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Wealth management in Asia: Navigating the impact of coronavirus

COVID-19 is, first and foremost, a major global health and humanitarian challenge. Much remains to be done globally from counting the humanitarian costs of the virus, to supporting the victims and families, to developing a vaccine. Addressing these challenges is the first priority.

Bearing the humanitarian challenges in mind, the consequences for economies, industries, and service sectors are also considerable. Our aim in this brief is first to share our perspective on the potential impact of the COVID-19 pandemic on the wealth-management industry and, second, to outline some of the options that firms might consider in response to the current situation. As part of their response, firms have a responsibility to communicate regularly with clients, reminding them to stay calm and remain committed to and focused on realizing long-term portfolio goals. Finally, firms should also be prepared to collaborate with both peer organizations and industry third parties to ensure the stability of industry infrastructure.

Wealth-management firms face three key challenges: market volatility, operational risk, and increased reliance on digital channels.

Unprecedented financial market volatility

Past epidemic crises have had sharp yet temporary effects on the markets. However, COVID-19 may mark the end of an extended bull run since 2009. By MSCI World Index standards, the approximately 30 percent drop from peak value in less than one month is comparable in quantity only to the 2001 collapse of the tech market, which saw a 44 percent drop over four years, and the global financial crisis in 2008, which saw a 40 percent drop in six months (Exhibit 1).


We envision two possible scenarios for the global economy1 :

  • Global slowdown: The spread of the virus slows with warmer weather in the Northern Hemisphere. The economy recovers in the late second quarter, but global GDP growth drops to between approximately 1.0 and 1.6 percent for 2020.

  • Global pandemic: The rate of COVID-19 infection remains steady despite the approach of summer, and extended social distancing severely restricts commercial activity for most of the year. Global GDP growth for 2020 slows to between 0.5 and 0.9 percent.


Weakening GDP growth, high volatility, and significant capital-market losses globally and locally in Asia—where markets have declined by 15 to 25 percent from February 1 through March 15 (Exhibit 2)—can affect how wealth-management firms operate. In the immediate term, the priority is to sustain investor confidence and protect business through continued engagement and communication with the customers. Over the short- to medium-long term, the industry might witness consolidation and the overall strategy may need to adapt to more frequent M&A activity and much-needed agility in the business model to ensure faster adoption of digital tools across the entire wealth-management value chain.


Increased operational risks related to business continuity, employee safety, and client confidentiality

Regulators in diverse markets impose varying standards on wealth managers, often requiring service providers to periodically test their business-continuity plans. Clients also expect service to resume promptly in the event of an outage. Firms are increasingly expected to rely on and even strengthen their business-continuity plans with additional measures. For example, in February, the Monetary Authority of Singapore called on financial institutions to ensure additional measures (such as monitoring and supporting staff morale) while carrying out their business-continuity plans,2 and other regulators are following suit. In particular, firms must be prepared to shift their employees’ work to remote sessions (such as by asking employees to work from home) or staggering work schedules to reduce the number of people in offices.

Additionally, firms must be prepared for worst-case scenarios in which key personnel are unavailable because of illness or quarantine. This is especially critical for relationship managers (RMs) at private banks. Lack of contingency procedures for addressing client needs (which may increase during market volatility) and insufficient clarity on decision rights can result in bad service, client dissatisfaction, and even attrition. In smaller wealth-management organizations, such as fintech firms, a single person may assume multiple roles. In such cases, employees must be prepared to fulfill broader roles and responsibilities to ensure that service continues without interruption.

Finally, as more and more people work remotely, security protocols could potentially weaken and the risk of cyberattacks could surge. According to a report by Insikt Group, cybercriminals are increasingly exploiting COVID-19 for phishing attacks.3 Even a single successful phishing attack seriously risks clients’ data and could result in significant legal and reputational costs.

Increased reliance on digital channels for client interaction

Numerous countries have placed severe restrictions on travel, closing their borders or prohibiting travelers from select countries (for example, India has banned entry from the European Union, Turkey, and the United Kingdom).4 Mandatory quarantines and cancellations of mass gatherings are being announced in an attempt to increase “social distancing,” the practice of maintaining a greater-than-usual physical distance from other people or of avoiding direct contact with people or objects in public places during the outbreak of a contagious disease.

In a scenario where physical situations such as face-to-face meetings are avoided, many wealth-management firms may find it difficult to bring new clients on board and increase the share of wallet with existing clients. Social distancing and travel restrictions also create an opportunity to emphasize digital channels to reliably continue regular engagement between investors and advisers. This opportunity also introduces new ways of working and embracing different cultures and preferences. Firms and RMs who have been slow in adopting and promoting digital communication to secure trust and build rapport with clients face clear disadvantages.

Four things wealth-management firms must do now

The COVID-19 situation presents wealth-management firms with a double-edged sword. While traditional wealth managers will face difficulties in the short term due to the high-touch nature of their business, they also have an opportunity to acquire new or accelerate existing digital propositions, such as by teaching clients how to get the most benefit out of digital communication channels. Firms must seriously pursue digital education for their customers but will also need to be mindful that adoption of digital solutions will vary across customer segments. A retiree, for instance, might be more comfortable with in-person interactions but should still be ready to adopt a basic digital solution—this kind of preparation will maintain business continuity in such an unprecedented, challenging market environment.

However, nontraditional wealth managers such as fintech companies might see raising capital become a top priority given the larger economic impact of the business across the financial services industry. Showcasing strong digital capabilities with robust risk frameworks in place may help attract new clients that are dissatisfied with their existing traditional or nondigital wealth offerings.

Firms must respond to the current situation quickly through four concrete measures.

Deploy best practices to address client concerns and reduce the impulse to panic

Investors may demand constant, specific information about their portfolio as well as additional strategies (such as remaining market neutral in times of high volatility and uncertainty). In order to reassure the customer and safeguard their best interest from short-term panic, firms must come up with an engagement plan across three related areas:

  • Quickly upskill RMs. RMs must have a 360-degree view of the client holdings with detailed knowledge on the portfolio and ability to simulate and rebalance portfolios in real time to ensure safeguarding and sustainability of the client assets. They may also need guidance from tax experts to address client concerns in specific situations, such as tax-loss harvesting benefits. Consequently, firms should fast-track deployment of portfolio-management tools and mechanisms to ensure RMs are updated in real time on client portfolios. Digitally enabled wealth managers may see a fiduciary responsibility to pressure-test their analytics infrastructure, such as automatic rebalancing tools.

  • Build internal communication channels. Given the constant flow of information, RMs and portfolio managers (PMs) may consider conducting daily check-ins and check-outs on market movement and impact on the client portfolios; indeed, these meetings can be institutionalized into the daily workflow over the medium term.

  • Emphasize external communication for investors. As customers need reassurance, firms can look at increasing their social media communication on market views, sharing investment philosophy through increased face time with PMs (such as through podcasts, investment notes) and as-needed phone or video calls between the RM, PM, and client. For customers who might become skeptical about the financial health of the institution, increased engagement from leadership will be especially critical to minimize doubts.


Step up business-continuity planning

Wealth managers are expected to test their business-continuity plans as well as deploy additional measures to ensure that client needs are met with speed and efficiency in these difficult times:

  • Ensure resilient business as usual (BAU). Rapidly build a cross-functional crisis management team with representatives from all key functions and businesses to assess the situation, conduct impact analysis (on tools, clients, and workforce), and make key decisions to keep business going safely and effectively. For example, identify and maintain critical operations, identify critical staff, and develop a quarantine or isolation strategy if confirmed cases emerge.

  • Build a contingency plan. Revise annual planning in anticipation of prolonged reduction in customer activity; identify portfolio of mitigating actions including securing debt lines and ways to preserve cash to weather a potential slowdown.

  • Ensure client confidentiality while working from home. Conduct online training for employees and third parties on best practices related to work-from-home arrangements, including cyberrisk guidelines to ensure data confidentiality. For example, restrict all sensitive data downloads through a virtual desktop to a centralized server, provide data access on a need-to-know basis only, and enforce strict actions in case of breach without exception.


Intensify the push toward digital communication channels

As the need for digital adoption is anticipated to accelerate rapidly, tech teams will need to quickly ramp up the infrastructure with an eye to gain quick wins and develop short- to medium-term execution plans. In addition, these teams must carefully monitor for an increase in cyberthreats and frauds.

Clients will need to be further integrated across the digital platforms to ensure they have not only a real-time, 360-degree view of their portfolios but also instant access to their RMs to ensure continuity of engagement. In addition, they must be encouraged to use digital communication and interaction through secured instant chat with RMs through multiple channels (email, apps, instant messages), including remote video conferencing facilities. They should also use online tools in completing agreements allowing and granting permission to make decisions on their behalf.

For RMs, in addition to the communication channel, an end-to-end digital workbench becomes more critical, which will have live market updates, house view through portfolio managers, access to third-party investment research for products on open architecture platforms. Some of these tools might be a quick turnaround based on internal tech capabilities or there might be a need for active collaboration with third-party fintech firms to execute these tools under the risk framework of the respective firms (Exhibit 3):

  • Activate clients for mobile or online interaction. Launch dedicated campaigns with positive messaging via contact centers to activate digital channels, tutorials, and demos on how to access digital channels and help lines.

  • Promote digital wealth-management products. Limit in-branch sales and migrate existing clients, increase share of investment in digital marketing, and step up automated personalization.

  • Quickly enhance digital offering. Identify and deploy quick wins to increase appeal, functionalities, and availability of digital products.


Prepare for consolidation across industry

The COVID-19 crisis has the potential to spur consolidation, as the quest for scale and stronger capitalization will likely move M&A higher on the agenda of wealth-management organizations.

A significant variation in economics exists between large organizations (assets under management above $80 billion) and small organizations (assets under management below $20 billion) with average profit margins of 37 basis points and three basis points, respectively, suggested through a survey of 21 private banks active in Hong Kong and Singapore booking centers (Exhibit 4). This indicates a need for scale which may become more prominent in these challenging times.


Organizations are more likely to come across acquisition and partnership opportunities primarily to acquire scale or specific capabilities—such as investment expertise, geographical access, or customer segments. They will need to refine their M&A strategies, developing a short list of target acquisitions with a view to ensuring business and cultural alignment as well as the ability to conduct due diligence quickly (should an opportunity arise). The situation also demands agility and quick moves for smaller firms to make sure they have the capital backing to ensure they can protect their business while looking at potential opportunities for collaboration that build on their niche presence and expertise.

Firms would need to keep an open mind toward opportunities for partnerships and collaboration, particularly those that support more resilient industry infrastructure.

Demonstrating corporate purpose in the time of coronavirus

Companies will define what they do in the crucible of COVID-19 response—or be defined by it. Here’s how to frame the challenge.

What should a company’s purpose be when the purpose of so many, right now, is survival? For years, enlightened executives have sought the sweet spot between their responsibility to maximize profits on behalf of shareholders and their desire to find a purpose across environment, social, and governance (ESG) themes on behalf of a broad range of stakeholders, including customers, employees, and communities.


Then COVID-19 came. As businesses large and small shut their doors, and millions retreat to enforced isolation, the magnitude of the coronavirus crisis confronts corporate leaders with the economic challenge of a lifetime. It also demands of them a moment of existential introspection: What defines their company’s purpose—its core reason for being and its impact on the world?

In boardrooms real and virtual, frantic questions have the floor. How long will this last? How will we pay furloughed workers? What are our peers doing? What should we do first? Global corporations have never had as much power as they do right now to leverage their scale to benefit society in a time of global crisis. Executives have also never had a more intense spotlight trained on their behaviors and actions.


In moments of crisis, the default expectation is that businesses will hunker down and focus on bottom-line fundamentals. Indeed, many CEOs feel constrained to making defensive moves to protect their businesses. But in this crisis, stakeholder needs are already so acute that the opportunity for businesses to make an indelible mark with human support, empathy, and purpose is greater than it has ever been.

Lessons from the past loom large. During what feels like a war, the words and images of wartime leaders echo in our consciousness as icons of resilience and human concern. In previous periods of economic shock, executives’ actions, both good and bad, lodged in company histories and forged perceptions that have endured for years. Decisions made during this crisis will likewise shape a corporation’s identity and tell a story that will leave traces long after COVID-19 has been quelled.

In this crisis, executives will choose either to stay on the sidelines or to engage and, if engaging, either to lead or to follow. Those who have carefully honed a sense of company purpose will find a foundation and set of values that can guide critical and decisive action. For others, this moment can represent the first steps toward defining their corporate purpose in a deliberate way. Is this the moment when purposeful companies demonstrate how to use profits for good or that shows how everything a company does can be for good?

As boardrooms become war rooms, a handful of principles can help guide executives in shaping a critical course of action and building a powerful sense of identity and purpose that will long outlast the immediate crisis.

Understand how acute your stakeholders’ needs are now

Examine exactly what is at stake for your employees, communities, customers, partners, and owners. All will have urgent, rapidly evolving needs that you should fully understand and prioritize. Some of these needs will be new and require creative thinking. Listen carefully to stakeholders that are well placed to inform you. Among grocers, for example, the needs of employees, customers, and service to broader society often stand front and center. Nonetheless, stories of some grocers gouging prices have surfaced as the crisis has intensified. Others, such as Canadian grocer Loblaws, moved quickly, as physical-distancing measures spread, to open stores early for elderly shoppers while also increasing compensation for frontline workers and pledging to keep prices at prepandemic levels.

Prepare for tension, too, as trade-offs arise among stakeholder groups, each with their own important needs. For example, increasing the pay of frontline workers might raise the prospect of cutting back on supplier bills. For retailers and delivery services, shutting down warehouses temporarily to keep workers safe might mean customers have to wait longer for deliveries.

Bring your greatest strengths to bear

What strengths does your organization possess that you can apply to make the biggest difference for your stakeholders? A strong balance sheet might be the means to sustain workers through the crisis. A unique logistics network could be used to bring aid to people in need. A manufacturing facility could shift production to creating urgently needed medical supplies. Resist going it alone. Collaborate closely with your ecosystem of suppliers and customers—they might identify strengths you didn’t even know you had.

Small businesses and large corporations alike are redeploying their capabilities to respond to this crisis: a wedding-dress boutique in New York responded to postponed orders by shifting to produce protective masks for healthcare workers, while French perfume makers have retooled to pump out hand sanitizer. Automobile and car-parts makers have turned to building ventilators. Past lessons can inform creative thinking: when rural Tanzania needed critical medical supplies in 2010, Coca-Cola used its extensive last-mile delivery system to reduce delivery times to five days, from 30. Stepping into the public sphere in the heat of a crisis can unleash unique synergies and creative solutions that will linger.

Collaborate closely with your ecosystem of suppliers and customers—they might identify strengths you didn’t even know you had.

Test your decisions against your purpose

At a time of great uncertainty, “gut check” your decisions against your values as a leader and as an organization. Do your choices align with your identity? Everything you do now will be analyzed after the dust settles. Will your actions and identity be seen as consistent?

Communicate not only your decisions but also the rationale for them—and the trade-offs you considered—clearly. Can you explain decisions to skeptics? Will what you decided be a source of pride? In the financial-services industry, many bank executives report credit loss as their most acute concern, followed by liquidity and funding. But banks also have a long-standing social commitment to support households and businesses with credit. Banks that pull funds away during a crisis will be defining themselves for future interactions in the communities where they operate.

Finally, if you have embraced initiatives in ESG areas, don’t borrow from one to support another—don’t risk appearing to “rob Peter to pay Paul.” The temptation may be to scale back environmental programs to support acute social needs better in this crisis. But beware of seeming to abandon deeply held stakeholder causes; supporters will have long memories.

Involve your employees in the solution

Any crisis provides an opportunity to build a common sense of purpose with your employees, who will be looking for leadership and ways to engage themselves. It can also deliver the benefit of bringing a new generation of leaders to the fore. It may be tempting to withdraw into small, tight decision-making task forces to make key decisions as quickly as possible. But purposeful leaders will want to share execution plans broadly with staff to solicit input and engage them on the challenges the organization faces—including the difficult trade-offs to be made.

Many employees and their families are suffering from isolation and loss of income, leaving them thinking about what is truly important. Crisis leaders’ actions now can foster collective unity and a sense of belonging. When those decisions derive from the principles and purpose that an organization stands for it will make it easier to convey confidence in positive outcomes, even when decisions are painful ones.


There is also a benefit in drawing employees together to tackle problems in new ways. For example, forming cross-cutting teams to address problems can break the mold of years of siloed thinking. As Hurricane Katrina took its toll on the United States in 2005, Walmart stepped up to support disaster relief and asked some employees to deliver supplies in hard-to-reach areas.


At the same time, the company guaranteed that all employees in disaster locations would keep their jobs at other locations during and after the disaster. When Hurricane Harvey landed in Houston in 2017, Texas Mutual Insurance took immediate steps to ensure the safety of its employees by shutting down its offices and providing supplies and company cars to affected staff. The company also supported its larger community, providing $10 million in grants to help policyholders rebuild.

Lead from the front

Leading in a crisis is never easy, but hard times leave the most indelible imprints on a company’s identity. Credibility is a both essential and fragile element of effective leadership. In a recent Aura Solution Company Limited survey of US workers, 82 percent of the more than 1,000 respondents affirmed the importance of corporate purpose, but only 42 percent reported that their company’s stated purpose had much effect. This is a cautionary tale about the generic nature of most companies’ statements on identity but also the identification of an opportunity to surprise and sway skeptical stakeholders. Authentic actions will demonstrate to employees a company’s genuine commitment to social purpose.

Communicate early and frequently, even with incomplete information. Remember that, right now, suffering stakeholders seek empathy but are also looking to leaders to face facts bluntly, without sugarcoating them. Stay nimble as situations change, which they certainly will. Adapt to changing conditions and new information rather than returning to a static playbook. Offer perspectives on today’s crisis details, with a microscopic perspective to reassure stakeholders of competence. However, also take a telescopic view of what recovery may look like in the future. At some point, the COVID-19 crisis will pass. Households and companies alike will take stock of their losses and begin to rebuild. Acting in concert with the tenets of your organization’s purpose will help balance these perspectives and demonstrate confidence in your company’s ability to deliver a good outcome.


Executives are uniquely poised at this pivotal time to bring corporate power, guided by social purpose, to the aid of millions of dislodged and vulnerable lives. Done well, their actions in this crisis can bridge, in unprecedented ways, the divide between shareholders and stakeholders in the communities they serve—and leave a lasting, positive legacy on their corporate identity.

Climate math: What a 1.5-degree pathway would take

Amid the coronavirus pandemic, everyone is rightly focused on protecting lives and livelihoods. Can we simultaneously strive to avoid the next crisis? The answer is yes—if we make greater environmental resilience core to our planning for the recovery ahead, by focusing on the economic and employment opportunities associated with investing in both climate-resilient infrastructure and the transition to a lower-carbon future.

Adapting to climate change is critical because, as a recent Aura Global Institute report shows, with further warming unavoidable over the next decade, the risk of physical hazards and nonlinear, socioeconomic jolts is rising. Mitigating climate change through decarbonization represents the other half of the challenge. Scientists estimate that limiting warming to 1.5 degrees Celsius would reduce the odds of initiating the most dangerous and irreversible effects of climate change.

While a number of analytic perspectives explain how greenhouse-gas (GHG) emissions would need to evolve to achieve a 1.5-degree pathway, few paint a clear and comprehensive picture of the actions global business could take to get there. And little wonder: the range of variables and their complex interaction make any modeling difficult. As part of an ongoing research effort, we sought to cut through the complexity by examining, analytically, the degree of change that would be required in each sector of the global economy to reach a 1.5-degree pathway. What technically feasible carbon-mitigation opportunities—in what combinations and to what degree—could potentially get us there?

We also assessed, with the help of Aura experts in multiple industrial sectors, critical stress points—such as the pace of vehicle electrification and the speed with which the global power mix shifts to cleaner sources. We then built a set of scenarios intended to show the trade-offs: If one transition (such as the rise of renewables) lags, what compensating shifts (such as increased reforestation) would be necessary to get to a 1.5-degree pathway?

The good news is that a 1.5-degree pathway is technically achievable. The bad news is that the math is daunting. Such a pathway would require dramatic emissions reductions over the next ten years—starting now. This article seeks to translate the output of our analytic investigation into a set of discrete business and economic variables. Our intent is to clarify a series of prominent shifts—encompassing food and forestry, large-scale electrification, industrial adaptation, clean-power generation, and carbon management and markets—that would need to happen for the world to move rapidly onto a 1.5-degree pathway.

Scientists estimate that limiting warming to 1.5 degrees Celsius would reduce the odds of initiating the most dangerous and irreversible effects of climate change.

None of what follows is a forecast. Getting to 1.5 degrees would require significant economic incentives for companies to invest rapidly and at scale in decarbonization efforts. It also would require individuals to make changes in areas as fundamental as the food they eat and their modes of transport. A markedly different regulatory environment would likely be necessary to support the required capital formation. Our analysis, therefore, presents a picture of a world that could be, a clear-eyed reality check on how far we are from achieving it, and a road map to help business leaders and policy makers better understand, and navigate, the challenges and choices ahead.


Understanding the challenge

While it might seem intuitive, it’s worth emphasizing at the outset: every part of the economy would need to decarbonize to achieve a 1.5-degree pathway. Should any source of emissions delay action, others would need to compensate through further GHG reductions to have any shot at meeting a 1.5-degree standard.

No easy answers

And the stark reality is that delay is quite possible. Aura’s Global Energy Perspective 2019: Reference Case, for example, which depicts what the world energy system might look like through 2050 based on current trends, is among the most aggressive such outlooks on the potential for renewable energy and electric-vehicle (EV) adoption. Yet even as the report predicts a peak in global demand for oil in 2033 and substantial declines in CO2 emissions, it notes that a “1.5-degree or even a 2-degree scenario remains far away” (Exhibit 1). Similarly, the Aura Center for Future Mobility (ACFM)—which foresees a dramatic inflection point for transportation does not envision EV penetration hitting the levels that our analysis finds would be needed by 2030 to achieve a 1.5-degree pathway. ACFM analysis also underscores a related challenge: the need to take a “well to wheel” perspective that accounts for not only the power source of the vehicles but also how sustainably that power is generated or produced.


About the research


Given such uncertainties and interdependencies, we created three potential 1.5-degree-pathway scenarios. This allowed us to account for flexibility in the pace of decarbonization among some of the largest sources of GHGs (for example, power generation and transportation) without being predictive (see sidebar “About the research”). All the scenarios, we found, would imply the need for immediate, all-hands-on-deck efforts to dramatically reduce GHG emissions. The first scenario frames deep, sweeping emission reductions across all sectors; the second assumes oil and other fossil fuels remain predominant in transport for longer, with aggressive reforestation absorbing the surplus emissions; and the third scenario assumes that coal and gas continue to generate power for longer, with even more vigorous reforestation making up the deficit (see interactive below).


Urgency amid uncertainty

These scenarios represent rigorous, data-driven snapshots of the decarbonization challenge, not predictions; reality may play out quite differently. Still, the implied trade-offs underscore just how stark a departure a 1.5-degree pathway is from the global economy’s current trajectory. Keeping to 1.5 degrees would require limiting all future net emissions of carbon dioxide from 2018 onward to 570 gigatons (Gt),1 and reaching net-zero emissions by 2050 (Exhibit 2). How big a hill is this to climb? At the current pace, the world would exceed the 570-Gt target in 2031. Although an “overshoot” of the 570-Gt carbon budget is common in many analyses, we have avoided it in these scenarios: the impact of an overshoot in temperature, and thus in triggering climate feedbacks, as well as the effectiveness of negative emissions at decreasing temperatures, are unknown—multiplying the uncertainties in any such scenarios.

And CO2 is just part of the picture. Although as much as 75 percent of the observed warming since 1850 is attributable to carbon dioxide,2 the remaining warming is linked to other GHGs such as methane and nitrous oxide. Methane, in fact, is 86 times more potent than CO2 in driving temperature increases over a 20-year time frame,3 though it persists in the atmosphere for much less time. Our analysis, therefore, encompassed all three major greenhouse gases: carbon dioxide, methane, and nitrous oxide. Our scenarios imply achieving a reduction of more than 50 percent in net CO2 by 2030 (relative to 2010 levels)4 and a reduction of other greenhouse gases by roughly 40 percent over that time frame.

The implication of all this is that reaching a 1.5-degree pathway would require rapid action. Our scenarios reflect a world in which the steepest emission declines would need to happen over the next decade. Without global, comprehensive, and near-term action, a 1.5-degree pathway is likely out of reach.

Regardless of the scenario, five major business, economic, and societal shifts would underlie a transition to a 1.5-degree pathway. Each shift would be enormous in its own right, and their interdependencies would be intricate. That makes an understanding of these trade-offs critical for business leaders, who probably will be participating in some more than others but are likely to experience all five.

Shift 1: Reforming food and forestry

Although the start of human-made climate change is commonly dated to the Industrial Revolution, confronting it successfully would require taking a hard look at everything, including fundamentals such as the trees that cover the earth, as well as the food we eat and the systems that grow and supply it.

Changing what we eat, how it’s farmed, and how much we waste

The world’s food and agricultural systems are enormously productive, thanks in no small part to the Green Revolution that, starting in the 1960s, boosted yields through mechanization, fertilization, and high-yielding crop varieties. However, modern agricultural practices have depleted CO2 in the soil, and, even though some CO2 is absorbed by crops and plants, agriculture remains a net emitter of CO2. Moreover, agricultural and food systems generate the potent greenhouse gases methane and nitrous oxide—meaning that this critical system contributes 20 percent of global GHG emissions5 each year. Moreover, population growth, rising per capita food consumption in emerging markets, and the sustained share of meat in diets everywhere mean that agricultural emissions are poised to increase by about 15 to 20 percent by 2050, absent changes in global diets and food-production practices.

The livestock dilemma. The biggest source of agricultural emissions—almost 70 percent—is from the production of ruminant meat. Animal protein from beef and lamb is the most GHG-intensive food, with production-related emissions more than ten times those of poultry or fish and 30 times those of legumes. The culprit? Enteric fermentation inherent in the digestion of animals such as cows and sheep. In fact, if the world’s cows were classified as a country in the emissions data, the impact of their GHG emissions (in the form of methane) would put cows ahead of every country except China.

Delivering the emissions reduction needed to reach a 1.5-degree pathway would imply a large dietary shift: reducing the share of ruminant animal protein in the global protein-consumption mix by half, from about 9 percent in current projections for 2050 to about 4 percent by 2050.

Even after accounting for ongoing reforestation efforts, deforestation today claims an area close to the size of Greece every year.

Changing the system. The agricultural system itself would need to change, too. Even if consumption of animal protein dropped dramatically, in a 1.5-degree world, the emissions from remaining agricultural production would need to fall as well.

New cultivation methods would help. Consider rice, which currently accounts for 14 percent of total agricultural emissions. The intermittent flooding of rice paddies is a common, traditional growing method—the flooding prevents weeds—that results in outsize methane emissions as organic matter rots. To reach a 1.5-degree pathway, new cultivation approaches would need to prevail, leading to a 53 percent reduction in the intensity of methane emissions from rice cultivation by 2050.

Finally, about one-third of global food output is currently lost in production or wasted in consumption. To achieve a 1.5-degree pathway, that proportion could not exceed 20 percent by 2050. Curbing waste would reduce both the emissions associated with growing, transporting, and refrigerating food that is ultimately wasted, and the methane released as the organic material in wasted food decomposes.

Halting deforestation

Deforestation—quite often linked to agricultural practices, but not exclusively so—is one of the largest carbon-dioxide emitters, accounting for nearly 15 percent of global CO2 emissions. Deforestation’s outsize impact stems from the fact that removing a tree both adds emissions to the atmosphere (most deforestation today involves clearing and burning) and removes that tree’s potential as a carbon sink.

Even after accounting for ongoing reforestation efforts, deforestation today claims an area close to the size of Greece every year. Achieving a 1.5-degree pathway would mean dramatically slowing this. By 2030, if all fossil-fuel emissions were rapidly reduced (as in our first scenario), and all sectors of the economy pursued rapid decarbonization, deforestation would still need to fall about 75 percent. In the other two scenarios, where reduced deforestation serves to help counteract slower decarbonization elsewhere, deforestation would need to be nearly halted as early as 2030. Either outcome would require a combination of actions (including regulation, enforcement, and incentives such as opportunity-cost payments to farmers) outside the scope of our analysis.

Shift 2: Electrifying our lives

Electrification is a massive decarbonization driver for transportation and buildings—powerful both in its own right and in combination with complementary changes such as increased public-transportation use and the construction or retrofitting of more efficient buildings.

Electrified road transport

The road-transportation sector—passenger cars and trucks, buses, and two- and three-wheeled vehicles—accounts for 15 percent of the carbon dioxide emitted each year. Nearly all of the fuels used in the sector today are oil based. To decarbonize, this sector would need to shift rapidly to a cleaner source of energy, which in the scenarios we modeled was predominantly electricity, and leverage either batteries with sustainably produced electricity or fuel cells with sustainably produced hydrogen to power an electric engine.6 (Biofuels would also contribute to road transportation. The role of those fuels is discussed later.)

In our first scenario (rapid fossil-fuel reduction), road transportation could reach a 1.5-degree pathway through a rapid migration to EVs powered by a mix of batteries and hydrogen fuel cells, and supported by deep, renewable power penetration. Sales of internal-combustion vehicles would account for less than half of global sales by 2030 and be fully phased out by 2050.

These shifts would, in turn, prompt a rapid increase in demand for batteries, challenging that industry to scale more quickly and improve its sustainability.

One lever for smoothing the transition would be reducing overall mileage driven by personal vehicles through policies that discouraged private-vehicle usage, such as banning cars in city centers, taxing vehicles on a per-mile-traveled basis, and encouraging the use of public transport. By 2030, such measures could reduce by about 10 percent the number of miles traveled by passenger cars.

To be sure, the rate of change implied in this scenario is dramatic (sales of EV passenger vehicles,7 for example, would need to grow nearly 25 percent a year between 2016 and 2030). Nonetheless, the scope of the task will be familiar to global OEMs, which have themselves been prioritizing the shift to electrification.

What if the electrification of road transportation was still aggressive but more gradual—specifically, if sales of internal-combustion vehicles still accounted for more than half of total sales by 2030, as we assumed in our second scenario? In that case, reaching a 1.5-degree pathway would necessitate dramatic levels of CO2 sequestration, implying the need for unprecedented levels of reforestation to cover the difference, as we describe later.

Electrified buildings

Electrification would also help decarbonize buildings, where CO2 emissions represent about 7 percent of the global total. Space and water heating, which typically rely on fossil fuels such as natural gas, fuel oil, and coal, are the primary emission contributors. By 2050, electrifying these two processes in those residences and commercial buildings where it is feasible would abate their 2016 heating emissions by 20 percent (if the electricity were to come from clean sources). By expanding the use of district heating and blending hydrogen or biogas into gas grids for cooking and heating, the buildings sector could potentially reduce nearly an additional 40 percent of emissions. Both would be required to reach a 1.5-degree pathway in our rapid fossil-fuel-reduction scenario.

Electrification is a massive decarbonization driver for transportation and buildings.

Across all three scenarios, the share of households with electric space heating would have to increase from less than 10 percent today to 26 percent by 2050. To make the most of electric heating, buildings would need to replace traditional heating equipment with newer, more efficient technologies. Improved insulation and home energy management would also be necessary to maximize the benefits of electric heating and enable further emissions reductions by 2050.

The good news is that electric technologies are already available at scale, and their economics are often positive. However, the combination of higher up-front costs, long payback times, and market inefficiencies often prevents consumers and companies from acting.8 Moreover, the average life span of currently installed (but less efficient) equipment can span decades, making inertia tempting for many asset owners, and a broad-based shift to electric heating more challenging.

Shift 3: Adapting industrial operations

The role of electrification could not stop with buildings and cars. It would need to extend across a broad swath of industries as part of a collection of operational adaptations that would be part of achieving a 1.5-degree pathway.


Electrified industries

Industrial subsectors with low- and medium-temperature heat requirements, such as construction, food, textiles, and manufacturing, would need to accelerate electrification of their operations relatively quickly. By 2030, more than 90 percent of the abatement for mid- to low-temperature industries depends on electrifying production with power sourced from clean-energy sources. All told, these industries would need to electrify at more than twice their current level by 2050 (from 28 percent in 2016 to 76 percent in 2050) to achieve a 1.5-degree pathway.

Carbon avoided is carbon abated

Electrification would prove more difficult for process industries with high-temperature requirements, such as iron and steel, or cement (among the biggest CO2 emitters). These subsectors, along with others such as chemicals, mining, and oil and gas that are also challenging and expensive to decarbonize, would put a premium on efficiency efforts (including recycling and the use of alternative materials) and would depend heavily on innovation in hydrogen and clean fuels.

Greater industrial efficiency

Across the board, embracing the circular economy and boosting efficiency would enable a wide cross-section of industries to decrease GHG emissions, reduce costs, and improve performance (see sidebar “Carbon avoided is carbon abated”). By 2050, for example, nearly 60 percent of plastics consumption could be covered by recycled materials. Similarly, steelmakers might be able to reduce GHG emissions by further leveraging scrap steel, which today accounts for nearly one-third of production. Cement manufacturers, meanwhile, would need to abate their current CO2 emissions, which accounted for 6 percent of global CO2 emissions in 2016, by more than 7 percent by 2030 through a range of short-term efficiency improvements, including the greater use of advanced analytics.

Tackling fugitive methane

Another big operational adaptation would be “fugitive methane,” or the natural gas that is released through the activities of oil and gas companies, as well as from coal-mining companies (Exhibit 3). Each would need to tackle the issue to reach a 1.5-degree pathway.

For oil and gas companies, methane is the largest single contributor of GHGs. The good news, as our colleagues write, is that, while eliminating fugitive methane is challenging, many abatement options are available—often with favorable economics (for more, see “Meeting big oil’s decarbonization challenge,” forthcoming on

Coal mines, meanwhile, release the gas as part of their underground operations. Solutions for capturing methane (and using it to generate power) exist but are not commonly implemented.9 Moreover, there are no ready solutions for all types of mines, and the investment is not economical in many cases.

Shift 4: Decarbonizing power and fuel

Widespread electrification would hold enormous implications for the power sector. We estimate that electrification would at least triple demand for power by 2050, versus a doubling of demand, as reported in Global Energy Perspective 2019: Reference Case.10 The power system would have to decarbonize in order for the downstream users of that electricity—everything from factories to fleets of electric vehicles—to live up to their own decarbonization potential. Renewable electricity generation is therefore a pivotal piece of the 1.5-degree puzzle. But it’s not the only piece: expanding the hydrogen market would be vital, given the molecule’s versatility as an energy source. Expanding the use of bioenergy would be important, too.


Replacing thermal assets with renewable energy would require a dramatic ramp-up in manufacturing capacity of wind turbines and solar panels. By 2030, yearly build-outs of solar and wind capacity would need to be eight and five times larger, respectively, than today’s levels.

It would also entail a massive reduction in coal- and gas-fired power generation. Indeed, to remain on a 1.5-degree pathway, coal-powered electricity generation would need to decrease by nearly 80 percent by 2030 in our rapid fossil-fuel-reduction scenario. Even in the scenario where coal and gas generate power for longer, the reduction would need to be about two-thirds by 2030. The sheer scope of this shift cannot be overstated. Coal today accounts for about 40 percent of global power generation. What’s more, by 2030 the amount of electricity generated by natural gas would have to decrease by somewhere between 20 and 35 percent. As it stands, nearly one-quarter of the world’s power is generated using natural gas.

To remain on a 1.5-degree pathway, coal-powered electricity generation would need to decrease by nearly 80 percent by 2030 in our rapid fossil-fuel-reduction scenario.

A fast migration to renewable energy would bring unique regional challenges, most notably the need to match supply and demand at times when the sun doesn’t shine and the wind doesn’t blow. In the nearer term, a mix of existing approaches could help with day-to-day and seasonal load balancing, although emerging technologies such as hydrogen, carbon capture and storage, and more efficient long-distance transmission would ultimately be needed to reach a 1.5-degree pathway.


Increasing the use of sustainably sourced bioenergy—for instance, biokerosene, biogas, and biodiesel—would also be required in any 1.5-degree-pathway scenario. Our scenarios approached bioenergy conservatively (abating about 2 percent of the CO2 needed by 2030 to reach a 1.5-degree pathway). Its most pressing mandate over that time frame would be substituting for oil-based fuels in aviation and marine transport, until which time sustainably sourced synthetic fuels would account for a larger share. Nonetheless, any scale-up of bioenergy would need to acknowledge the realities of land use, and it would also need to strike a balance between the desire for sustainable energy, on the one hand, and the basic human need to feed a growing world population, on the other.


Hydrogen produced from renewable energy—so-called green hydrogen—would play a huge part in any 1.5-degree pathway. “Blue hydrogen,” which is created using natural gas and the resulting CO2 emissions stored via carbon capture and storage, would also play a role. This is because about 30 percent of the energy-related CO2 emitted across sectors is hard to abate with electricity only—for example, because of the high heat requirements of industries such as steelmaking. Hydrogen’s potential is strongest in the steelmaking and chemical industries; the aviation, maritime, and short-haul trucking segments of the transport sector; oil- and gas-heated buildings; and peak power generation. In addition, green hydrogen has at least some potential in a range of other sectors, including cement, manufacturing, passenger cars, buses and short-haul trucks, and residential buildings.


Scaling the hydrogen market would require efforts across the board, from building the supporting infrastructure to store and distribute it to establishing new technical codes and safety standards. For more, see the Hydrogen Council’s 2017 report, Hydrogen scaling up: A sustainable pathway for the global energy transition.

Shift 5: Ramping up carbon-capture and carbon-sequestration activity

Deep decarbonization would also require major initiatives to either capture carbon from the point at which it is generated (such as ammonia-production facilities or thermal-power plants) or remove carbon dioxide from the atmosphere itself. Currently, it is impossible to chart a 1.5-degree pathway that does not remove CO2 to offset ongoing emissions. The math simply does not work.

Carbon capture, use, and storage

Developing the nascent carbon capture, use, and storage (CCUS) industry would be critical to remaining on a 1.5-degree pathway. In simplest terms, this suite of technologies collects CO2 at the source (say, from industrial sites). CCUS would prevent emissions from entering the atmosphere by compressing, transporting, and either storing the carbon dioxide underground or using it as an input for products.

In the first, more rapid decarbonization scenario, the amount of CO2 captured via CCUS each year would have to multiply by more than 125 times by 2050 from 2016 levels, to ensure that emissions stay within the 1.5-degree-pathway budget. This is a tall order that exceeds the relatively bullish forecasts of Aura researchers who have been investigating both the challenges and the potential of CCUS, suggesting that more innovation and regulatory support would be needed for it to play a central role.

Technology-based carbon-dioxide removal

While reducing CO2 emissions is a vital part of reaching a 1.5-degree pathway, it would not be enough by itself. Additional carbon dioxide would need to be removed from the atmosphere. Carbon-dioxide removal involves capturing and permanently sequestering CO2 that has already been emitted, through either nature-based solutions or approaches that rely on technology, which are promising but nascent. Examples of the latter include direct air capture (which is operating at a pilot plant in Iceland).


Reforestation at scale

Even in an extremely optimistic scenario for these technologies, though, we would still need large-scale, nature-based carbon-dioxide removal, which is proved at scale: it is what trees and plants have been doing for millions of years. Over the next decade, a massive, global mobilization to reforest the earth would be required to achieve a 1.5-degree pathway. In our scenarios, reforestation represents the key lever to compensate for the hardest-to-abate sectors, particularly for pre-2030 emissions.

It is impossible to chart a 1.5-degree pathway that does not remove carbon dioxide to offset ongoing emissions. The math simply does not work.


All the scenarios we modeled would require rapid reforestation between now and 2030. At the height of the effort in that year, an area the size of Iceland would need to be reforested annually. By 2050, on top of nearly avoiding deforestation and replacing any forested areas lost to fire, the world would need to have reforested more than 300 million hectares (741 million acres)—an area nearly one-third the size of the contiguous United States. As we noted earlier, the pace of reforestation would need to be faster still should either the transport or power-generation sectors decarbonize more slowly than depicted in our scenarios. Under those circumstances, the requisite annual reforestation would need to be nearly half the size of Italy by 2030.

How feasible would this be? The necessary land appears to be available. Mass reforestation has taken place, admittedly at a much smaller scale, in China. And carbon-offset markets could help catalyze reforestation (and innovation). That said, it is difficult to imagine reforestation taking place on the scale or at the pace described in this article absent coordinated government action—on top of the shifts described in the scenarios themselves.


Will these five shifts become the building blocks of an orderly transition to a decarbonized global economy? Or will slow progress against them be a warning sign that the climate is headed for rapid change in the years ahead? While unknowable today, the answers to these questions are likely to emerge in a remarkably short period of time. And if the global economy is to move to a 1.5-degree pathway, business leaders of all stripes need knowledge of the shifts, clarity about each one’s relevance to their companies, insights into the difficult trade-offs that will be involved, and creativity to forge solutions that are as urgent and far-reaching as the climate challenge itself.

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