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In 2016, the Paris Agreement defined the global objective of making financial flows consistent with the commitment to limit global warming to well below 2°C (Art. 2.1c). However, pilot studies suggest that the behaviour of institutional investors around the globe will lead to global warming of well beyond 4°C, resulting in major environmental upheavals.
The Paris Agreement Capital Transition Assessment (PACTA) project helps address this gap, providing policymakers and financial supervisors with the tools they need to align financial flows with the Paris Agreement’s goals.
Since the launch of our online PACTA tool in September 2018, there has been significant uptake, with more than 800 users testing more than 4,500 portfolios as of mid-2019. However, most interest thus far has been concentrated in the US, UK, and other major developed markets, with relatively less knowledge of the tool in emerging markets. To address this issue, with support from the International Climate Initiative (IKI) of the German Environment Ministry, 2°ii launched the PACTA for Emerging Markets project in July 2018. The goal is to help promote the PACTA tool in emerging economies, providing policymakers, regulators, institutional […]
Partnership with the California Department of Insurance
Insurance companies based in California face two increasingly critical types of climate-related risk. The first stems from their exposure to fossil-fuel investments, which are liable to precipitously lose their value as the world shifts to a low-carbon economy. The second stems from the state’s growing vulnerability to the effects of climate change, with natural disasters such as forest fires on the rise.
To help the state raise awareness of and cope with these risks, 2°ii has collaborated with the California Department of Insurance since 2016 to conduct analysis and provide information on climate change-related risks […]
Helping non-state actors set and implement climate change action strategies
Currently, non-state actors (NSAs), particularly companies and financial institutions, have limited ability to assess how their energy- and climate-related commitments will contribute to the goals of the Paris Agreement, and how to set targets that are aligned with these goals. For instance, companies frequently lack visibility on climate strategies and regulations at the sectoral level, which reduces their willingness to invest in low-carbon technologies. Meanwhile, institutional investors lack standard metrics to select companies whose technological mix/emission pathways are best aligned with a 2°C target.
According to the OECD, meeting the 2°C scenario will require $6.9 trillion annual investments in infrastructure until 2030, versus $6.3 trillion annual investments in a business-as-usual scenario. These investments require precise alignment among governments, corporates, and investors.
However, several important factors hinder efforts to channel investments towards low carbon pathways. For instance, governments frequently lack the referential frameworks and tools to develop national climate strategies (national determined contributions, or NDCs) that are consistent with the 2°C scenario. Likewise, corporates often lack visibility on public climate strategy at national sectoral level, which weighs on their conﬁdence in investing in low carbon […]
KR Foundation – WWF Asset Owner Project
Empowering retail investors to divest from fossil fuels
Currently, certain aspects of the European Sustainable Finance Action Plan are not being implemented, particularly when it comes to efforts to respond to retail investors’ non-financial investment objectives.
The Climate Finance Product Scanner for retail investors and banks (KliFin-Scanner) is developing a questionnaire on non-financial objectives for retail investors. The questionnaire will enable retail investors to create an investment profile based on their individual extra-financial objectives. This can then be matched to financial products. The questionnaire and matching software will be integrated in a website available to all retail investors in Germany. It will be open-source and available as a white label solution that can be integrated into banks’ infrastructure. The project run-time is from 1 January 2018 to 30 June 2020.
One of the cornerstones of the Task Force on Climate-Related Financial Disclosures (TCFD), as well as governmental regulations such as Article 173 of France’s Law on Energy Transition for Green Growth, center on the need for financial institutions to disclose climate-related risks. However, many financial institutions continue to apply these recommendations haphazardly, with a wide range in terms of the quality and amount of information provided.
Building on their inaugural edition in 2016 and recent international developments in the field of climate-related reporting, the International Awards for Climate-Related Financial Disclosures offer the opportunity for financial institutions to showcase leading practices, […]
While sustainable finance is a growing field, standards for measuring, reporting, and other frameworks are still in their infancy. Without agreed-upon standards, investing and financing activities related to climate change run the risk of “green-washing,” leaving investors and regulators with little information about the impact of their activities.
ISO (International Standards Organization) Standard 14097 was proposed by the French national standardization body, AFNOR, and approved by ballot in January 2017. The conveners are Stanislas Dupré, CEO of 2°ii, and Massamba Thoiye, Manager of the Sustainable Development Mechanism Program of the UN Framework Convention on Climate Change (UNFCCC). Its objective is […]
One of the key recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) focuses on the need for investors to perform scenario analysis, to understand the risks of different climate-related scenarios on their business. However, this recommendation is not being applied consistently, notably by companies in the energy and transportation sectors.
To raise the consistent implementation of this recommendation, 2°ii launched the Company Reports project in 2019. The project targets companies in the utility and automotive sectors that form part of the Climate Action 100+ (CA100+) target group, an investor initiative to ensure the world’s largest corporate greenhouse […]
Launched in 2018, the Science-Based Targets Initiative for Financial Institutions (SBTI FI) is the first and only initiative in the world developing science-based target setting methodologies, tools, and implementation guidelines for key asset classes covering financial institutions’ main business activities. Targeting banks, pension funds, insurance companies and public financial institutions, the initiative seeks to ensure that the targets set support the transition to a low-carbon economy. As knowledge partner of the initiative, 2°ii is leading the methodology development together with Navigant Consulting. The World Resources Institute (WRI) is the managing partner of the project.
The Japan Energy Transition Initiative (JETI) is a collaboration of global and Japanese knowledge providers dedicated to accelerating the energy transition among business, finance and policy makers in Japan. JETI will address key global climate and energy issues relevant to Japan in a manner that is ahead of the curve and focused on specific outcomes leading to accelerated decarbonisation.
JETI will work with Japanese and global partners to curate cutting edge events and knowledge transfers and facilitate relevant research streams. Its secretariat will be based within the Institute for Global Environmental Strategies (IGES) in Tokyo, will be fully multilingual and supported […]
A key challenge to assessing long-term and climate-related risks involves what Mark Carney, the Governor of the Bank of England, called “the tragedy of the horizon”. Long-term liabilities and assets face a ‘valley of death’ in terms of the time horizons underlying capital allocation decisions in financial markets. As a response, we initiated the ‘Tragedy of the Horizon’ research program to quantify time horizons in the investment chain and elevate long-term risk assessments in financial markets.
The Aiming for Impact project, funded by the KR Foundation and the French Ministry of the Environment (ADEME), centres on the impact of investment-related climate actions. So far, most of these actions have focused on requesting better disclosure of company activities, and are likely to have only marginal impact on investment plans.
In 2016, we launched the SEI Metrics Project, which provides free, open-source portfolio testing for listed equity portfolios. Over the course of the project, more than 200 institutional investors around the world signed up to test their portfolios, including large asset managers, pension funds, insurance companies, banks, and sovereign wealth funds. Since its launch, more than 2,000 portfolios have been tested for 2°C alignment with more than $3 trillion in assets under management.
2016 saw the official launch of the Energy Transition (ET) Risk project , a EUR2.2 million project involving S&P Market Intelligence, S&P Dow Jones Indices, Oxford University, Kepler-Cheuvreux, CO-Firm, I4CE, and the Carbon Tracker Initiative. The project developed a toolbox for energy transition risk assessment – reference scenarios for financial analysis including 2°C scenario analysis, ET risk data, as well as financial models. The project was funded by the European Commission H2020 programme.
The International Award on Investor Climate-related Disclosures (2° Invest Award) is an initiative organized by the French Ministry of Environment, Energy and the Sea, the Ministry of Finance and Economy and the 2° Investing Initiative. The award is designed to enable the fostering of innovation and promotion of existing best-practices in climate disclosure aligned with the requirements of Article 173-VI of the Energy Transition for Green Growth Law. […]
With its Action Plan on Financing Sustainable Growth, the European Commission set the ambitious goal of “reorienting capital flows toward sustainable investment”. This objective seems ideally aligned with the strong momentum of impact-related concerns as […]
Sustainability Improvement Loans: a risk-based approach to changing capital requirements in favor of sustainability outcomes
In the context of the EU Action Plan on Sustainable Finance, the European Commission plans to explore the introduction of a Green Supporting Factor […]
Financing the ‘Clean Billion’: The role of investors and policymakers in solving the climate innovation puzzle
From shifting the trillions to addressing the billions. There is a growing narrative and traction among investors around contributing to financing the transition to a low-carbon economy. While partly motivated by questions around financial risk, […]
This report provides guidelines for building an adverse climate scenario that can be used by financial supervisors as inputs into either traditional or climate-specific stress-tests of regulated entities. The […]
Connecting the dots between climate goals, investment frameworks, and financial policies
The financial sector (institutional investors, banks, and financial service providers) plays a key role in the reallocation of capital in line with 2°C climate goals. We call this mobilization and the related changes in investment frameworks ‘2° investing.’ The role of the financial sector in this mobilization can be mapped as follows:
Supplying investment capital to make the 2° transition happen: Financial institutions and policy makers influence the supply of capital for both ‘green’ and ‘brown’ activities through their decision-making framework
Anticipating changes in the demand of capital: The introduction of more stringent carbon policies, new technologies, and the potential development of climate litigation will change the risk-adjusted returns of different financial assets, creating financial risk and opportunity.
The 2° Investing Initiative [2°ii – pronounced “Two Degrees Investing Initiative”] is a multi-stakeholder think tank working to align the financial sector with 2°C climate goals. Our research and engagement activities seek to:
Align investment processes of financial institutions with 2°C climate scenarios
Develop the metrics and tools to measure the climate performance of financial institutions
Mobilize regulatory and policy incentives to shift capital to energy transition financing
We look forward to starting a conversation with you! You can find all the ways to contact us below:
97 rue La Fayette, 75010 Paris, France
Tel: +33 1 42 81 19 97
Schönhauser Allee 188, 10119 Berlin, Germany
Tel: +49 30 44318588
205 E 42nd Street, New York, NY 10017, USA
40 Bermondsey St, London SE1 3UD, UK
Tel: +44 7492 397120