scale of the Problem? Comprising 50% of the world’s population, the human impact of gender equality is obviously far-reaching. Reducing gender inequality is a human right, and a human development concern as well as a key contributor to growth and sustainable development. SDG 5 also has significant impact across the 17 SDGs, raising both the stakes for achieving it as well as the potential for a meaningful multiplier effect. Simply put, where women benefit, so to do their families, communities, and countries benefit. To be sure, enormous progress has been made in recent decades in improving public health and education, both of which have greatly increased the number of girls as well as boys educated to at least primarily level and reducing maternal health and mortality levels.

But much remains to be done, including the ability to develop and track metrics for progress on the gender agenda; according to the UN High-Level Political Forum on Sustainable Development, of the 80 countries with available data, just 47 have systems designed to track and make public allocations for gender equality.52 Laws also matter greatly; here progress is mixed.

51Citi GPS (2016) Women in the Economy II. 52 OECD/UNDP, 2016. Making Development Co-operation more effective: 2016 Progress Report.


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According to a World Bank report published in 2015 following the 20th anniversary of the Beijing Plan for Action, 155 of the 173 countries surveyed still had at least one law on the books inhibiting women’s economic opportunities, such as the right to inherit property, the right to apply for their own passport, access to credit and other forms of financial inclusion, or to the freedom of movement necessary to work and realize their economic potential.53 The report tracks substantial progress as well: between 2013 and 2016, 65 (mainly advanced economies) made 94 reforms to their statute books to improve gender parity. There has also been progress in addressing violence against women: 127 countries passed laws against domestic violence, compared with just seven 28 years ago.

Even so, recent estimates produced by the World Economic Forum in its annual Gender Gap report suggest that despite the compelling economic case for reducing gender inequality, the global gender gap widened in 2017.54 Furthermore, the size of the gender gap increased since the WEF first began collecting the data: at the current rate of change, it will take close to 100 years to close the global gender gap, compared to 83, 12 years ago.

Figure 45. When Are the Regions Likely to Close the Economic Gender Gap

Source: Citi GPS (2017) Women in the Economy II. Data from Global Gender Gap Report 2017, World Economic Forum

How Do We Get There? In recent years, international attention to gender equality has risen markedly. In 2016, UN Secretary-General Ban-Ki Moon established the UN’s first-ever High-Level Panel on Women’s Economic Empowerment, which was tasked with developing an action-oriented agenda in support of the women’s economic empowerment agenda, specifically, achieving the 2030 SDGs.

53 World Bank Group, 2015. Women, Business and the Law 2016: Getting to Equal. 54 World Economic Forum, 2017. The Global Gender Gap Report 2017

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Figure 46. Seven Primary Drivers of Women’s Economic Empowerment

Source: Citi GPS (2017) Women in the Economy II.

Economic policies are not gender-neutral; their impact has significant implications for the gender equality agenda. With this in mind, the World Bank and IMF have taken substantial steps to explicitly incorporate a “gender lens” into their programming. In 2018 the European Investment Bank, the world’s largest multi-lateral financier, adopted a gender action plan providing more than €87 billion in financing and has committed to promoting gender equality in all of its projects. Much as the advent of environmental impact reports required an assessment of how a given project or enterprise might impact the environment, so a gender lens seeks to determine the impact of spending and resource allocation upon women. Some countries have moved to do the same in their national budgets, for example, Canada’s first ever Gender Statement was introduced in the 2017 Budget, and a Gender Results Framework followed in 2018 to track the country’s performance.55

55 Government of Canada, 2018. Budget 2018 Plan. https://www.budget.gc.ca/2018/docs/plan/chap-05-en.html


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UN High-Level Panel Toolkits

The UN High-Level Panel On Women’s Economic Empowerment, comprised of 20 senior representatives across business, government and civic society, have published two reports “A call to action for gender equality and women’s economic empowerment”, and “Taking action for transformational change on women’s economic empowerment”. This is accompanied by “Toolkits” which aim to facilitate the implementation of recommendations given in the second report, and include case studies, good practices and other resources for each of the 7 drivers identified in Figure 46. With the support of Citigroup, UN Women have also developed a Corporate Guide to Gender-Responsive Procurement which aims to help corporations better understand the barriers and challenges women-owned businesses face. The guide also provides practical tools and techniques to help integrate more women-owned enterprises into local and global value chains. (http://buywomenowned.unwomen.org/).

The full reports, toolkits, and more information on the UN HLP can be found here: http://hlp-wee.unwomen.org/en

Where IFIs and Multi-Lateral Institutions Lead, Will the Private Sector Follow? The private sector continues to contend with the challenges of improving diversity in the workplace, women in leadership positions and gender pay gap concerns. Even so, the private sector can make a powerful contribution to the global women’s economic empowerment agenda at the same time, substantially accelerating progress toward attaining Goal 5. The UN HLP’s working group on Changing Business Culture and Practice, co-chaired by UK Secretary of State for Education and Citi’s Chief Global Political Analyst Tina Fordham produced a “Value Chain Approach to the Business Case” for Women Economic Empowerment that outlines the numerous ways companies and investors can engage, from increasing procurement from women-owned companies to supporting gender-sensitive initiatives in community development.

Investing in women and girls to reduce gender inequality and accelerating progress toward Goal 5 has a potentially transformational impact. In terms of the ESG investing agenda, the development of more tools, investment screens and indices when it comes to gender considerations is still in the early stages, decades behind the environmental and climate change sector. Given the scale of the human impact and the economic and financial delta, as well as heightened public awareness following the rise of the #MeToo campaign against sexual harassment and ongoing gender pay gap challenges, the women’s economic empowerment agenda could now be poised to make up for lost time.


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SDG 6: Clean Water and Sanitation What Is It and Why Is It Important? Water is vital not only for the production of food and energy, but also for the livelihoods of people, and economic growth. In our Citi GPS report Solutions for a Global Water Crisis we estimated that approximately 4 billion people live under water scarcity at least one month per year and according to the UN more than 2 billion people globally are living in countries with excess water stress.56 The quality of water is also becoming a huge issue in many countries. Freshwater pollution caused by the discharge of insufficiently treated water is affecting the availability of the world’s water. It is currently estimated that 90% of sewage in developing countries is discharged untreated into water bodies which not only affects the availability of clean water but also affects the livelihoods of communities.

According WHO/UNICEF Joint Monitoring Programme for Water Supply and Sanitation in 2015 over 71% of the global population (5.3 billion people) used safely-managed drinking water services and at least 5 billion people used an improved sanitation facility that was not shared with other households, and thus are classified as having at least basic sanitation.57 Even though there has been a lot of progress over the years in improvements to both drinking water and sanitation, there is still some work to be done. For example it is estimated that nearly 1000 children die every day from preventable water and sanitation-related diarrheal diseases and over 2.4 billion people lack access to basic sanitation services such as toilets and latrines.

Goal 6 of the UN’s sustainable development goals aims to ensure the availability and sustainable management of water and sanitation for all. It contains six main targets (there are also two targets that describe the resources that need to be implemented to reach these goals) and 9 main indicators.

56 Water stress is defined as the ratio of total freshwater withdrawn to total renewable freshwater resources above a threshold of 25%. 57 World Health Organisation, Unicef (2017), Progress on Drinking water, sanitation and hygiene

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Targets Indicators 6.1 By 2030 achieve universal and equitable access to safe and affordable drinking water for all

6.1.1 Proportion of population using safely managed drinking water

6.2 By 2030 achieve access to adequate and equitable sanitation and hygiene for all and end open defecation, paying special attention to the needs of women and girls and those in vulnerable situation

6.2.1 Proportion of population using safely managed sanitation services, including a hand-washing facility with soap and water

6.3 By 2030 improve water quality by reducing pollution, eliminating dumping and minimizing release of hazardous chemicals and materials, halving the proportion of untreated wastewater and substantially increasing recycling and safe reuse globally

6.3.1 Proportion of wastewater safely treated; Proportion of bodies of water with good ambient water quality

6.4 By 2030 substantially increase water use efficiency across all sectors and ensure sustainable withdrawals and supply of freshwater to address water scarcity and substantially reduce the number of people suffering from water scarcity

6.4.1 Change in water-use efficiency over time; Proportion of bodies of water with good ambient water quality

6.5 By 2030 implement integrated water resources management in all levels, including transboundary cooperation as appropriate

6.5.1 Degree of integrated water resources management implementation (0-100); Proportion of transboundary basin area with an operational arrangement for water cooperation

6.6 By 2020, protect and restore water-related ecosystems, including mountains, forests, wetlands, rivers, aquifers, and lakes

6.6.1 Change in the extent of water-related ecosystems over time

6.A By 2030 expand international cooperation and capacity building support to developing countries in water- and sanitation-related activities and programs including water harvesting, desalination, water efficiency, wastewater treatment, recycling, and reuse technologies

6.7.1 Amount of water and sanitation related official development assistance that is part of a government – coordinated spending plan

6.B Support and strengthen the participation of local communities in improving water and sanitation management

6.8.1 Proportion of local administrative units with established and operational policies and procedures for participation of local communities in water and sanitation management


Indicators Used in this Analysis For the purposes of this research we have selected a number of indicators that measure the proportion of people who do not have access to safely managed drinking water and sanitation and the additional annual cost needed to reach these SDG goals, in particular goal 6.1 and 6.2- see table below.

Figure 48. Indicators Used for this Study

Human Indicators Value Units Population that do not have access to safely managed drinking water in 2015 2.1 Billion

Population that do not have access to safely managed sanitation in 2015 2.4 Billion Economic Indicators Annual additional investment needed over and above current investment to achieve universal and equitable access to safe drinking water and sanitation for all

79 Billion per Year

Cumulative additional investment needed over and above current investment to achieve universal and equitable access to safe drinking water and sanitation for all 2016-2030

1.2 Trillion 2016-2030

Source: WHO/UNICEF, Global Infrastructure Hub58, Citi Research

The SDG goals go over above just providing basic access to drinking water — Goal 6.1 refers to universal and equitable access to safe and affordable drinking water. Currently there are 6.5 billion people that have access to basic drinking water supplies and 5.2 billion people that have access to safely managed drinking water. Over 800 million people do not have access to any basic clean water facilities.

58 Global Infrastructure Outlook, a G20 Initiative, Forecasting Infrastructure Investment needs and gaps – https://outlook.gihub.org.


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For sanitation the SDG goal aims to achieve access to adequate and equitable sanitation and hygiene for all and end open defecation. Currently over 5 billion people have access to basic sanitation (approx. 2.4 billion do not have access to improved sanitation services) and 900 million people worldwide still practice open defecation.

Figure 49. Access to Water Resources Figure 50. Over 70% of Population Has Access to Safely Managed Water

Source: WHO/ UNEP59, Citi Research Source: WHO/ UNEP, Citi Research

Figure 51. Access to Sanitation Figure 52. Access to Basic Sanitation has Increased Over the Years

Source: WHO/ UNEP59, Citi Research Source: WHO/ UNEP, Citi Research

59 WHO/UNEP, Joint Monitoring Programme - https://washdata.org/data

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Adequate Investment in water infrastructure is essential in meeting the goals of this SDG. Hutton et al. (2016)60 state that current levels of investment can cover the capital costs of achieving universal basic access for drinking water and sanitation by 2030. However additional investment would be required to reach the sustainable goal targets. According the Global Infrastructure Hub, on average a total of $79 billion per year (the difference between current trends and investment needs including SDG in Figure 53) is needed to meet the SDG goals, and a cumulative investment of $1.2 trillion from 2016 to 2030.

Figure 53. Investment Needs to Meet SDG Goal 6.1 and 6.2

Source: Global Infrastructure Hub58, Citi Research

It is however important to note that to ensure sustainable management for all as stated in the overall goal of this SDG requires both developed countries and developing countries to invest in water infrastructure above what is needed to achieve goals 6.1 and 6.2 of this SDG. The needs are quite different- with developing countries requiring finance to build new infrastructure as a significant proportion of the population do not have access to water and sanitation, while in developed countries investment is needed to upgrade and improve their water infrastructure. In our Citi GPS report ‘Solutions for a Global Water Crisis’ we estimated that we need to spend a cumulative investment of $9.7 trillion between 2010 and 202061 in water infrastructure. The OECD in their latest report estimate a cumulative investment of $13.trillion from 2016 to 2030, with an average annual spend of $0.9 trillion.

60 Hutton G, Varughese M (2016), The Costs of Meeting the 2030 Sustainable Development Goal Targets on Drinking Water, Sanitation and Hygiene, Water and Sanitation programme and the World Bank Group. 61 Lloyd Owen D (2011), Infrastructure needs for the water sector, unpublished, commissioned by OECD.

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Investment Direction and Opportunities The majority of the investment needed for drinking water is in Sub-Saharan Africa as only 23.7% of the population has access to safely managed drinking water. With regards to sanitation, 29% of the population in Central and South Eastern Asia still practices open defecation. In Sub-Saharan Africa, the figure stands at just below 23% of the total population. According to the African Development Bank, inadequate water and sanitation is costing Africa the equivalent of 5% of GDP. In Sub-Saharan Africa, the investment needs for water supply and sanitation are estimated at $21.9 billion per year and $3.4 billion in irrigation- a funding gap of $13.8 billion per year is estimated.62

Figure 54. Proportion of People Who Have Access to Safely Managed Drinking Water in 2015

Figure 55. Proportion of People Who Still Have Open Defecation

*Only urban numbers are included for Eastern & SE Asia and for Oceania. Source: WHO/ UNEP63, Citi Research

Source: UNEP/WHO

The effect of inadequate water infrastructure on the livelihoods of people and on the economy could be enormous. The demand for water is expected to increase so investment is required not only in developing countries but also to upgrade and improve water infrastructure in developed countries. The International Food Policy Research estimate that nearly $63 trillion of global GDP could be at risk in 2050 if current water management practices and levels of water productivity remain the same. The challenges are huge, but as we can see from this research paper the opportunities available are also just as large.

62 This assumes that current expenditure continues and there are some efficiency gains. 63 WHO/UNEP, Joint Monitoring Programme- https://washdata.org/data.

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SDG 7: Affordable and Clean Energy What Is It and Why Is It Important? Sustainable Development Goal 7 relates to a sustainable and inclusive energy future, encompassing reliable, universal access to energy (and not just electricity, but also for cooking and heating), and meeting targets for greater shares of clean, renewable energy, and achieving greater levels of energy efficiency.

In 2015, more than 1 billion people, representing 14% of the global population, still lacked access to electricity. A much greater problem exists with some 2.8 billion still lacking access to clean cooking fuels.64 Access to electricity is a key factor in eliminating poverty, and impacts many other goals such as health, education, and allowing economic growth and hence job and wealth creation. The use of dirty cooking fuels — biomass, coal, and kerosene — is a primary factor in household air pollution, which is estimated to cause some 2.8 million deaths per year. However, our energy usage, and how that energy is generated also have huge impacts on climate change (see SDG 13) and on pollution generally. As we pointed out in our recent Citi GPS report Sustainable Cities, some 88% of city dwellers are exposed to levels of pollution which exceed WHO guidelines, with 50% exposed to levels >2.5x recommended levels.


Targets Indicators 7.1 - By 2030, ensure universal access to affordable, reliable and modern energy services 7.1.1 - Proportion of population with access to electricity

7.1.2 - Proportion of population with primary reliance on clean fuels and technology

7.2 - By 2030, increase substantially the share of renewable energy in the global energy mix 7.2.1 - Renewable energy share in the total final energy consumption

7.3 - By 2030, double the global rate of improvement in energy efficiency 7.3.1 - Energy intensity measured in terms of primary energy and GDP

7.A - By 2030, enhance international cooperation to facilitate access to clean energy research and technology, including renewable energy, energy efficiency and advanced and cleaner fossil-fuel technology, and promote investment in energy infrastructure and clean energy technology

7.A.1 - Mobilized amount of United States dollars per year starting in 2020 accountable towards the $100 billion commitment

7.B - By 2030, expand infrastructure and upgrade technology for supplying modern and sustainable energy services for all in developing countries, in particular least developed countries, small island developing States, and land-locked developing countries, in accordance with their respective programs of support

7.B.1 - Investments in energy efficiency as a percentage of GDP and the amount of foreign direct investment in financial transfer for infrastructure and technology to sustainable development services


Indicators Used in this Analysis As discussed, some 1.06 billion people around the world currently lack access to electricity. Of the 2.8 billion people still lacking access to clean cooking fuels, current needs are fulfilled according to the International Energy Agency (IEA) by 2.5 billion people using solid biomass, 120 million using kerosene, and 170 million using coal.

Affordability, another element of the goal, appears to be less of an issue generally than access. According to a recent World Bank report 'Regulatory Indicators for Sustainable Energy’ (RISE), electricity is deemed to be unaffordable if a basic usage level of 30 kilowatt hours (kWh) per month per home costs more than 10% of the gross national income per household, for the bottom 20% of households.

64 IEA World Energy Outlook, 2017

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The report demonstrates that for countries with an access to electricity figure of less than 90% (with populations of >1 million people), basic consumption costs less than 5% of the indicator in 73% of those countries. Affordability is a difficult issue to tackle and quantify — electricity costs what it costs, and in particular with most of those people lacking access based in rural areas, the provision of those services is likely to disproportionately expensive given negative economies of scale, and low customer density. Hence the issue of affordability is most effectively tackled by rising incomes — the only other option is subsidizing access for rural populations. Distributed renewables (potentially with storage) does offer more potential to connect areas which currently lack the infrastructure for on-grid connections.


Human Indicators Value Units Percentage of the population which still lacks access to electricity

1.06 billion

Percentage of the population which still lacks access to clean cooking fuels

2.8 billion

Economic Indicators Cost of providing access to electricity and clean cooking fuels to 100% of the global population

36 Billion per Year

Clean energy' - Cost of transitioning the energy mix to one consistent with meeting climate change targets, equating to a doubling of the share of renewable energy from current levels

390 Billion per Year

Energy Efficiency - investment in energy efficiency to more than double the rate of reduction in energy intensity, i.e. unit of energy used per unit of GDP

> Double Unit of energy used per unit of GDP


Emissions intensity forms another element of the UN indicators, and here there is another positive ray of light, in that the link between GDP growth and emissions appears to have been broken (or at least weakened) in recent years. Emissions have stayed broadly flat for the last three years, despite global economic growth; this is due to a combination of greater energy efficiency, and of course the dramatic deployment of renewables around the globe, as well as greater use of shale in the U.S. The other large emitter, China, actually saw emissions fall by 1% in 2016, despite economic growth of 6.7%.65

65 IEA World Energy Outlook 2017.


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Where Would We Need to Get to Believe We Had Achieved the Goal? In the IEA's base case (the so-called 'New Policies Scenario'), 610 million people gain access to electricity by 2030, with the overall access rate in developing countries increasing to 90%, with urbanization a key driving factor (see our Citi GPS report on Sustainable Cities for greater granularity on energy use in cities). This means that globally, 8% of the world's population still lack access in 2030, some 675 million people, predominantly in rural areas, with the vast bulk of those in sub-Saharan Africa; indeed this problem is projected to grow thereafter, as population growth in that region exceeds the rate of electrification.

Renewables, both on-grid and decentralized will play an enormously important part in tackling the issue of access to energy. Decentralized renewable generation (e.g. solar panels), in particular if deployed with energy storage, has the potential to transform the access to electricity for rural areas. The IEA estimates that by 2040, of the 700 million extra people who will gain access to electricity, 200mn will be via on grid renewables, with 255 million via decentralized renewables.

The IEA's sustainable development scenario combines the goals of universal access for all to reliable, affordable and modern energy by 2030, significantly reducing pollution, and addressing climate change, and is intended to align with the UN SDGs. This scenario sees 1.3 billion people gaining access to electricity by 2030, with 2.9 billion gaining access to clean cooking fuels, reducing premature deaths from pollution by 1.8 million versus the IEA's base case. It significantly reduces carbon emissions by doubling the rate of renewable energy as a share of final energy consumption, and doubles the rate of improvement in energy efficiency by 2030, as per the UN SDG. In terms of energy efficiency, the IEA's sustainable development scenario provides a steeper decline in energy intensity of 3.2% per year (vs a base case of 2.3%), with carbon intensity falling at an even faster 5.5% per year, almost double the base case.

Figure 58. Transition in Primary Energy Demand Under the IEA’s Sustainable Development Scenario

Figure 59. Improvement in Energy Intensity Under the IEA’s Sustainable Development Scenario

Source: IEA, Citi Research Source: IEA, Citi Research

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What Is the Scale of the Opportunity in Financial Terms? Clearly the 'easiest' populations to connect to electricity have been tackled first, meaning that connecting those predominantly rural (and dispersed) populations that still lack access is likely to be disproportionately costly in financial terms. Accordingly, achieving these goals is far from cheap. The IEA's sustainable development scenario is estimated to cost an additional $9 trillion net out to 2040 on top of its base case scenario, made up of an additional $7 trillion in energy efficiency, with additional investments in renewables and nuclear adding a further $5.7 trillion of investment. This figure is partially offset by an $8 trillion lower investment in fossil fuel supply and generation, and by lower operational and fuel costs thereafter.

For our estimates, we take this net $9 trillion investment and pro-rate it to 2030, resulting in an incremental investment of $390 billion per year (though we believe this is likely to be back end weighted). In terms of granularity, within this overall investment figure, the IEA estimates the cumulative cost of access for all at $433 billion to 2030 (in context a relatively small sum) which equates to an additional $36 billion per year. The costs of reducing pollution levels within this scenario are calculated by the IEA at $772 billion out to 2040, an implied spend of a similar $34 billion per year. While not small in an absolute sense, they are in a relative sense – the significant cost comes from the de-carbonization costs associated with the 'clean' aspect of the goal's aim for 'Clean and affordable energy'. This provides another example of the inherent contradictions or negative read-across which often exist between and within the SDGs — the cleaner we want our energy to be (and the sooner), the less affordable it is going to be. Ultimately the cost of renewables will fall below the costs of conventional generation (indeed for many technologies in many regions it already is), but the speed of deployment will have a key impact on our emissions trajectory, and hence on climate change.

What Is the Scale of Opportunity in Human Terms? The WHO and IEA estimate that around 6 million people die each year from the effects of air pollution, with 2.9 million of those from outdoor air pollutions, and a further 2.8 million from household air pollution, which is closely linked with the use of dirty cooking fuels. The IEA's base case sees the number using dirty cooking fuels fall to 2.3 billion by 2030, while as discussed, the Sustainable Development Scenario inherently assumes universal access to both electricity and clean cooking fuels.

Working on the assumption that the 1.06 billion people who lack access to electricity overlap with the 2.8 billion that lack access to clean cooking facilities (otherwise they could theoretically use electricity, cost/reliability allowing), we take the figure of 2.8 billion for the human opportunity.

Where Are the Biggest Opportunities Geographically? The IEA estimates that of those currently lacking access to electricity, 97% are in Sub-Saharan Africa and Asia, with 85% of those in rural areas. Indeed the problem is endemic, with 84% of the population in Sub-Saharan Africa still using solid biomass, kerosene, or coal for cooking purposes. China and India are responsible for half of the 2.8 billion people lacking access to clean cooking fuels, while Indonesia represents another key market – while 560 million lack access to clean cooking fuels today, the IEA's base case sees 130 million extra people gaining access to clean cooking fuels by 2030, leaving a still significant number of 490 million still lacking access.


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Sub-Saharan Africa though remains the key challenge, where population growth sees the number without access actually increase to some 900 million by 2030, as population growth outstrips efforts to solve the problem under base cases.

By 2030, the IEA estimates that the electrification rate in Asia is 99%, the number of people without access falling from 439mn in 2016 to 54 million in 2030, driven largely by progress in India, and with Indonesia reaching 99% by 2030. The only countries failing to reach universal access by 2030 under the IEA's base case are Myanmar, Cambodia and Laos PDR. In the base case scenario, 600 million people in sub-Saharan Africa remain without access to electricity. Latin America reaches almost full electrification with certain islands, and most notably Haiti and Belize as outliers; while in Haiti, 5 million people gain access to electricity by 2030, this still only takes the connection rate to 67%, double the level of 2016, but still poor.


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SDG 8: Decent Work and Economic Growth What Is It and Why Is it Important? Sustainable Development Goal 8 is designed to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.

Economic growth is often presented as a headline goal for improving human wellbeing in cities, nations and across the globe. This focus is often criticized, and likely stems from an over-reliance on GDP as a proxy for human wellbeing. Furthermore, the impact of economic growth even on the economic wellbeing of individuals is dependent on a range of factors, in particular the way in which that growth is distributed. Nonetheless, economic growth does make many human problems easier to deal with, and has many facets which are critically important to human wellbeing.

SDG 8 is focused on achieving growth specifically for the purpose of improved wellbeing in this broader context. In aligning economic growth with decent work, the UN is emphasizing the importance of quality job creation in the sustainable development agenda. The International Labour Organisation (ILO) emphasizes that decent work is both a goal and driver of sustainable development, and found that amongst emerging and developing countries, those that invested the most in the early 2000s in decent work experienced lower income inequalities and grew almost 1% faster each year since 2007.66

Significant progress has been made towards economic development and poverty eradication (see SDG 1). The proportion of middle class in developing countries that make up total employment has tripled in size between 1991 and 2015, and now accounts for 34%.67 However, significant deficiencies are obviously still evident, and access to the opportunities for wellbeing provided by economic growth are still absent for many. Jobs growth globally is not keeping pace with population growth. Employment growth has averaged 0.1% per year globally since 2008, down from 0.9% between 2000 and 2007. More than 200 million people were unemployed in 2015, and are estimated to increase to 212 million by 2019.68

SDG 8 stresses “full and productive employment, and decent work, for all women and men”, which requires more than just job creations but also the transition of people in vulnerable employment69 to productive, quality jobs. This is especially relevant in developing countries where the majority of the working poor are made up of women and men in vulnerable employment70 (see Figure 60 and Figure 61).

66 ILO, 2017. Decent Work and the 2030 Agenda for Sustainable Development. 67 UNDP, 2018. Goal 8: Decent work and economic growth 68 UNDP, 2018. Goal 8: Decent work and economic growth; ILO, 2018. 2030 Agenda for Sustainable Development, Goal 8 69 The ILO classifies vulnerable employment as own-account work and contributing family work, which is subject to high levels of precariousness. People in vulnerable employment are more likely to be engaged in informal employment, and have less access to benefits from regular incomes and job security. 70 ILO, 2015. Decent Work and Financing for Sustainable Development, an ILO background note for the UN Conference on financing for development Addis Ababa 13 – 16 July 2015.


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Both Sub-Saharan Africa and Southern Asia have vulnerable employment rates of 72%, but the number of people in vulnerable employment is much greater in Southern Asia (499 million compared to 271 million). Another challenge in global employment is the lack of opportunities for young people (under 25 years of age). In 2016, youth were almost three times as likely to be unemployed as adults, with the global unemployment rate for youth at 12.8%.71

Figure 60. Regional Variations in Vulnerable Employment Rate Figure 61. Regional Variations in Population Under Vulnerable Employment

Source: ILO72, Citi Research Source: ILO, Citi Research

The UN metrics for SDG 8 (Figure 62) encapsulate targets to promote growth specifically in Least Developed Countries (LDCs), in labor-intensive high value-added sectors, and among marginalized populations. It includes targets relating to equality of economic opportunity between men and women, and opportunities for young people and persons with disabilities, and specifically targets equal pay for work of equal value. The goal targets the eradication of forced labor, modern slavery and human trafficking, and the worst forms of child labor by 2025. Finally, the goal notes the interplay between SDG 8 and SDGs 12, 13, 14, and 15, targeting improved resource efficiency in consumption and production, and the eventual decoupling of growth from environmental harm.

71 UN, 2018. Sustainable Development Knowledge Platform, Goal 8. 72 ILO, 2018. World Employment and Social Outlook – Trends – 2018.

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Targets Indicators 8.1 Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 per cent gross domestic product growth per annum in the least developed countries

8.1.1 Annual growth rate of real GDP per capita

8.2 Achieve higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high-value added and labor-intensive sectors

8.2.1 Annual growth rate of real GDP per employed person

8.3 Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises, including through access to financial services

8.3.1 Proportion of informal employment in non-agriculture employment, by sex

8.4 Improve progressively, through 2030, global resource efficiency in consumption and production and endeavor to decouple economic growth from environmental degradation, in accordance with the 10-year framework of programs on sustainable consumption and production, with developed countries taking the lead

8.4.1 Material footprint, material footprint per capita, and material footprint per GDP 8.4.2 Domestic material consumption, domestic material consumption per capita, and domestic material consumption per GDP

8.5 By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value

8.5.1 Average hourly earnings of female and male employees, by occupation, age and persons with disabilities 8.5.2 Unemployment rate, by sex, age and persons with disabilities

8.6 By 2020, substantially reduce the proportion of youth not in employment, education or training

8.6.1 Proportion of youth (aged 15-24 years) not in education, employment or training

8.7 Take immediate and effective measures to eradicate forced labor, end modern slavery and human trafficking and secure the prohibition and elimination of the worst forms of child labor, including recruitment and use of child soldiers, and by 2025 end child labor in all its forms

8.7.1 Proportion and number of children aged 5?17 years engaged in child labor, by sex and age

8.8 Protect labor rights and promote safe and secure working environments for all workers, including migrant workers, in particular women migrants, and those in precarious employment

8.8.1 Frequency rates of fatal and non-fatal occupational injuries, by sex and migrant status 8.8.2 Increase in national compliance of labor rights (freedom of association and collective bargaining) based on International Labour Organization (ILO) textual sources and national legislation, by sex and migrant status

8.9 By 2030, devise and implement policies to promote sustainable tourism that creates jobs and promotes local culture and products

8.9.1 Tourism direct GDP as a proportion of total GDP and in growth rate 8.9.2 Number of jobs in tourism industries as a proportion of total jobs and growth rate of jobs, by sex

8.10 Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all

8.10.1 Number of commercial bank branches and automated teller machines (ATMs) per 100,000 adults 8.10.2 Proportion of adults (15 years and older) with an account at a bank or other financial institution or with a mobile-money-service provider

8.An Increase Aid for Trade support for developing countries, in particular least developed countries, including through the Enhanced Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries

8.A.1 Aid for Trade commitments and disbursements

8.B By 2020, develop and operationalize a global strategy for youth employment and implement the Global Jobs Pact of the International Labour Organization

8.B.1 Total government spending in social protection and employment programs as a proportion of the national budgets and GDP


Indicators Used in this Analysis The above set of indicators is used by the UN and other agencies to track the progress of SDG 8. For many goals in this report we have tried to gain analytical traction by narrowing our focus — selecting a few indicators expressing the SDG and focusing on these.


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Progress Indicators ID / Value Rationale Growth rate of real GDP per capita 8.1.1 Broad base measure for economic

development and opportunity

Ratio of men/women employed 8.5.2 Partially captures gender split in employment outcomes

Proportion of young people employed or active

8.6.1 Partially captures distribution across age groups

Human Indicators Population classified as unemployed or in vulnerable employment (2017)

1.6 billion (200 million unemployed and 1.4 billion in vulnerable

employment)

Captures populations affected by lack of economic opportunity in all nations

Population in LDCs with below target growth 680mn Broadly captures populations affected by insufficient economic opportunity as a

consequence of geography Economic Indicator Global GDP growth rate per year for sustained economic growth

3.5% Captures a “healthy” growth rate for global economic development

Source: Citi Research using data sets from the UN and the World Bank

On the question of economic impact, or needed investment, SDG 8 presents a slightly more meta problem. Firstly the impact of achieving SDG 8 will obviously be hugely significant economically, as the goal speaks to the overall progress of the global economy itself. The impact numbers will necessarily measure in the trillions of dollars73 and make SDG 8 one of the most financially impactful SDGs in the medium term. For our economic indicator, we have decided not to use a monetary value but to capture the global growth rate needed to sustain a “healthy” economic trajectory, which our Citi Research Strategist has identified as between 3-3.5%. It is important to note that this global growth rate encapsulates regional variations of slower growth in advanced economies, and greater rates in emerging markets and developing countries.

SDG 8 also explicitly targets a range of effectively redistributive goals. The development goal will not be achieved by GDP growth alone — this growth must come in the right regions, and to the right people. For example, this SDG would ideally achieve a 7% average growth rate across LDCs to 2030. We calculate the delta to this run rate at roughly $26.6 billion per year. using 2016 numbers, which is miniscule in the scope of the full goal. However, growth in LDC countries is critically important — arguably far more so than growth in advanced economies. Furthermore, the outcomes of SDG 8 must be expressed for individuals in terms of fair, sustainable and decent work. These sub-goals — focusing on quality and distribution — all sit well beyond the initial raw GDP measure.

On the human front, we have tried to identify the number of people impacted by each goal. Obviously much of the population is affected by the overall scope of SDG 8, and there are sub-goals that address specific target groups. For our indicator, we have chosen to combine the number of people that are unemployed with those in vulnerable employment, in order to reflect the direct human impact job creation and decent work can have. Within the 1.4 billion people in vulnerable employment, 97% are in emerging and developing countries. Another human indicator we would like to draw out points to the 680 million people living in the LDCs (See Figure 64) targeted specifically by the development goal.

73 1% of global GDP as of 2016 is $759 billion.


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Figure 64. GDP Growth in LDCs Between 2007 and 2016 Has Generally Been Below the 7% Target

Source: World Bank (2018)74

Investment Direction and Opportunities On the question of possible investment, SDG 8 also presents a slightly different challenge. Arguably the investments needed to accomplish SDG 8 largely encompass those investments needed for the other SDGs. Investments in education, infrastructure, sanitation, healthcare, gender equality, clean energy, institutions, innovation and a range of other improvements will be fundamental to achieving sustainable economic growth. It is for this reason that among the various needs analyses conducted for investment in the SDGs, economic growth is never defined as a specific investment category.

74 World Bank. 2018. Atlas of Sustainable Development Goals 2018: From World Development Indicators. World Bank Atlas;. Washington, DC: World Bank. © World Bank. https://openknowledge.worldbank.org/handle/10986/29788 License: CC BY 3.0 IGO.


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Impact and ethical investment in the space should in our view flow into these areas if SDG 8 is the target, with a focus on geographies with insufficient GDP per capita or classes such as the LDCs. In our view, thematic investing in SDG 8 will not be meaningfully differentiated from investment in emerging markets more generally — looking to take advantage of growth in emerging and middle income countries. On a geographic basis, investment is unfortunately often least appealing in areas which need it most, almost by definition. Larger outcome gaps exist where economic growth rates are lower, a context which will challenge traditional investors, and may even challenge impact investors in some cases.


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SDG 9: Industry, Innovation, and Infrastructure What Is It and Why Is It Important? Sustainable Development Goal 9 incorporates building resilient infrastructure, promoting inclusive and sustainable industrialization, and fostering innovation. Around the world, millions of people still lack access to infrastructure, from basic needs such as water and energy, to transport and telecommunications. Access to these not only has the potential to transform people's lives as an important driver of eliminating poverty and improving levels of wealth and reducing inequality, but it also has numerous knock-on positive effects. When the right infrastructure is built efficiently, it can boost economic growth via the multiplier effect, boosting economic activity and creating jobs, with a virtuous circle via reinvestment. Fostering innovation can also boost economic activity, create jobs, and improve lives. Building sustainable and resilient infrastructure can impact numerous other SDGs, such as sustainable cities, climate action, water, poverty, hunger, health, education, gender equality, and so on — it is hard to think of an SDG which is not positively impacted by building the right infrastructure effectively, and boosting innovation and industry.

Figure 65. UN Targets and Indicators for Goal 9

Targets Indicators 9.1 Develop quality, reliable, sustainable and resilient infrastructure, including regional and trans-border infrastructure, to support economic development and human well-being, with a focus on affordable and equitable access for all

9.1.1 Proportion of the rural population who live within 2km of an all-season road 9.1.2 Passenger and freight volumes, by mode of transport

9.2 Promote inclusive and sustainable industrialization and, by 2030, significantly raise industry’s share of employment and gross domestic product, in line with national circumstances, and double its share in least developed countries

9.2.1 Manufacturing value added as a proportion of GDP and per capita 9.2.2 Manufacturing employment as a proportion of total employment

9.3 Increase the access of small-scale industrial and other enterprises, in particular in developing countries, to financial services, including affordable credit, and their integration into value chains and markets

9.3.1 Proportion of small-scale industries in total industry value added 9.3.2 Proportion of small-scale industries with a loan or line of credit

9.4 By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes, with all countries taking action in accordance with their respective capabilities

9.4.1 CO2 emission per unit of value added

9.5 Enhance scientific research, upgrade the technological capabilities of industrial sectors in all countries, in particular developing countries, including, by 2030, encouraging innovation and substantially increasing the number of research and development workers per 1 million people and public and private research and development spending

9.5.1 Research and development expenditure as a proportion of GDP 9.5.2 Researchers (in full-time equivalent) per million inhabitants

9.A Facilitate sustainable and resilient infrastructure development in developing countries through enhanced financial, technological and technical support to African countries, least developed countries, landlocked developing countries and small island developing States

9.A.1 Total official international support (official development assistance plus other official flows) to infrastructure

9.B Support domestic technology development, research and innovation in developing countries, including by ensuring a conducive policy environment for, inter alia, industrial diversification, and value addition to commodities

9.B.1 Proportion of medium- and high-tech industry value added in total value added

9.C Significantly increase access to information and communications technology and strive to provide universal and affordable access to the Internet in least developed countries by 2020

9.C.1 Proportion of population covered by a mobile network, by technology



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Human Indicators Value Unit Number of people lacking access to electricity 1.06 Billion Number of people lacking access to clean cooking fuels 2.8 Billion Number of people lacking access to water) 800 Million Number of people lacking access to basic sanitation 2.5 Billion Number of people lacking access to basic telecommunications services 1.0-1.5 Billion Number of people lacking access to the internet 4.0 Billion Number of people lacking access to financial services 2.0 Billion Financial Indicators Unit Incremental infrastructure investment per annum to take infrastructure investment back to levels consistent with longer term GDP growth

$600 Billion per Year

10% boost to global R&D investment $128 Billion per Year


Where Are We Now? Around the world, 1.06 billion people lack access to electricity, with 2.6 billion facing difficulties in terms of the reliability of that electricity, while 2.8 billion lack access to clean cooking fuels. While 800 million lack basic access to clean water, a much larger 2 billion people lack basic sanitation services as described in the SDG on clean water and sanitation. In terms of communications, 1.0-1.5 billion lack access to basic phone services, while 4 billion, over half the world's population, still lack access to the internet. Access to financial services, which can be a crucial building block to eliminating poverty, still affects 2 billion people around the world.

Where Do We Need to Get to Believe We Had Achieved the Goal? While areas such as innovation are hard to quantify in terms of a 'target' amount, the human impacts mentioned above are much easier to consider. A reasonable assumption would be to target the availability of all of the above for all people around the world. This would have enormous ramifications for poverty, inclusiveness and inequality in all its forms, not to mention a huge impact on industry and the global economy, with many positive feedback loops.

What is the Scale of the Opportunity in Financial Terms? Coming up with financial metrics to cover solving all of the above shortfalls is difficult, particularly given the significant lack of granular and coherent data on global infrastructure investment, both private and public. For our figures, we draw on the significant global analysis undertaken in our previous Citi GPS report Infrastructure for Growth, where we estimated that global infrastructure investment at a forecast $2.9 billion for 2018 was running some $600 billion below the level commensurate with target global GDP growth in line with pre-financial crisis levels.

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Figure 67. Citi’s Current and ‘Necessary’ Levels of Global Infrastructure Investment Consistent with Long-Term GDP Growth

Figure 68. Implied Increase in Global Infrastructure Investments to Achieve Long-Run GDP Growth Rates

Source: Citi GPS: Infrastructure for Growth, Citi Research Source: Citi GPS: Infrastructure for Growth, Citi Research

For innovation, we note the UN figure for global R&D expenditure of 1.7% of GDP, equating to around $1.3 trillion per year. As discussed, choosing a target level for R&D spend is difficult — for our financial indicator, we have assumed a 10% uplift to global R&D spend, equating to $128 billion per year. This we justify on the basis of the 1.2x multiplier effect which we derived in our Infrastructure for Growth report, which if applied to the $600 billion of incremental infrastructure investment would imply an economic benefit of $120 billion, in line with that 10% uplift to R&D investment — essentially a 'free' extra reinvestment into the global economy.

We also note that this boost to GDP of $720 billion would equate to a 0.95% boost to global GDP. The UN estimates global manufacturing value add in 2016 at 16.2% of GDP, and while the SDG targets are to 'substantially increase' this, it does not provide specific goals. We believe that the 1% boost to global GDP potentially provided by our extra investment represents both a reasonable and attainable goal, as well as 'substantial increase'.

Combining these figures for incremental infrastructure investment and boosted R&D expenditure highlights a financial opportunity equating to $720bn per annum.

What is the Scale of Opportunity in Human Terms? In human terms, the opportunities by sector have been described above. While the provision of water is clearly more 'important' as a basic element of life than access to the internet is, if we assume that to achieve the goal involves providing access to all for all of these services, then we should focus on the highest numbers. It is reasonable to assume that the vast bulk of the people who still lack access to the internet will also encompasses those people without access to water, electricity, financial services etc., then we can use that figure of 4bn for the potential human impact of providing general infrastructure to all.

Where Are the Biggest Opportunities Geographically? The charts below, taken directly from our October 2016 Citi GPS report Infrastructure for Growth, highlight the quality of infrastructure by country, vs the level of government debt. Clearly those countries with poorer infrastructure offer potential for greater infrastructure investment, with the size of the economy shown

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by the size of the bubble. The inference of the level of public debt (from 2015 figures) is not necessarily to imply that governments may be constrained, but to imply that there might be a greater opportunity for private sector investment.

Figure 69. Emerging Market Infrastructure Quality vs. Public Debt (bubble size represents relative GDP, China=100)

Figure 70. Developed Market Infrastructure Quality vs. Public Debt (bubble size represents relative GDP, US=100)

Note: Data on quality of infrastructure was obtained from the WEF75 Source: Citi GPS: Infrastructure for Growth, Citi Research

Source: Citi GPS: Infrastructure for Growth, Citi Research

Perhaps unsurprisingly, infrastructure quality is typically lower in Asia and Latin America than it is in Europe and the U.S., though some European markets are notable by their relatively poor infrastructure. India and Brazil offer markets of significant infrastructure potential, as of course does China.

What is crucially absent from the above analysis though is any granularity on the African continent. As with the goals relating to energy, water, etc., a significant proportion of the global populations which still lack access to basic infrastructure services are in Sub-Saharan Africa, with very high populations still lacking access. As one example, as highlighted in the section of this report relating to SDG 7 (Clean and Affordable Energy), 84% of the population in Sub-Saharan Africa still lack access to clean cooking fuels, using kerosene, traditional biomass or coal instead. The lack of access to energy is likely to be mirrored across most of the infrastructure classes in this region — while other regions may lack access to one of more of these services; the problems are concentrated in Sub-Saharan Africa by a widespread lack of access to numerous basic services. Accordingly, while direct investment opportunities may be hampered by the creditworthiness and liquidity of local markets and risk relating to individual investments, the greatest opportunities for human impact are undoubtedly focused in Sub-Saharan Africa.

75 World Economic Forum, The Global Competitiveness Index Historical Dataset 2005-2015.

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SDG 10: Reduced Inequalities What Is It and Why Is It Important? Inequality within, and between countries, has increasingly been recognized as a critical contributor to human wellbeing. Many have argued that greater economic inequalities within a population damage a range of important human outcomes, particularly social cohesion and health outcomes. Evidence suggests that inequality harms economic growth and individuals’ sense of fulfilment and self-worth.

Although the publication of Piketty’s Capital threw the topic into the spotlight in some communities in 2014, inequality has long been a point of focus for those studying human wellbeing. Our 2017 Citi GPS report Inequality and Prosperity in the Industrialized World covered the extent of the issue in OECD countries, highlighting that even in wealthy nations inequality could be damaging and on the rise. The extent of inequality is an important modulator on SDG 8 (Decent Work and Economic Growth) as it governs the access that a portion of the population has to the benefits of economic growth, and as such their access to services such as healthcare and education.

SDG 10 targets inequality within and between countries, in particular looking to ensure that people and nations below the economic median do not fall behind and are sufficiently recognized in various forums. This goal also looks to eliminate inequality of opportunity, and reduce inequality of outcome. It targets growth in income among the bottom 40% of the population in any given nation, looking to ensure that this growth rate is greater than that of the national average. It also aims to ensure the social, economic and political inclusion of all groups, including on distinctions of gender, age, ability, race, ethnicity, origin, religion, sociodemographic, or other status. The elimination of discriminatory regulatory or policy frameworks is highlighted, as is the introductive of progressive policy- see table for goals below.

SDG 10 also highlights the political representation of developing countries in global decision making forums, along with the need for safe and orderly migration. Finally, the goal highlights the need to facilitate development aid to states where the need is greatest, and to facilitate remittances from migrant workers - see Figure 71 below for goals and indicators of this SDG.

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Targets Indicators 10.1 By 2030, progressively achieve and sustain income growth of the bottom 40 percent of

the population at a rate higher than the national average

10.1.1 Growth rates of household expenditure or income per capita among the bottom 40 percent of the population and the total population

10.2 By 2030, empower and promote the social, economic and political inclusion of all, irrespective of age, sex, disability, race, ethnicity, origin, religion, or economic or other status

10.2.1 Proportion of people living below 50 percent of median income, by age, sex, and persons with disabilities

10.3 Ensure equal opportunity and reduce inequalities of outcome, including by eliminating discriminatory laws, policies and practices and promoting appropriate legislation, policies and action in this regard

10.3.1 Proportion of the population reporting having personally felt discriminated against or harassed within the previous 12 months on the basis of a ground of discrimination prohibited under international human rights law

10.4 Adopt policies, especially fiscal, wage and social protection policies, and progressively achieve greater equality

10.4.1 Labor share of GDP, comprising wages and social protection transfers

10.5 Improve the regulation and monitoring of global financial markets and institutions and strengthen the implementation of such regulations

10.5.1 Financial Soundness Indicators

10.6 Ensure enhanced representation and voice for developing countries in decision-making in global international economic and financial institutions in order to deliver more effective, credible, accountable and legitimate institutions

10.6.1 Proportion of members and voting rights of developing countries in international organizations

10.7 Facilitate orderly, safe, regular and responsible migration and mobility of people, including through the implementation of planned and well-managed migration policies

10.7.1 Recruitment cost borne by employee as a proportion of yearly income earned in country of destination 10.7.2 Number of countries that have implemented well-managed migration policies

10.A Implement the principle of special and differential treatment for developing countries, in particular least developed countries, in accordance with World Trade Organization agreements

10.A.1 Proportion of tariff lines applied to imports from least developed countries and developing countries with zero-tariff

10.B Encourage official development assistance and financial flows, including foreign direct investment, to States where the need is greatest, in particular Least Developed Countries, African countries, Small Island Developing States and Landlocked Developing Countries, in accordance with their national plans and programs

10.B.1 Total resource flows for development, by recipient and donor countries and type of flow (e.g., official development assistance, foreign direct investment and other flows)

10.C By 2030, reduce to less than 3 percent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 percent

10.C.1 Remittance costs as a proportion of the amount remitted


Indicators Used in this Analysis According to World Bank data, global inequality (at least inequality between countries) has decreased significantly in the recent decades. The population living below the international poverty line has fallen off steeply since 1993 (refer to Figure 73 below). Inequality between countries appears to have contributed the majority of the fall in global inequality. However, inequality within countries has risen across the same period (refer to Figure 72 below). Inequality between countries now accounts for about two-thirds of global income inequality, compared with four-fifths in the late 1980’s.76

76 Citi GPS (2017), Inequality and Prosperity in the Industrialized World


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Figure 72. Global Income Inequality (1988-2013) Figure 73. Global Poverty Rate and Number of Extreme Poor (1990-2013)

Source: World Bank (2016) Shared Prosperity (2016): Taking on Inequality; Citi GPS (2017) Inequality and Prosperity in the Industrialized World

Source: Citi GPS (2017) Inequality and Prosperity in the Industrialized World

There are significant differences in income inequality in different regions. Latin America and the Caribbean and Sub-Saharan Africa have the highest levels of inequality as measured by the Gini coefficient compared to other regions, however over the years the inequality in these regions have been falling. For industrialized countries, average inequality is estimated to have risen fairly steadily from 1988 up to the onset of the financial crisis in 2008. For this region and for others (except South Asia and the Middle East and North Africa), the recession then saw inequality stabilize or decline.

Figure 74. Average Within-Country Inequality (by Gini Coefficient) by Region (1988-2013)

Notes: Gini measures reflect inequality in gross income, net income or consumption (in some cases). 176 countries, in total, are included in the sample used to derive these figures. This chart shows a simple average of within-country Gini index for each respective global region. For full list of countries included in each group, see Shared Prosperity 2016: Taking on Inequality, World Bank, Chapter 2, annex 2B. Source: Shared Prosperity 2016: Taking on Inequality, World Bank

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What Factors and Drivers Lead to Income Inequality? There are many factors that drive income inequality- these include amongst others technological change, globalization of trade, financial deepening, changes in market structure and competition, labor relations, demographic factors, re-distribution, and tax policies. Please refer to our GPS report for more detail.

To better understand the drivers of inequality — it is important to distinguish the different components of income- labor income, capital income, private and social transfers, social contributions, and taxes. Overall, labor income (wages plus self-employment) contributes the most to total inequality as measured by the Gini coefficient77 (see Figure 75).

Figure 75. Factors Decomposition of Income Inequality by Income Source

Notes: The figure shows the contribution of each factor to the Gini coefficient (the sum of all factors adds up to 1, or 100%). Data refers to years between 2011 and 2014, depending on the country. 2014 (Argentina, Brazil, Mexico, South Africa); 2013 (France, Italy, U.K.); 2012 (Rep. of Korea, U.S.); 2011 (India, Turkey, Spain); 2010 (China). Source: Rain and Furer (2016), Citi GPS (2017), Inequality and Prosperity in the Industrialized world

The large contribution of labor income to aggregate inequality is symptomatic of its size, rather than its distribution. In fact, labor income is generally more equally distributed than other sources of income (as for instance capital income78). For this reason, a reduction in the labor share — the fraction of aggregate income that goes into remunerating labor — generally increases overall inequality. In advanced economies, labor income shares have been decreasing over time, they reached their lowest just before the financial crisis but they haven’t recovered since then. In Emerging markets the data is a bit more sketchy, however the IMF79 state that in more than a half of them and especially in larger emerging economies, labor shares have also declined since the 1990’s (refer to Figure 76). Indeed as shown in Figure 77 below, there is a high correlation between the decline in the labor share in aggregate income between 1990 and 2010 and the increase in overall market income inequality (at least for OECD countries). According to the IMF, this decline in global labor share has been borne by low- and middle-skilled labor — during 1995

77 Citi GPS (2017), Income and Prosperity in the industrialized world, Addressing a global challenge. 78 Wolf (2014) notes that capital income tends to be highly concentrated at the top of the income distribution. 79 International Monetary Fund (2017), World Economic Outlook, April 2017: Gaining Momentum?, Chapter 3, Understanding the downward trend in labor income shares.

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and 2009 their combined labor share was reduced by more than 7 percentage points, while global high-skilled labor share increased by more than 5 percentage point.

Figure 76. Labor Share of Income (%) Figure 77. Changes in Labor Share and in Income Inequality in OECD Countries (1990-2010)

EMDE refers to Emerging Market and Developing Economies (right scale) Source: International Monetary Fund (2017)80

Notes: The labor share is computed using a 3-year moving averages centered around start and end dates, with the exception of Canada (end date = 2008) and Israel (start date = 1995). The Gini coefficient is based on pre-tax and transfer income of the population aged 18 to 65 years. Source: Rani and Furrer (2016); ILO (2016)

Our Indicators So how do you fix income inequality and what indicators could we use to measure any progress on both human and financial terms? This has proven to be rather difficult. Aid flow to lower income countries can help lower income countries to achieve better equality if spent efficiently. We calculate that aid flows from candidate donor countries for which we have data (we have used high and upper middle income countries) would have been around $100 billion per year in 2016 if the 0.15% GNI target for aid to LDCs had been met.81 In 2015, total resource flows to LDCs totaled $48 billion, with eight donor countries meeting the 0.15% GNI target.82 However, this will not help reduce income inequality within countries.

One other route to achieving SDG 10 may be through sustainable economic growth and to provide decent work and opportunities for all. Safeguarding the standard of living for the poor as well as the middle class and ensuring that they have a tangible stake in the economy is important and could help reduce income inequality between and within countries. Hence for our human indicator we have decided to use the number of people that are in vulnerable employment and the unemployed.83 This is the same indicator that we have used for SDG 8 (decent work and economic growth) as we believe ensuring adequate employment that includes social protection and good benefits is one way to ensure a fairer and more equal society. 80 International Monetary Fund (2017), World Economic Outlook, April 2017: Gaining Momentum?, Chapter 3, Understanding the downward trend in labor income shares 81 Using UN and World Bank data 82 UN (2018) Goal 10, Sustainable Development Knowledge Platform 83 The ILO classifies vulnerable employment as own-account work and contributing family work, which is subject to high levels of precariousness. People in vulnerable employment are more likely to be engaged in informal employment, and have less access to benefits from regular incomes and job security.

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There are currently 1.4 billion in vulnerable employment and 200 million who are globally unemployed.

Calculating our financial metric is even harder. Some academics and policy makers have discussed the introduction of a Universal Basic Income (UBI) System — however this is highly controversial and the fiscal costs could be sizeable. When all individuals are covered under the UBI, the International Monetary Fund (IMF) estimates that the gross fiscal costs would average 6.5% of GDP in advanced countries and an average of 3.8% of GDP in selected emerging countries; - the impact on inequality and the poor would also be sizeable.84 Restricting the subset of UBI recipients would scale down the costs and its impact on inequality and poverty. Given that UBI is only being tried in one country (Finland), it is difficult to see at this point whether in practice this would be successful in the long-term.

We believe that increasing the income level of the low, lower-middle, and middle class through better employment practices could actually reduce the income inequality in countries. The IMF estimate that if the income share of the bottom 20 percent (the poor) increases by just one percentage point, GDP growth is expected to increase by 0.38 percentage points in the following five years. This positive relationship between income growth and GDP growth continues to also hold for the second and third quintiles (the middle class) estimated at 0.35 and 0.266 percentage point increases, respectively.85 This doesn’t mean that we should only improve income share by just 1%, however it shows that good employment practices and providing decent work to all could not only improve income equality but also have a positive effect on the global economy. Achieving this would also require investments in other SDGs such as investments in No Poverty (SDG 1), Good Quality Education (SDG 3), Gender Equality (SDG 5), Decent Work and Economic Growth (SDG 10) and others.


Progress Indicators ID / Value Rational Gini Coefficient N/A Broad measure of distribution of

economic opportunity within nations and globally

Human Indicators Number Affected Population classified as unemployed or in vulnerable employment (2017)

1.6 billion (200 million unemployed and 1.4 billion in vulnerable

employment)

Captures populations affected by lack of economic opportunity in all nations

Economic Indicator Value Increase in income share by lower and middle class quintiles

Increases GDP growth

If the income share at the bottom 20% increases by just 1 percentage point,

then GDP growth is expected to increase by 0.38 in the following 5

years

Source: Citi Research using data set from the UN and the World Bank.

Investment Direction and Opportunities Indirect investments provide the most obvious pathway to SDG 10 other than through policy. This is because economic outcomes must be improved for disadvantaged groups and nations, and this improvement is likely to come from investments in in infrastructure, education, health and in employment opportunities for these groups,

84 IMF (2017), Fiscal Monitor, Tackling inequality 85 IMF (2015), Causes and consequences of income inequality- a global perspective


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or in disadvantaged geographies. Impact and ethical investment in the space should a focus on geographies and groups with poorer economic outcomes.

Ethical investors might consider taxation and labor rights as avenues through which to support this goal, as both are closely associated with redistribution in many nations. In our view, those wishing to undertake thematic investing alongside SDG 10 might choose to follow a path emphasizing the provision of basic goods and services, on the hypothesis that a growing discretionary spending power among the middle and lower income classes is likely to flow into these areas.


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SDG 11: Sustainable Cities and Communities What Is It and Why Is It Important? Extreme poverty is often concentrated in urban spaces, and the current wave of urbanization will only exacerbate these issues. Making cities safe and sustainable will require access to safe and affordable housing and upgrading slum settlements, as well as investing in public transport, providing green spaces, and improving urban planning and management in participatory and inclusive ways.

Four billion people, representing 54% of the world's population, live in cities. This is set to rise by a further billion people by 2030, with this growth focused on Africa and Asia. As we pointed out in our recent Citi GPS Sustainable Cities report, the historic link between urbanization, industrialization, and economic growth has broken down. While cities have traditionally been the engines of growth, pulling in resources both physical and human to feed that growth, this current wave of urbanization is being driven as much by people being pushed into cities by rural depravation, driven by conflict, famine, drought, as well as the industrialization of agriculture which is pushing rural wages to below subsistence levels. This significantly exacerbates the problems associated with urbanization, as if these people are being pushed into cities rather than being pulled by demand, it implies that the city doesn’t 'need' them, i.e., there are not the employment opportunities. This means that they are unlikely to be contributing economically to that city via employment, taxes etc., and moreover will be placing a greater social burden on the city via welfare (if it exists), as well as an extra demand on resources. All of these new urbanites will require housing, energy, water, waste, telecommunications and transport solutions, as well as the 'luxuries' of education, health services, and recreational and cultural facilities. Those cities in Africa and Asia which are seeing the fastest rates of urbanization are often already struggling to cope on meagre revenue bases, and extra demands, without incremental revenue streams, could push them to breaking point; at its ultimate this could result in a breakdown of society, and drive far reaching issues such as mass migration on a scale previously unseen.

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Targets Indicators 11.1Ensure access for all to adequate, safe and affordable housing & basic services

11.1.1 Proportion of urban population living in slums

11.2 Access to safe, affordable, accessible, and sustainable transport systems for all

11.2.1 Proportion of population that has convenient access

11.3 Enhance inclusive and sustainable urbanization & planning

11.3.2 % of cities with a direct participation structure of civil society in urban planning

11.4 Strengthen efforts to protect the world’s cultural and natural heritage

11.4.1 Total spend (public/private) per capita on preserving cultural/natural heritage.

11.5 Significantly reduce deaths/affected by/economic losses from natural disasters

11.5.1 Number of deaths & persons affected by disaster per 100,000 people 11.5.2 Direct economic losses vs global GDP from natural disasters

11.6 Reduce environmental impact of cities, especially air quality and waste 11.6.1 Proportion of urban solid waste regularly collected with adequate final discharge 11.6.2 Annual mean levels of fine particulate matter in cities (population weighted)

11.7 Universal access to safe & inclusive green and public spaces 11.7.1 Average share of the built-up area of cities that is open space for public use 11.7.2 Proportion of persons victim of physical or sexual harassment over 12 months

11.A Support economic, social and environmental links between town/country 11.A.1 % of population in cities with regional resource/population development plans

11.B By 2020, substantially increase cities/settlements with integrated plans for inclusion, resource efficiency, climate change mitigation/adaptation, & disasters

11.B.1 % of local governments that adopt and implement local disaster risk reduction strategies in line with the Sendai Framework for Disaster Risk Reduction 2015-2030a 11.B.2 Number of countries with national and local disaster risk reduction strategies

11.C Support least developed countries, including through financial and technical assistance, in building sustainable and resilient buildings utilizing local materials

11.C.1 % of financial support to least developed countries for the construction/ retrofitting of sustainable, resilient & resource-efficient buildings utilizing local materials



Human Indicators: Value Units Number of people living in cities globally

4 Billion

Financial Indicators Global incremental investment required in 'traditional' physical infrastructure - energy, water, transport, telecommunications, pro-rated for cities

$329 $ Billion per Year

Global investment required in 'social' infrastructure, including housing, buildings, education, health, recreation, and smart cities

$1,752 $ Billion per Year


Choosing appropriate metrics for 'sustainable cities and communities' is complex, as the breadth of UN targets and indicators shows. This is due not just to the extraordinary significance of cities both economically and in human terms, but also as they represent a concentrated mixture of many of the biggest social and economic issues facing the world.

Where Are We Now? It is impossible to overstate the importance of cities to achieving a sustainable future. While cities only cover 2% of the global landmass, over half of the global population now lives in cities, and those cities generate 80% of global GDP. They use 75% of all natural resources and produce 50% of all waste. In energy terms, cities are responsible for 64% of global primary energy demand, 74% of electricity demand, with 72% of urban energy demands met by fossil fuels, producing 70% of direct CO2 emissions.


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Eighty-eight percent of the worlds urban populations are exposed to levels of pollution which exceed WHO guidelines, with 50% exposed to levels >2.5x acceptable levels — a fact that is believed to be responsible for 5.7 million premature deaths each year, the vast majority of them urban. In water terms, the top 100 cities in the world may only cover <1% of the world's landmass, but their watersheds cover 12% of the global landmass, approximately 1.7 billion hectares. In terms of housing, 13% of the world's population, ~1bn people, currently live in slums.

Figure 81. Cities are Responsible for an Enormous Amount of Resource Use

Source: Citi GPS: Sustainable Cities

Where Do We Need to Get to Believe We Have Achieved the Goal? While certain metrics are easier to calculate, such as how much housing is required to eliminate slums, others are more complex; in terms of for example energy, do we simply calculate what it would cost to provide energy to all, or do we assume it is 'clean' energy reducing pollution?

To avoid double counting, we have chosen a 'purer' option of the provision of services to urban populations, rather than trying to solve all of the ills of the world in one calculation — for example the incremental cost of a low carbon energy mix can always be added on by looking at other goals. For other areas such as health and education, we have looked at the incremental costs of providing basic services to all urban populations, and for others such as recreation, the benefits that it provides to urban populations vs. not having it.


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What is the Scale of the Opportunity in Financial Terms? For 'traditional' physical infrastructure, namely energy (including energy for transportation), water & sanitation, transport and telecoms, we have taken the incremental infrastructure spend required globally to reach pre-crisis growth levels, as calculated in our report Infrastructure for Growth and pro-rated it for urban populations. While some might argue that rural infrastructure is more expensive per capita, given the spread out nature of populations, we also note that much of global infrastructure is concentrated in and around urban centers, and hence the factors will potentially cancel each other out. For 2018 we took the incremental uplift to infrastructure investment required to get global growth back on long-term desired trends, of $600 billion per year, and pro-rated this for the percentage of urban populations (54.8%) resulting in a physical spend figure of $329 billion per year.

Social infrastructure proves trickier to calculate, and we have broken the calculation down as follows.

For housing, we have taken the UN estimate of the amount needed to eliminate slums and provide adequate housing for all in cities of $650 billion per annum.

For education, we have taken the figure calculated for SDG 4 for the incremental costs of the provision of primary and secondary education to all, a figure of $340 billion per year, and pro-rated it for urban populations, at $186 billion per year

For health, we have taken the figure calculated for SDG 3 of $255 billion per year, and pro-rated it for urban populations, producing an investment requirement of $140 billion per year.

Recreation is an extremely complex figure to try to calculate. Our approach has been to look at various studies (such as those commissioned by the cities of Philadelphia and London) which have attempted to calculate the 'value' of parks and green spaces to both physical and mental health. Examining these studies, and comparing them to GDP produces an implied benefit of around 0.5% of GDP per year, which produces a current 'benefit' globally for cities of around $315 billion per year.

Smart cities is again complex (how much technology is 'used' in cities, and how much of it relates to sustainability?), but we have adopted the 'smart cities' (relating to sensors etc.) market figure used in our Sustainable Cities GPS report of $600 million per year. Clearly this does not move the dial compared to the other figures above, and we are conscious that depending on where one draws the line, this figure could be significantly larger; moreover, as the Internet-of-things (IoT) takes shape, we move to intelligent buildings, autonomous vehicles, smart infrastructure etc., this figure is likely to dramatically larger.

For buildings, we have taken the investment required to build new, and transform existing building stock to an energy efficiency level consistent with a 2 degree scenario. The IEA estimates this cost at $6 trillion out to 2030, equating to spending of $460 billion per year.

In summary, these all add up to an urban financial spending opportunity of $2.1 trillion per year. While this might seem extraordinarily large (especially when compared to the 'cost' or benefit of other SDGs), if we remind ourselves that over the half of the global population lives in cities, that many of the sustainability challenges are focused and concentrated in cities, and most importantly, that cities generate 80% of global GDP (equating to some $60.5 trillion), this figure at 3.4% of urban GDP starts to look less extreme.


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What is the Scale of the Opportunity in Human Terms? This is a much easier metric to calculate — if we solve all of the challenges of urbanization, then the entire urban population of the world will benefit immeasurably, in economic terms, as well as in terms of quality of life, from availability of energy, water and sanitation, to improved transport and communications, better housing, health, educational, recreational, and cultural facilities and services, as well as all of the social impacts which will result, such as reduced crime and better health.

Given the importance of cities economically and socially, it could very easily be argued that the entire global population will benefit if we solve these challenges — it is certainly the case that the entire global population will suffer if we do not. However, for the purposes of this exercise, we have chosen to take the current global urban population of 4 billion as our human metric for lives impacted.

What Are the Biggest Opportunities Geographically? The challenges for cities around the world are very much split into two distinct groups: those for developed markets, and those in emerging markets.

Cities in developed markets typically have relatively well functioning physical infrastructure, with access to energy, water, sanitation, transport, and communications well established and near universal. The challenge for these cities is to retrofit existing infrastructure (think energy efficiency in London's Georgian, Edwardian and Victorian housing stock), to green the energy mix, reduce congestion, move to more sustainable transport solutions thereby reducing pollution, as well as improving health, educational and recreational services to residents. While much of the physical infrastructure exists, much of it is ageing and is in dire need of replacing or upgrading — many who have travelled into New York from JFK will have had similar thoughts, that the state of the infrastructure ill befits one of the world's great cities. Hence upgrading this ageing infrastructure offers an ideal opportunity to rebuild it in a more modern and sustainable fashion which is fit for the future – an important factor given that infrastructure often has useful lives running into decades.

However, the greatest challenges, and hence opportunities, undoubtedly lie in emerging markets. The 1 billion extra urbanites that we expect to live in cities by 2030, will grow to 2 billion extra by 2050, and of these, 1.2 billion will be in Asia, and 0.8 billion in Africa. As examined in detail in our Citi GPS Sustainable Cities report, the majority of these cities already have meagre revenue bases and hence struggle to support their existing populations, let alone a further one or two billion people, especially if the employment opportunities do not exist for them.

A key takeaway of the 'Seven Steps for Sustainable Cities' laid out in that report was infrastructure investment, which can set a city upon the virtuous circle of efficient and targeted infrastructure investment leading to greater economic growth, greater employment, greater tax revenues, lower social costs, feeding back to greater revenue available for investment in infrastructure….and so on. Innovative forms of finance such as green bonds, social bonds and urban wealth funds can all help to facilitate this. With limited revenue in these cities coming from central governments, external capital is key to facilitating this investment. Enhancing the creditworthiness of these markets is key to unlocking the trillions of dollars of private capital which is desperate for long-dated, asset-backed income streams to match against their liabilities, which infrastructure investment lends itself to so well.


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Rather than investing directly, if development finance institutions can use their capital to provide risk mitigation mechanisms, they can effectively leverage their capital and free up these vast reserves of private capital, which collectively do genuinely have the power to tackle one of the defining challenges of our times. The failure to do so will see these cities fall into the vicious circle of underinvestment in infrastructure, which causes lower economic growth/activity, greater social costs, lower revenues, interest burdens from borrowing to balance the books, leading to lower infrastructure investment, and so on.


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SDG 12: Responsible Consumption and Production What Is It and Why Is it Important? A growing population and expanding middle class are driving unsustainable use of resources, which is resulting in resource scarcity issues, pollution and severe environmental degradation. To achieve sustainable development, we need to change the way we produce and consume resources and goods, and shift away from resource-intensive practices. However, it is important to note that the use of natural resources is not equal around the world as many people in developing countries are still not consuming enough to meet basic needs (see SDG 1, 2, 6, and 7). SDG 12 aims to sustainably manage and use natural resources, implement adequate controls in managing chemicals and wastes, and reduce food waste at both retail and consumer levels. The guiding principle of the goal is to “do more and better with less”, and to ultimately decouple economic growth from the consumption of natural resources. It also emphasizes the need to support developing countries, especially in their scientific and technology capacities.

The world has a waste problem. Both organic and inorganic waste is on the rise, with the World Bank anticipating volumes doubling over the next 20 years.86 Current waste trends are supported by population growth, industrialization, urbanization and improved living standards which result in more consumption. While waste encompasses a wide range of resources, recent popular discussion has focused on the widespread problem of plastic disposal and its environmental impact. McKinsey estimates that approximately 95% of plastic packaging (valued at $80-$120 billion) is disposed of each year after a single use with most waste ending up in landfills.87 Food waste and loss is another major waste-related concern given the extent of food insecurity across the globe. The UN Environment Programme, citing the estimated 1.3 billion tonnes of food waste generated per annum, has established that food waste prevention could feed more than double the world’s undernourished people while saving up to 9% of greenhouse gas emissions.88

The traditional linear economy model of “Make, Use, Dispose”, is no longer viable if we are to ensure a sustainable future for a growing population. We believe the objectives and targets of SDG 12 are encapsulated within the concept of a “circular economy”, which the Ellen MacArthur Foundation describes as “restorative and regenerative by design, using and reusing natural capital as effectively as possible and finding value throughout the life cycle of finished products”. The circular economy model and one could also argue “mentality” can help to drive a more economically and environmentally sustainable world without compromising the quality of life for consumers.

86 World Bank, 2012. What a Waste: A Global Review of Solid Waste Management. 87 WEF, McKinsey & Ellen MacArthur Foundation, 2016, The New Plastics Economy – Rethinking the Future of Plastics. 88 UNEP, 2013, Global Waste Management Outlook.


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What Are the UN Metrics? For the purpose of this report we have conceptualized SDG 12 as constituted of two categories:

1. ‘Practical’ intervention: areas of policy implementation related to waste and natural resource management, and energy efficiency (at both consumer and producer levels)

2. Devising policies / Spreading awareness: similar to UN metrics which relate to number of policies / action plans in place, international multilateral agreements and education

The UN metrics include indicators that address both categories, and target a broad range of stakeholders, including businesses, public sector, as well as civic society. There is a strong emphasis on waste management, and a focus on food waste in particular (12.3).

Figure 82. UN Metrics and Indicators for Goal 12

Targets Indicators 12.1 Implement the 10-year framework of programs on sustainable consumption and production, all countries taking action, with developed countries taking the lead, taking into account the development and capabilities of developing countries

12.1.1 Number of countries with sustainable consumption and production (SCP) national action plans or SCP mainstreamed as a priority or a target into national policies

12.2 By 2030, achieve the sustainable management and efficient use of natural resources 12.2.1 Material footprint, material footprint per capita, and material footprint per GDP 12.2.2 Domestic material consumption, domestic material consumption per capita, and domestic material consumption per GDP

12.3 By 2030, halve per capita global food waste at the retail and consumer levels and reduce food losses along production and supply chains, including post-harvest losses

12.3.1 Global food loss index

12.4 By 2020, achieve the environmentally sound management of chemicals and all wastes throughout their life cycle, in accordance with agreed international frameworks, and significantly reduce their release to air, water and soil in order to minimize their adverse impacts on human health and the environment

12.4.1 Number of parties to international multilateral environmental agreements on hazardous waste, and other chemicals that meet their commitments and obligations in transmitting information as required by each relevant agreement 12.4.2 Hazardous waste generated per capita and proportion of hazardous waste treated, by type of treatment

12.5 By 2030, substantially reduce waste generation through prevention, reduction, recycling and reuse

12.5.1 National recycling rate, tons of material recycled

12.6 Encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle

12.6.1 Number of companies publishing sustainability reports

12.7 Promote public procurement practices that are sustainable, in accordance with national policies and priorities

12.7.1 Number of countries implementing sustainable public procurement policies and action plans

12.8 By 2030, ensure that people everywhere have the relevant information and awareness for sustainable development and lifestyles in harmony with nature

12.8.1 Extent to which (1) global citizenship education and (2) education for sustainable development (including climate change education) are mainstreamed in (a) national education policies; (b) curricula; (c) teacher education; and (d) student assessment

12.A Support developing countries to strengthen their scientific and technological capacity to move towards more sustainable patterns of consumption and production

12.A.1 Amount of support to developing countries on research and development for sustainable consumption and production and environmentally sound technologies

12.B Develop and implement tools to monitor sustainable development impacts for sustainable tourism that creates jobs and promotes local culture and products

12.B.1 Number of sustainable tourism strategies or policies and implemented action plans with agreed monitoring and evaluation tools

12.C Rationalize inefficient fossil-fuel subsidies that encourage wasteful consumption by removing market distortions, in accordance with national circumstances, including by restructuring taxation and phasing out those harmful subsidies, where they exist, to reflect their environmental impacts, taking fully into account the specific needs and conditions of developing countries and minimizing the possible adverse impacts on their development in a manner that protects the poor and the affected communities

12.C.1 Amount of fossil-fuel subsidies per unit of GDP (production and consumption) and as a proportion of total national expenditure on fossil fuels



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Figure 83. Indicators Used for this Study

Progress Indicators Current Future Material footprint per capita & GDP (%) Domestic material consumption per capita and GDP (%) 1.2 kg per unit of GDP (2000)

1.3 kg per unit of GDP (2010)

Number of parties to international multilateral environmental agreements on hazardous waste, and other chemicals that meet their commitments and obligations and obligations in transmitting information as required by each relevant agreement.

Stockholm convention: 51% Basel Convention: 57%

Rotterdam Convention: 71% Montreal Protocol: 100%

(Measured as the transmission rate between 2000 –2014 which measures the number of compliant parties.)

Human Indicators Number of people who stand to gain from increased income to spend on food89 800 million Number of people who stand to gain from proper solid waste disposal 90 2 billion Number of job created by transitioning to a circular economy91 6 million by 2030 Economic Indicators Value of recovered food waste $155-405 billion per year by 2030 Contribution of circular economy to global economy $1 trillion per year by 2025


We have decided to focus on methods of practical intervention and implementation for our indicators, which were chosen to try and capture the human and economic scale of the challenge as well as the opportunities that lie in the solutions. They do not cover all the issues that come under the overall goal of responsible consumption and production, but we think they address the key components of this development goal. The human indicator we have chosen to use refers to the number of people who are without access to solid waste collection which stands at 2 billion. Uncollected waste can have severe public health impacts, especially for children, as well as lead to environmental degradation and pollution. UNEP found the cost of inaction to civic society exceeds the financial cost of proper waste disposal by a factor of 5–10.92 Our chosen economic indicator shows that the potential financial gain from circular economy opportunities to the global economy is substantial, with the World Economic Forum (WEF) reporting $1 trillion per year by 2025.93

Where Are We Now? Looking at the measurable UN metrics, Domestic Material Consumption and Material Footprint per capita (Figure 84 and Figure 85), it is clear that there is disparity in progress between countries and regions. Overall, the global trend shows an increase in both metrics and therefore deteriorating progress in decoupling economic growth from natural resource use.

89 Business & Sustainable Development Commission, 2017, Better Business Better World. 90 UNEP, 2013, Global Waste Management Outlook. 91 ILO, 2018. World Employment and Social Outlook 2018: Greening with jobs International Labour Office – Geneva. 92 Ibid. 93 WEF, 2014. Towards the Circular Economy: accelerating the scale-up across global supply chains.


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Figure 84. Domestic Material Consumption Per Unit of GDP, 2000 and 2010 (Kg per Unit GDP)

Figure 85. Material Footprint Per Capita, 2000 and 2010 (Metric Tons Per Capita)

Source: UN94, Citi Research Source: UN94, Citi Research

However, there is growing traction for change from decision-makers (Figure 86), with the EU, China and Japan setting ambitious circular economy strategies.95 The EU has recently (January 2018) updated their Circular Economy Action Plan which includes a strategy targeted at plastics and aims for all plastics packaging to be recyclable by 2030. Achieving SDG 12 will require successful coordination with both private and public sector stakeholders to promote, and bring into the mainstream, sustainable policies and practices. Consumer awareness of the Circular Economy concept is also vital for its successful implementation, especially in understanding their choices and how it shapes the economy and impacts the planet.

Figure 86. Circular Economy Initiatives Around the World

Source: Chatham House95

94 http://data.un.org/. 95 Preston, F. and Lehne, J. (2017), A Wider Circle? The Circular Economy in Developing Countries, Chatham House Research Paper, London: Royal Institute of International Affairs.

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0 10 20 30 40

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Investment Opportunities and Directions Shifting to a more circular economic model can not only lead to more sustainable patterns of production and consumption, but also generates substantial business opportunities across different sectors. The Ellen MacArthur Foundation has identified 6 business actions that can achieve financial returns: Regeneration, Sharing, Optimization, Looping, Virtualizing and Exchanging.96 Within this model, different sectors and economic activities have varying levels of profit potential (Figure 87). Necessity might well be the mother of invention for circular economy opportunities. A need to make the most out of the planet’s limited resources is driving innovation and creating exciting products and opportunities including thoughtful product design, remanufacturing and reuse of assets and new business models (i.e., more service-based). However, this is not without risks and may negatively impact established revenue streams.

Figure 87. Profit Potential in Circular Economy Opportunities Across Sectors

Source: Ellen MacArthur and McKinsey Centre for Business and Environment96

96 Ellen MacArthur Foundation, 2015. “Growth Within: A Circular Economy Vision For A Competitive Europe”


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While it is anticipated that SDG 12 will be led by developed countries (12.1), the opportunities in developing countries are significant and worthy of note. Circular economy strategies can help developing countries “leapfrog” to a more sustainable path without the constraints of resource-intensive infrastructure and practices that already exist in developed countries.97 The Ellen MacArthur Foundation found circular opportunities in India could contribute $218 billion per year by 2030.98 Investing in the circular economy can help drive more sustainable patterns of production and consumption, and generate both short and long term rewards.

97 Ibid 98 Ellen MacArthur Foundation, 2016. Circular Economy in India: Rethinking Growth For Long-Term Prosperity.


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SDG 13: Climate Action What Is It and Why is it Important? Climate change has been identified by many international institutions99 as one of the fundamental challenges of the 21st Century. The impacts of climate change affect every country in the world, and are far-reaching and potentially catastrophic. Anthropogenic Greenhouse Gas (GHG) emissions continue to rise which is changing global oceanic and atmospheric systems. Surface temperatures are increasing; 2015, 2016 and 2017 have been the three warmest years on record with 2016 setting a new record of 1.2 OC above pre-industrial period.100 Other evidence for rapid climate change includes warming oceans, shrinking ice sheets and increasing sea levels. Changing weather patterns and increases in the frequency and intensity of extreme weather events (flooding, drought, cyclones and storm surges) could affect agricultural production, aggravate water issues, increase health risks, damage infrastructure and disrupt the supply of basic services i.e. water and sanitation, transport, food and energy.

Although climate change is a global issue, the impacts of it will be very different around the world. It is widely acknowledged that poor people in low-income countries are the most at risk given their vulnerable geographies and lack of adaptive measures. The World Bank101 reports that climate change could force over 143 million people in developing countries to relocate within their countries’ borders by 2050.

The SDG recognizes the immediate need for climate action and calls for urgent collective action to combat Climate Change and its impacts. It acknowledges that the United Nations Framework Convention on Climate Change (UNFCCC) is the main international and intergovernmental platform for negotiating the global response to climate change. The historic Paris Agreement (signed by 195 UNFCCC members) became legally binding in November 2016, the main aim of which is to keep a global temperature rise this century to below 2oC above pre-industrial levels and to drive efforts to limit the increase even further to 1.5oC. The agreement requires participating countries to scale up their national climate efforts every 5 years through National Determined Contributions (NDCs), which set out mitigation and adaptation objectives.

What Are the UN Metrics? Several targets address the need for all countries to educate, build capacity and integrate climate mitigation and adaptation strategies into their national policies (see Figure 88 below). Whereas 13.A and 13.B specifically target the provision of support for developing countries which include finance, capacity building and technology transfer. The Green Climate Fund was set up to raise $100 billion annually by 2020 to address the needs of developing countries.

99 IMF, 2017. Seeking Sustainable Growth: Short-Term Recovery, Long-Term Challenges. Washington, DC, October; UN, 2018; G20, 2015. G20 Leaders’ Communique, Antalya Summit, 15-16 November 2015. 100 World Meteorological Organization, 2018. Press release: WMO confirms 2017 among three warmest years on record. 101 Kumari Rigaud, Kanta, Alex de Sherbinin, Bryan Jones, Jonas Bergmann, Viviane Clement, Kayly Ober, Jacob Schewe, Susana Adamo, Brent McCusker, Silke Heuser, and Amelia Midgley. 2018. Groundswell: Preparing for Internal Climate Migration. Washington, DC: The World Bank.


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Figure 88. UN Metrics and Indicators for Goal 12

Target Indicator 13.1 Strengthen resilience and adaptive capacity to climate-related hazards and natural disasters in all countries

13.1.1 Number of deaths, missing persons and persons affected by disaster per 100,000 people 13.1.2 Number of countries with national and local disaster risk reduction strategies 13.1.3 Proportion of local governments that adopt and implement local disaster risk reduction strategies in line with national disaster risk reduction strategies

13.2 Integrate climate change measures into national policies, strategies and planning

13.2.1 Number of countries that have communicated the establishment or operationalization of an integrated policy/strategy/plan which increases their ability to adapt to the adverse impacts of climate change, and foster climate resilience and low greenhouse gas emissions development in a manner that does not threaten food production (including a national adaptation plan, nationally determined contribution, national communication, biennial update report or other)

13.3 Improve education, awareness-raising and human and institutional capacity on climate change mitigation, adaptation, impact reduction and early warning

13.3.1 Number of countries that have integrated mitigation, adaptation, impact reduction and early warning into primary, secondary and tertiary curricula 13.3.2 Number of countries that have communicated the strengthening of institutional, systemic and individual capacity-building to implement adaptation, mitigation and technology transfer, and development actions

13.A Implement the commitment undertaken by developed-country parties to the United Nations Framework Convention on Climate Change to a goal of mobilizing jointly $100 billion annually by 2020 from all sources to address the needs of developing countries in the context of meaningful mitigation actions and transparency on implementation and fully operationalize the Green Climate Fund through its capitalization as soon as possible

13.A.1 Mobilized amount of United States dollars per year starting in 2020 accountable towards the $100 billion commitment

13.B Promote mechanisms for raising capacity for effective climate change-related planning and management in least developed countries and small island developing States, including focusing on women, youth and local and marginalized communities

Number of least developed countries and small island developing States that are receiving specialized support, and amount of support, including finance, technology and capacity-building, for mechanisms for raising capacities for effective climate change-related planning and management, including focusing on women, youth and local and marginalized communities


Indicators Used in this Analysis Most of the SDG indicators use “number of countries” as their measure, but this makes it difficult to take a step back and evaluate the human and economic scale of the climate issue. The human indicator we have chosen to use highlights the number of people exposed to climate conditions exceeding a deadly threshold for at least 20 days a year. It currently stands at 2.2 billion (30% of total population), but could potentially extend to 74% of global population by 2100 if no climate action is taken.102 One could also argue that the potential human impact of climate (IN)action is the entire human population, which emphasizes the need for collective action.

Our chosen economic indicator focuses on the energy sector as it is responsible for two-thirds of total greenhouse gas emissions (with the rest from land use, forestry and other industrial processes). The International Energy Agency (IEA) presents a new Sustainable Development Scenario in its 2017 World Energy Outlook, which considers the three connected goals of climate action, achieving universal energy access, and reducing air pollution. By considering only climate action for the Sustainable Development Scenario, an additional investment of $7 trillion is needed through to 2040, compared to the investment needs of the New Policies Scenario ($61 trillion).

This gives an approximate additional investment needed to achieve SDG 13 of $300 billion per year. However, it is important to note that in reality, the annual 102 Mora, C., Dousset, B., Caldwell, I.R., Powell, F.E., Geronimo, R.C., Bielecki, C.R., Counsell, C.W., Dietrich, B.S., Johnston, E.T., Louis, L.V. and Lucas, M.P., 2017. Global risk of deadly heat. Nature Climate Change, 7(7), p.501.


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investment needs will likely vary and require greater injections in the early years. We acknowledge that these indicators may be a simplification of the climate issue which is complex and multi-faceted, but we believe these two indicators are able to capture the key human and financial elements of the climate challenge.


Progress Indicators Target Current Future Number of deaths attributed to natural disaster

Decreasing trend 1.6 million (1990 – 2015)

Funds raised for Green Climate Fund

$100 billion annually by 2020

$10.3 billion

Human Indicator Population exposed to climate conditions exceeding deadly threshold at least 20 days a year

N/A 2.2 billion (30% of population)

48-74% of population (2100)

Financial Indicator Additional investment needed for the IEA Sustainable Development Scenario, relative to investment needs of the New Policies Scenario 103

N/A $7 trillion (2017 – 2040) ~$300 billion per year


Progress: Need for Commitment to Paris Agreement Atmospheric CO2 has continued to rise and reached a record high of 400 parts per million (ppm) in 2016, and the planet has continued to warm. The number of deaths as a result of natural disasters has also continued to increase despite progress in the implementation of disaster risk strategies.104 The IPCC reports average global temperature will continue to rise unless strong mitigation measures are carried out (Figure 90). The global response is underway and the Paris Agreement is gaining momentum; as of May 2018, 176 out of 197 parties have ratified the agreement and 170 have submitted their first national determined contributions (NDCs).105 Hopefully this signals the beginning of tangible global action, for both climate adaptation and mitigation. This will also require developed countries to scale up their financial support to help address the climate-related needs of developing countries.

Morocco

Morocco and many other African countries are already feeling the impacts of climate change, especially to their agricultural sector. Agriculture contributes more than 14% to Morocco’s national accounts and employs 40% of the country’s labor force (World Bank database, 2018). Severe drought in 2015/2016 caused the country’s grain production to decrease by more than 70% (USDA FAS, 2016), and resulted in water scarcity for other sectors. Given the country’s high vulnerability to climate change, adaptation is a key component of Morocco’s NDC. It has also made strong commitments to mitigation measures; with targets to reduce GHG emissions by 42% below business as usual levels by 2030, and increase the share of renewables in its power mix to 42% by 2020 and 52% by 2030. The IFC estimates a climate-smart investment potential of $68 billion for Morocco from 2016-2030, and highlights renewable energy and low-carbon urban infrastructure as two key areas.

103 IEA, 2017. World Energy Outlook 2017. 104 UN, 2018. Sustainable Development Knowledge Platform Goal 13. 105 UNFCCC, 2018. The Paris Agreement - Status of ratification.


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Figure 90. Observed and Projected Changes in Global Average Temperature Under Four Emission Scenarios Plus Potential Range of Responses at the End of the Century

Note: the colored bars show likely ranges for global temperature change by the end of the century Source: IPCC (2013)106

Investment Direction and Opportunities The main argument against climate action that it would be too expensive does not hold true. We found in our research published in Energy Darwinism II that the investment costs of Climate “Action” and “Inaction” are marginal ($190.2 trillion versus $192 trillion), and taking action in cutting carbon emissions can offer reasonable returns on investment. These findings, along with the potentially large liabilities avoided provide a strong economic argument for climate action.

Climate smart solutions are needed across multiple sectors, which include sustainable transport, clean energy, green buildings, agricultural productivity, waste management and climate-resilient infrastructure. Technology innovation will play an important role in developing climate solutions across these sectors. The investment opportunities are immense, and with the falling cost of clean technologies combined with growing policy support, investments in climate smart markets has been gaining

106 FAQ 12.1, Figure 1, from Collins, M., R. Knutti, J. Arblaster, J.-L. Dufresne, T. Fichefet, P. Friedlingstein, X. Gao, W.J. Gutowski, T. Johns, G. Krinner, M. Shongwe, C. Tebaldi, A.J. Weaver and M. Wehner, 2013: Long-term Climate Change: Projections, Commitments and Irreversibility. In: Climate Change 2013: The Physical Science Basis. Contribution of Working Group I to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Stocker, T.F., D. Qin, G.-K. Plattner, M. Tignor, S.K. Allen, J. Boschung, A. Nauels, Y. Xia, V. Bex and P.M. Midgley (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA.


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momentum. Global investment in clean energy alone totaled $334 billion in 2017, bringing total investment since 2010 to $2.5 trillion.107

An investment opportunity of $23 trillion was found across 21 emerging markets by the IFC108 from 2016 to 2030 (Figure 92), with China accounting for $15 trillion alone, followed by Latin America and Caribbean with $3 trillion. These estimates may be even larger as the analysis did not include climate-smart agriculture due to a lack of data. However, it is worth noting that climate-smart agriculture is a growing area of business which offers an integrated solution to addressing both climate change and food security. Opportunities also exist for climate smart financial instruments, especially in the area of green bonds, which reached a record issuance of $157 billion in 2017 compared to $11 billion in 2013.109

In addition to investment opportunities, it is also important to consider climate-related risks. The OECD110 reports that pathways to achieve the Paris Agreement targets will require not only large-scale private investment in low-carbon solutions but also a move away from carbon intensive assets. This could not only impact companies that extract fossil fuels, but also those that use them as inputs or are energy intensive such as steel, petrochemicals and cement. In conclusion, adopting a low carbon future will not be without risks or growing pains but the opportunities and benefits for society, global economy and the planet outweigh the risks and potentially irreversible consequences.

Figure 91. Investment Potential to 2030 by Region and Sector

Note: Investment potential of green buildings in East Asia Pacific extends to $13.2 trillion with China accounting for 98% Source: IFC,108 Citi Research

107 BNEF, 2018. Runaway 53GW solar boom in China pushed global clean energy investment ahead in 2017. 108 IFC, 2016. Climate Investment Opportunities in Emerging Markets, An IFC analysis. 109 Climate Bonds Initiative, 2017. GreenBonds Highlights 2018. 110 OECD, 2017. Investing in Climate, Investing in Growth, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264273528-en

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

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SDG 14: Life Below Water What Is It and Why Is it Important? The world’s oceans drive global systems that make the earth habitable for humankind. How we manage this vital resource is essential for humanity as a whole, and to counter balance the effects of climate change.

Oceans cover around 71% of the earth’s surface and perform an important regulatory function in the global weather and climate systems111

While developed country fisheries are, by and large, slowly moving towards restoration, ocean ecosystems managed by developing countries and high seas are often in severe decline.112 Over three billion people depend on marine and coastal biodiversity for their livelihoods. However, today we are seeing 30 percent of the world’s fish stocks overexploited, reaching below the level at which they can produce sustainable yields.113

The proportion of fisheries that are fully fished, overfished, depleted, or recovering from overfishing increased from just 60% in the mid-1970s to about 75% in 2005 and to almost 90% in 2013 (see Figure 92). Biological overfishing has led to economic over-fishing, which creates significant economic losses.114

Figure 92. State of Global Matrix Fish Stocks, 1974-2013

Source: FAO 2016115

111 High-Level Political Forum on Sustainable Development, 2017. 2017 Thematic review of SDG 14: Conserve and sustainably use the oceans, seas and marine resources for sustainable development. 112 California Environmental Associates, 2012. Charting a Course to Sustainable Fisheries. 113 UN, 2017. The Ocean Conference. 114 World Bank. 2017. The Sunken Billions Revisited: Progress and Challenges in Global Marine Fisheries. Washington, DC: World Bank. Environment and Sustainable Development series. 115 FAO, 2016.The State of World Fisheries and Aquaculture 2016. Contributing to food security and nutrition for all. Rome. 200 pp.


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SDG 14 is focused on effectively managing and protecting marine and coastal ecosystems from pollution. It is also attempting to control the impact of ocean acidification, a process whereby the ocean absorbs CO2 making the water more acidic. We have seen a 26 percent rise in ocean acidification since the beginning of the industrial revolution.116 The impact of acidification will extend up the food chain to affect economic activities such as fisheries and aquaculture.117

Marine pollution, an overwhelming majority of which comes from land-based sources, is also reaching alarming levels, with an average of 13,000 pieces of plastic litter to be found on every square kilometer of ocean.118


Targets Indicators 14.1 By 2025, prevent and significantly reduce marine pollution of all kinds, in particular from land-based activities, including marine debris and nutrient pollution

14.1.1 Index of coastal eutrophication and floating plastic debris density

14.2 By 2020, sustainably manage and protect marine and coastal ecosystems to avoid significant adverse impacts, including by strengthening their resilience, and take action for their restoration in order to achieve healthy and productive oceans

14.2.1 Proportion of national exclusive economic zones managed using ecosystem-based approaches

14.3 Minimize and address the impacts of ocean acidification, including through enhanced scientific cooperation at all levels

14.3.1 Average marine acidity (pH) measured at agreed suite of representative sampling stations

14.4 By 2020, effectively regulate harvesting and end overfishing, illegal, unreported and unregulated fishing and destructive fishing practices and implement science-based management plans, in order to restore fish stocks in the shortest time feasible, at least to levels that can produce maximum sustainable yield as determined by their biological characteristics

14.4.1 Proportion of fish stocks within biologically sustainable levels

14.5 By 2020, conserve at least 10 per cent of coastal and marine areas, consistent with national and international law and based on the best available scientific information

14.5.1 Coverage of protected areas in relation to marine areas

14.6 By 2020, prohibit certain forms of fisheries subsidies which contribute to overcapacity and overfishing, eliminate subsidies that contribute to illegal, unreported and unregulated fishing and refrain from introducing new such subsidies, recognizing that appropriate and effective special and differential treatment for developing and least developed countries should be an integral part of the World Trade Organization fisheries subsidies negotiation

14.6.1 Progress by countries in the degree of implementation of international instruments aiming to combat illegal, unreported and unregulated fishing

14.7 Take urgent action to end poaching and trafficking of protected species of flora and fauna and address both demand and supply of illegal wildlife products

14.7.1 Sustainable fisheries as a percentage of GDP in small island developing States, least developed countries and all countries

14.A By 2020, introduce measures to prevent the introduction and significantly reduce the impact of invasive alien species on land and water ecosystems and control or eradicate the priority species

14.A.1 Proportion of total research budget allocated to research in the field of marine technology

14.B By 2020, integrate ecosystem and biodiversity values into national and local planning, development processes, poverty reduction strategies and accounts

14.B.1 Progress by countries in the degree of application of a legal/regulatory/policy/institutional framework which recognizes and protects access rights for small-scale fisheries

14.C Mobilize and significantly increase financial resources from all sources to conserve and sustainably use biodiversity and ecosystems

14.C.1 Number of countries making progress in ratifying, accepting and implementing through legal, policy and institutional frameworks, ocean-related instruments that implement international law, as reflected in the United Nation Convention on the Law of the Sea, for the conservation and sustainable use of the oceans and their resources


116 Sustainable Development Goals Fund, 2018. Goal 14: Life below water. 117 CoastAdapt, 2017. Ocean acidification and its effects. 118 UNDP, 2018. Goal 14 – Life below water.


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Indicators Used in this Analysis In order to gain some analytical traction we selected a smaller set of indicators from the above and from other sources to help us think more simply about the human and economic scale of each problem. Although we have used these indicators to express the problem in this report, we would emphasize that these are an intentional simplification of the goals and do not express the full depth of each.

For SDG 14, we note that these problems are not singularly human problems, although fixing the problem is dedicated to humanity’s interaction with the ocean. People living in Small Island Developing States (SIDS) and least developing countries on the coast are most at risk, where the ocean plays a more fundamental role in financial and social wellbeing.

Calculating the financial impact of life below water is challenging. To determine the scale of the goal, we used the global market value of marine and coastal resources as a proxy, and said if we don’t do what’s required to effectively conserve our oceans, then that essentially becomes a forgone opportunity. According to the UN, the market value of marine and coastal resources and industries is estimated at $3 trillion per year or about 5 per cent of global GDP.119

Figure 94. Indicators Used in this Analysis

Rationale Progress Indicators Value Sustainable fisheries as a percentage of GDP in small island developing States, least developed countries and all countries

Together these provide a broad measure of the extent of the issue in

SIDS and LDCs

Proportion of total research budget allocated to research in the field of marine technology

A measure of investment needed to increase productivity

Human Indicator Population living in SIDS and LDCs (ex-Landlocked LDCs)

671mn Gives broad measure of the population that live in coastal areas with limited

protein substitutes Economic Indicator Average annual expenditure needed to satisfy required conservation to sustainably manage oceans

$38bn per year Gives broad measure of major class of investment needed to meet SDG


Reaching a view on the investment required to meet SDG 14 is a challenging project, as insufficient information exists about conservation funding, and numerous investment pathways may lead to conservation outcomes.

In 2012, the UNDP-Global Environmental Finance (GEF) provided an assessment of the resources required to catalyze ocean finance to achieve the following four objectives: (1) reduce nutrient over-enrichment of coastal areas; (2) improve energy efficient shipping and protect/restore coastal carbon sinks; (3) reduce unsustainable fishing practices; and (4) reduce aquatic species transfer via ship hull fouling.120

Using the UNDP-GEF initial assessment, we estimated the required incremental conservation spend to sustainably manage and protect marine and coastal ecosystems to avoid significant and systemic adverse impacts is ~38 billion per year.

119 Ibid. 120 UNTT Working Group on Sustainable Development Financing, 2013. Financing for sustainable development: review of global investment requirement estimates.


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We note, synergies with investments in ecosystems and biodiversity are highly dependent on sound policies and effective investment in other areas and a particular challenge in extrapolating information from these investments is the need to distinguish between one-off investments and recurrent expenditure.

Investment Direction and Opportunities The importance of conservation and sustainable use of the ocean is largely indivisible. The opportunity is the positive cross cutting relationships between other SDGs. A reduction in poverty and building healthy and productive fish stocks enhances coastal and marine ecosystem resilience, and contributes to freshwater quality, food security, and improved human health.

One of the challenges in achieving the goal in a global sense is that there are many ways to dissect the issues. Some advocates focus on a particular piece of the problem, like overfishing, while others look at the required mechanisms needed to address the problem.

The Californian Environmental Associates (CEA), have outlined an objective and directional management plan to achieve a healthy and resilient marine eco-systems. It requires a global effort of policy reform, strengthening market transformation, improved data and traceability technology.

Figure 95. Charting a Course to Sustainable Fisheries

Source: Californian Environmental Associates (CEA),121 Citi Research

121 California Environmental Associates (CEA), 2012. Charting a course to sustainable fisheries.

Fisheries Change Practices

Reform GovernanceImprove Spatial Management• Establish Marine Protected Areas• Trawl Closures• Marine Spatial Planning

Improve Fisheries Management• Total Allowable Catches (TAC)• Seasonal Closures• Bycatch Reduction Regulations

Seafood Business Support

Fishing Community

Support

Change Seafood Market Incentives

Market Transformation Strengthens Incentives for Fishery Reform:• Improve Awareness of Quality

Seafood• Widespread Buyer/Retailer Adoption

of Sustainable Sourcing Policies• Market Access Benefits for Certified

Seafood and Fishery Improvement Projects

Establish Resource Rights and Economic Incentives

Establish Appropriate Rights:• Territorial Use Rights Fisheries (TURFS)• Locally Managed Marine Areas (LMMAs)• Limited Entry Individual Transferable

Quotas• Empowering Community-Based

Fisheries ManagementImprove Economic Incentives• Remove Perverse Subsidies

Prevention of Overfishing

Protection of Habitats

Protection of Marine Wildlife

Enabling Systems

• Enforcement• Sound Science• Certification• Traceability

Achieving a Healthy and Resilient Marine Eco-System


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Achieving SDG 14 will require improved international law frameworks to monitor the sustainable use of ocean-based resources. Evidence suggests developing countries and small-scale coastal fisheries have weak management and enforcement systems. A 2012 study by Proceedings of the National Academy of Sciences (PNAS) shows fisheries under co-management systems have higher biomass than those with no local management, reinforcing the importance of establishing sustainable management systems in developing countries.


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SDG 15: Life on Land What Is It and Why is it Important? Sustainable Development Goal15 is focused on the conservation, restoration, and sustainable development of land across forests, wetlands, mountains and drylands. Forests cover 30% of the Earth’s surface121 and in addition to providing food security and shelter, forests are key to slowing the rate of climate change.

Around 1.6 billion people depend on forests for their livelihood. This includes some 70 million indigenous people. 2.6 billion people depend directly on agriculture, but 52 percent of the land used for agriculture is moderately or severely affected by soil degradation. As of 2008, land degradation affected 1.5 billion people globally, and 74 percent of the poor are directly affected by land degradation globally.122

Similar to oceans, forests play a critical role in absorbing CO2 from the atmosphere. Therefore, it is imperative that we address the targets and conservation requirement’s to combat deforestation. It is estimated that 15% of all greenhouse gas emissions are the result of deforestation and 18.7 million acres of forests are being lost annually, equivalent to 27 soccer fields every minute.123 This impacts people’s livelihoods and threatens a wide range of plant and animal species.

SDG 15 is important to achieve due to the rising pressures in our world. We are seeing unprecedented land degradation, and the loss of arable land at 30 to 35 times the historical rate. Each year, drought and desertification rise, amounting to the loss of 12 million hectares and affects poor communities globally. Of the 8,300 animal breeds known, 8 percent are extinct and 22 percent are at risk of extinction.124

121 Our World in Data, 2018. SDG Tracker – Goal 15 Life on land. 122 FAO, 2018. Can drones help reforest our forests? 123 WWF, 2018. Overview of deforestation. 124 UNDP, 2018. Goal 15: Life on land.


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Figure 96. UN Target and Indicators for Goal 15

Target Indicator 15.1 By 2020, ensure the conservation, restoration and sustainable use of terrestrial and inland freshwater ecosystems and their services, in particular forests, wetlands, mountains and drylands, in line with obligations under international agreements

15.1.1 Forest area as a proportion of total land area 15.1.2 Proportion of important sites for terrestrial and freshwater biodiversity that are covered by protected areas, by ecosystem type

15.2 By 2020, promote the implementation of sustainable management of all types of forests, halt deforestation, restore degraded forests and substantially increase afforestation and reforestation globally

15.2.1 Progress towards sustainable forest management

15.3 By 2030, combat desertification, restore degraded land and soil, including land affected by desertification, drought and floods, and strive to achieve a land degradation-neutral world

15.3.1 Proportion of land that is degraded over total land area

15.4 By 2030, ensure the conservation of mountain ecosystems, including their biodiversity, in order to enhance their capacity to provide benefits that are essential for sustainable development

15.4.1 Coverage by protected areas of important sites for mountain biodiversity 15.4.2 Mountain Green Cover Index

15.5 Take urgent and significant action to reduce the degradation of natural habitats, halt the loss of biodiversity and, by 2020, protect and prevent the extinction of threatened species

15.5.1 Red List Index

15.6 Number of countries that have adopted legislative, administrative and policy frameworks to ensure fair and equitable sharing of benefits

15.6.1 Number of countries that have adopted legislative, administrative and policy frameworks to ensure fair and equitable sharing of benefits

15.7 Take urgent action to end poaching and trafficking of protected species of flora and fauna and address both demand and supply of illegal wildlife products

15.7.1 Proportion of traded wildlife that was poached or illicitly trafficked

15.8 By 2020, introduce measures to prevent the introduction and significantly reduce the impact of invasive alien species on land and water ecosystems and control or eradicate the priority species

15.8.1 Proportion of countries adopting relevant national legislation and adequately resourcing the prevention or control of invasive alien species

15.9 By 2020, integrate ecosystem and biodiversity values into national and local planning, development processes, poverty reduction strategies and accounts

15.9.1 Progress towards national targets established in accordance with Aichi Biodiversity Target 2 of the Strategic Plan for Biodiversity 2011-2020

15.A Mobilize and significantly increase financial resources from all sources to conserve and sustainably use biodiversity and ecosystems

15.A.1 Official development assistance and public expenditure on conservation and sustainable use of biodiversity and ecosystems

15.B Mobilize significant resources from all sources and at all levels to finance sustainable forest management and provide adequate incentives to developing countries to advance such management, including for conservation and reforestation

15.B.1 Official development assistance and public expenditure on conservation and sustainable use of biodiversity and ecosystems

15.C Enhance global support for efforts to combat poaching and trafficking of protected species, including by increasing the capacity of local communities to pursue sustainable livelihood opportunities

15.C.1 Proportion of traded wildlife that was poached or illicitly trafficked


Indicators Used in this Analysis For SDG 15, we stress that to target the allocation of global conservation finance effectively, assessments of relative underfunding across countries are essential.125 More importantly, some of the targets need to be achieved by 2020 and require urgent attention. We have chosen indicators that look specifically at the required investment in conservation.

However, while we have stuck to human-related impacts in this report the challenges within SDG 15 spread far deeper. Other targets including poaching, trafficking or legislative policy that ensures an equitable share of benefits are just as important.

Biodiversity delivers multiple services across local and global levels. For example, insects and other pollen-carriers are estimated to be worth more than $200 billion

125 Waldron, A., Mooers, A.O., Miller, D.C., Nibbelink, N., Redding, D., Kuhn, T.S., Roberts, J.T. and Gittleman, J.L., 2013. Targeting global conservation funding to limit immediate biodiversity declines. Proceedings of the National Academy of Sciences, 110(29), pp.12144-12148.


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per year to the global food economy.126 Our role in the developed world is to make sure we do enough, before it’s too late. The efficient allocation of global conservation spending is a priority.

Figure 97. Indicators Used in this Analysis

Progress Indicators ID Rationale Forest area of total land area 15.1.1 Together these provide a broad

measure of the extent of natural capital present in a country

Proportion of land area degraded

15.3.1

UN Red List Index 15.5.1 Human Indicator Population living in countries with insufficient forested/non-degraded land

1,662 million Gives broad measure of the population living without access to sufficient natural capital

Economic Indicator Total conservation spend needed per year to reach appropriate conservation levels

$150-$190bn Gives broad measure of major class of investment needed to meet SDG


Reaching a view on the investments required to meet SDG 15 is a challenging project, as insufficient information exists about conservation funding, and numerous investment pathways may lead to conservation outcomes. In 2014 the UN Conference on Trade & Development (UNCTAD) estimated requirements for yearly private investment in conservation and biodiversity to reach the relevant SDGs at $70-$210 billion, following a survey of work on the subject. As of 2008 (latest data), a separate study by Waldron et al. estimated yearly total investment in conservation and biodiversity globally at $21.5 billion.125

If these numbers are accurate, this puts the funding gap for global conservation financing somewhere between $50 billion and $190 billion.

126 UN, 2016. Life on land: why it matters.


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Figure 98. Land Degradation Measured by Change in Net Primary Productivity, 2006-2016

Source: World Bank127

Investment Direction and Opportunities Life on Land is one of the SDGs which presents more investment avenues and opportunities, with investments in conservation evidently particularly powerful in the space. Although conservation outcomes are driven by a number of factors which cannot be addressed through narrow investment programs, direct investments in conservation present a promising avenue for impact investors. Ethical investors may choose to engage in the Food & Beverage, Fast-Moving Consumer Goods (FMCG), Agriculture, and Timber sectors in order to achieve conservation outcomes. One of the major drivers of conservation outcomes is of course commercial demand for land for agricultural development, demand which stems from the Food & Beverage, FMCG, and Agriculture supply chains.

Conservation relevant for developing and developed: We have used Waldron et al. 2013 study on biodiversity conservation funding to get a broad impression of where conservation needs are most acute (Figure 100), with Indochina, Central Africa, and Central America emerging as unsurprising hot spots. These hot spots have

127 World Bank. 2018. Atlas of Sustainable Development Goals 2018 : From World Development Indicators. World Bank Atlas;. Washington, DC: World Bank. © World Bank. https://openknowledge.worldbank.org/handle/10986/29788 License: CC BY 3.0 IGO.


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historically been closely aligned with demands from the sectors listed above. As such, both direct funding and engagement are likely to be relevant in geographic focus areas on this SDG. Interestingly for our clients in developed markets, Finland, France, Iceland, Australia and Austria are included on this list as countries with significant conservation funding gaps, meaning that investment action may be needed at home.

Figure 99. Life on Land Investment Summary

Investment avenues Various Investment types Impact (Conservation) Thematic Ethical

Geographies Chile, Malaysia, the Solomon Islands, Venezuela

Sectors Impact: Conservation Thematic: Environment & Green Jobs Ethical: Food & Bev (palm oil), FMCG, Agriculture, Timber


Figure 100. Biodiversity Threat and Funding Gap

Source: Waldron et al. (2013) Targeting global conservation funding to limit immediate biodiversity declines126


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SDG 16: Peace, Justice, and Strong Institutions The absence of violent conflict and the presence of stable institutions are arguably the most crucial foundations of a functioning state, market and society. Sustainable Development Goal 16 focuses on precisely these conditions, which are the necessary precursors for bolstering state capacity for resilience (defined as the ability to recover from crisis) and the creation of institutions necessary for human and economic development. Fragility is defined by the Organisation for Economic Co-operation and Development (OECD) across five dimensions: violence, justice, institutions, economic foundations and resilience. Violence, justice, and institutions are explicitly captured within the targets of SDG 16 (see table below), with economic foundations and resilience incorporated into the broader SDG framework.


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Target Indicator 16.1 Significantly reduce all forms of violence and related death rates everywhere

16.1.1 Number of victims of intentional homicide per 100,000 population, by sex and age 16.1.2 Conflict-related deaths per 100,000 population, by sex, age and cause 16.1.3 Proportion of population subjected to physical, psychological or sexual violence in the previous 12 months 16.1.4 Proportion of population that feel safe walking alone around the area they live

16.0 End abuse, exploitation, trafficking and all forms of violence against and torture of children

16.2.1 Proportion of children aged 1-17 years who experienced any physical punishment and/or psychological aggression by caregivers in the past month 16.2.2 Number of victims of human trafficking per 100,000 population, by sex, age and form of exploitation 16.2.3 Proportion of young women and men aged 18-29 years who experienced sexual violence by age 18

16.3 Promote the rule of law at the national and international levels and ensure equal access to justice for all

16.3.1 Proportion of victims of violence in the previous 12 months who reported their victimization to competent authorities or other officially recognized conflict resolution mechanisms 16.3.2 Unsentenced detainees as a proportion of overall prison population

16.4 By 2030, significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organized crime

16.4.1 Total value of inward and outward illicit financial flows (in current United States dollars) 16.4.2 Proportion of seized small arms and light weapons that are recorded and traced, in accordance with international standards and legal instruments

16.5 Substantially reduce corruption and bribery in all their forms 16.5.1 Proportion of persons who had at least one contact with a public official and who paid a bribe to a public official, or were asked for a bribe by those public officials, during the previous 12 months 16.5.2 Proportion of businesses that had at least one contact with a public official and that paid a bribe to a public official, or were asked for a bribe by those public officials during the previous 12 months

16.6 Develop effective, accountable and transparent institutions at all levels 16.6.1 Primary government expenditures as a proportion of original approved budget, by sector (or by budget codes or similar) 16.6.2 Proportion of the population satisfied with their last experience of public services

16.7 Ensure responsive, inclusive, participatory and representative decision-making at all levels

16.7.1 Proportions of positions (by sex, age, persons with disabilities and population groups) in public institutions (national and local legislatures, public service, and judiciary) compared to national distributions 16.7.2 Proportion of population who believe decision-making is inclusive and responsive, by sex, age, disability and population group

16.8 Broaden and strengthen the participation of developing countries in the institutions of global governance

16.8.1 Proportion of members and voting rights of developing countries in international organizations

16.9 By 2030, provide legal identity for all, including birth registration 16.9.1 Proportion of children under 5 years of age whose births have been registered with a civil authority, by age

16.10 Ensure public access to information and protect fundamental freedoms, in accordance with national legislation and international agreements

16.10.1 Number of verified cases of killing, kidnapping, enforced disappearance, arbitrary detention and torture of journalists, associated media personnel, trade unionists and human rights advocates in the previous 12 months 16.10.2 Number of countries that adopt and implement constitutional, statutory and/or policy guarantees for public access to information

16.A Strengthen relevant national institutions, including through international cooperation, for building capacity at all levels, in particular in developing countries, to prevent violence and combat terrorism and crime

16.A.1 Existence of independent national human rights institutions in compliance with the Paris Principles

16.B Promote and enforce non-discriminatory laws and policies for sustainable development

16.B.1 Proportion of population reporting having personally felt discriminated against or harassed in the previous 12 months on the basis of a ground of discrimination prohibited under international human rights law


Investing in state capacity by building independent, accountable institutions and improving governance and the rule of law as envisioned in SDG 16 will have dramatic, transformational knock-on effects, accelerating living standards, access to public services, improved health, educational and economic outcomes, greater life expectancy, expanded GDP growth and foreign direct investment (FDI) levels and political stability.


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We have chosen to use the number of people who live in fragile states as the human indicator for SDG 16, which we estimate to be 2.1 billion using the 2017 Fragile States Index (See Figure 102) and counting the population who live in High Warning and Alert zones. Out of the 2.1 billion people, 625 million are in the most fragile states, 80% of which live in Africa. We think this clearly demonstrates the potential scale of impact implementing SDG 16 (or failing to do so) can have in terms of global population. Our financial indicator references the IMF’s estimate on cost of corruption per year which amounts to $2 trillion.128 This aligns well with estimates from the OECD as well as our own calculations using the World Bank Ease of Doing Business Index.129

Figure 102. Fragile States Index Heat Map

Source: The Fund for Peace130

128 IMF,2016. Corruption: Costs and Mitigating Strategies. 129 We used the World Bank Ease of Doing Business Index to estimate the economic gap of underperforming countries to the median performance .OECD estimates the costs of corruption for economic, political and social development exceeds 5% of global GDP ($2.6 trillion). 130 The Fund for Peace, 2018. Fragile States Index 2018 Heat Map.


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Peace in Our Time? Present conflict levels and civilian casualties from war are substantially lower in the 21st century compared to the 20th century, with its two World Wars. However, the number of conflicts and deaths from terrorism has been rising over the past decade, with 40 internal conflicts raging at present according to the International Crisis Group; the level of violence in armed conflicts in 2014 and 2015 was the highest since the Cold War. These conflicts, most notably in Syria, Yemen and Afghanistan, as well as the DRC, Ukraine, and the Rohynga crisis, have contributed to the highest number of forcibly displaced persons globally since World War II, at 65 million.131 This current crop of conflicts have not spilled over and become internationalized; an outcome which would dramatically increase their negative human and economic impact as well as the difficulty in resolving them.132 But a host of factors are converging that may lead to increased geopolitical risks in our view, some of which have the potential to become systemic and therefore bearing significantly potential for instability.

Why are macro geopolitical risks on the rise? Contributing factors have been decades in the making, including the erosion of the multi-lateral system, the militarization of foreign and trade policy, declines in international trust and cooperation to resolve global conflicts, and the continued isolationism and ambivalence over the use of U.S. power, a phenomenon dating back to the 2003 Iraq war and accelerated by President Trump’s “America First” policies. Over the course of 2018, the risk of confrontation between the U.S. and Iran and North Korea has increased the risk temperature.

In an increasingly fraught global political and economic environment, where concern about immigration is increasingly a lightning rod for electoral upheaval in Advanced Democracies (the 2016 U.K. EU Referendum; German elections in 2017, Italy in 2018), instability generated from conflicts even years or decades ago has become a source of disruption in peaceful developed countries. Without stabilizing the countries of origin of the displaced and reducing these flows, the dislocation caused by these conflicts could extend far beyond where they started.

The World Bank also estimated that 2 billion people currently live in countries where fragility, conflict and violence are present, with 50% of the global poor anticipated as residing in fragile and/or conflict situations by 2030.133 These figures highlight the linkage between violence, instability, and poverty as well as the enormous scale of the challenge. In an article for the United States Institute for Peace, Lindborg and Hewitt argue that, “the broken relationship between a government and its people is the root of all violent conflict, yet although ample evidence exists for this, little has changed in terms of government allocation of resources and strategic planning”.134

Violence is not always militarized; violent activity due to organized crime and other illicit activity also produce deaths and displacement, often at similar levels similar to a low-intensity conflict. Meanwhile fragility can also be exacerbated by natural disasters, especially where institutions to deliver aid are also weak.

131 UNHCR,2016. Global trends, forced displacement in 2015. 132 10 Conflicts to Watch in 2018 - ICG/FP http://foreignpolicy.com/2018/01/02/10-conflicts-to-watch-in-2018/ 133 World Bank, 2018. http://www.worldbank.org/en/topic/fragilityconflictviolence/overview 134 Lindborg, N.E. and Hewitt, J.J., 2018. In Defense of Ambition: Building Peaceful & Inclusive Societies in a World on Fire. Dædalus, 147(1), pp.158-170.


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International homicide rates have declined as a proportion of violence deaths; from 75 to 69%, but data collected to measure target 16.2 shows that each year violence is experienced by a billion children.135

The failure to strengthen and stabilize fragile, weak and failing states will severely limit the potential to achieve many, if not most, of the other 2030 SDGs. Given that most Official Development Assistance (ODA) is predicated on responding to crises rather than preventing them, surmounting this challenge will require a change of mindset from government and donor organizations. The role of the private sector in contributing to building resilience and state capacity is less clear, but without the presence of these conditions, neither economic development nor private investment can flourish. Conflict zones are the most high-risk environments for investors and clearly the worst environments for humans to survive, thrive and reach their potential. What’s more, conflict, poverty and corruption are highly correlated, with environmental degradation a further manifestation of the confluence of these poor conditions.

Where Good Governance and the Rule of Law are Present, Corruption and Bribery Diminish Corruption and bribery flourish where unwieldy bureaucracies provide ample opportunity for rent-seeking (bribery) and where weak institutions prevail.

Corruption also acts as a regressive tax on the poor, often forcing those with the lowest incomes to pay in order to receive services that are in principle free, such as schooling and medical care. Transparency International’s Corruption Perceptions Index (Figure 103) shows high corruption burden in more than two-thirds of countries in the world.

Bribery and corruption are also features of the global trade in drugs and human trafficking, part of Target 16.1: Significantly reduce all forms of violence and related death rates everywhere and Target 16.2: End abuse, exploitation and all forms of violence against and torture of children. Terrorism also thrives in part thanks to bribery, according to TRACE International, the anti-bribery network, underscoring how tackling corruption is inextricably interlinked with addressing Goal 16. TRACE also suggests that bribery risk is on the rise, and not only in LDCs. The WEF highlights that the $2 trillion per year that goes to waste on paying bribes could be re-allocated with the following dramatic effects: (1) Wipe out hunger; (2) Eradicate malaria (3) Bridge the global infrastructure gap; and (4) Provide basic education to all children.136

135 UN, 2018. Sustainable Development knowledge platform. 136 WEF, 2017. https://www.weforum.org/agenda/2017/01/we-waste-2-trillion-a-year-on-corruption-here-are-four-better-ways-to-spend-that-money/


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Figure 103. Corruption Perceptions Index Heat Map

Source: Transparency International137

Government and business corruption have also had a negative effect upon public trust in institutions. This trend is linked with greater demand for regulatory intervention and higher political risks, as we have covered extensively in our Citi GPS report Vox Populi: Taking it to the Streets. Low trust is associated with higher risk of support for populism and non-mainstream parties, with corruption scandals and abuse of power one of the most frequently occurring sources of political risk and government collapses. According to Delia Ferreira Rubio, Chair of Transparency International, “TI’s Corruption Perception results correlate not only with the attacks on press freedom and the reduction of space for civil society organizations…what is at stake is the very essence of democracy and freedom”. According to the Committee to Protect Journalists, of all the journalists killed since 2011, 9 out of 10 were killed in countries scoring 45 or less on the CPI.

Measures to combat corruption include laws to increase public access to information, crucial for increasing accountability and transparency. Doing so requires governments to create systems for the implementation for these laws as well as merely featuring them on the books. Media freedom and freedom of information, including data disclosure regarding government budgets, company ownership, public procurement processes, and political party financing sources will also reduce opportunities for corruption and bribery; the “sunlight” that acts as a disinfectant for corruption, to paraphrase a saying made famous by Winston Churchill.

137 Corruptions Perceptions Index 2017 heat map (2017) by Transparency International is licensed under CC-BY-ND 4.0

https://ir.citi.com/PsV%2bRIAnkJ0vtsHGsA0%2bQ6sOJmd5QR1AtI260kxQWZYLJRltIgcrt7gDCyP5SRmAfdXUDNPNm6oDi8X8deq7wA%3d%3d


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Progress toward adopting freedom of information laws has increased, with six countries adopting this legislation in 2016 and most UN Member States having such laws. Even so, more than one and a half billion people lack any kind of official identification, a shortcoming which allows for further opportunity for corruption and bribery. Adopting measures to increase transparency, accountability and freedom of information requires enlightened self-interest on the part of governments and business — the result is fewer opportunities to hide illicit behavior from public view, avoid taxation and other forms of scrutiny and disclosure. From the perspective of attracting FDI, countries with perceived high levels of corruption are less able to attract and retain investors.

How to Combat Violence and Corruption and Boost Progress Toward SDG 16? Despite the substantial gains to be made from realizing SDG 16, the current rate of institution-building and conflict reduction suggests that almost half a billion people could remain below the poverty line of $1.90/day by 2030.138

While much of SDG 16 emanates from government action and the development of strong public institutions and rule of law, the private sector can both contribute to these outcomes, and benefit immensely. PWC highlights that in order to build the level playing field necessary to achieve business outcomes, such practices as increasing transparency in public reporting, developing a code of conduct, heightened stakeholder engagement and aligning with local laws on tax and trade practices can help accelerate progress. Fighting cybercrime is another critical area the private sector can contribute, where measures to fight it are estimated to cost $400 billion globally.139

To help track and monitor progress, the SDG 16 Data Initiative (SDG16DI) was established to support the open tracking of progress toward the 12 SDG 16 targets through a consortium of 14 independent organizations which will assess progress annually and provide a snapshot of progress toward the SDG 16 targets.

Bringing about world peace, justice and effective, accountable institutions may appear to be among the loftier, more idealistic of the SDGs. But the clear linkage between violence, conflict and corruption is instructive; these outcomes are not a force of nature, like gravity, but entirely man-made. Governments and business have made progress in reducing opportunities for corruption, but such efforts have not gone far enough. In a global context where respect for human rights and the rule of law appears to be declining, making the economic and commercial case for SDG 16 may be even more important — the costs of not implementing SDG16 are far-reaching and debilitating as measured both in human and economic/financial terms. Given the likelihood of continued modest economic growth and further pressure upon wages in much of the globe, increasing opportunities for GDP growth and economic participation will be crucial for maintaining political stability. The future of the political and economic order to a large extent depends upon this.

138 Brookings, 2017. World Poverty Clock. http://worldpoverty.io/ 139 McAfee and Centre for Strategic and International Studies, 2018. Economic impact of cybercrime – no slowing down.

Citi Global Perspectives & Solutions (Citi GPS) is designed to help our clients navigate the global economy’s most demanding challenges, identify future themes and trends, and help our clients profit in a fast-changing and interconnected world. Citi GPS accesses the best elements of our global conversation and harvests the thought leadership of a wide range of senior professionals across the firm. All Citi GPS reports are available on our website www.citi.com/citigps

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NOW / NEXT Key Insights regarding the future of People, Planet, Prosperity

HUMAN CAPITAL Around the world 1.06 billion people lack access to electricity, 2.8 billion lack access

to clean cooking fuel and 4 billion still lack access to the Internet. / The greatest human opportunity appears to be in infrastructure where the provision of clean energy and access to the Internet could have enormous implications for around half of the global population with important implications for poverty and inequality.

REGULATION The greatest opportunities to benefit the greatest number of people via the SDGs are in emerging markets, where risk is perceived by investors to be much greater. / To offset heightened risk, governments need to provide a stable political and regulatory backdrop and promote the rule of law, end corruption and develop stable, liquid and deep financial markets to offset this.

SHIFTING WEALTH Cities represent the highest concentration of many of the worst environmental and

social issues facing the world, with over half of the global population and responsible for 80% of global GDP. / The greatest single financial node is represented by Sustainable Cities and Communities at $2.1 trillion including investing in both physical and social infrastructure.

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UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS · Citi is one of the world’s largest financial institutions, operating in all major established and emerging markets. Across these