The engagement represents a major step forward in the banking sector’s contributions to measuring climate alignment
Ahead of New York Climate Week 2019, the 2° Investing Initiative (2°ii) is delighted to announce the international banks that are road testing the Paris Agreement Capital Transition Assessment (PACTA) methodology for climate scenario analysis of corporate lending portfolios.
What is it?
The methodology, as well as the metrics supporting the analysis, allows banks to study the alignment of their corporate lending portfolios with 2°C benchmarks. It represents a major step forward in climate scenario analysis, by providing banks with insights into the climate impact of their clients’ capital expenditure plans across the seven sectors the methodology covers (oil & gas, coal, power, automotive, cement, steel, and shipping). By closely examining the gaps between their lending portfolios and climate benchmarks, banks can also in time leverage the methodology for other uses, including reporting and steering towards a positive climate impact.
Timeline
Since the initial launch of the PACTA methodology for climate scenario analysis in September 2018, which we co-developed with ING, in February 2019 we began working with an initial pilot group of 17 international banks that will be road testing the methodology over the course of one year. Following the end of the pilot phase in Q1 2020, the finalised IP rights-free, open source software will be released, enabling any bank to carry out the analysis entirely autonomously.
Objectives
Our engagement with these banks represents a significant development in our efforts to help measure lending portfolios against climate goals – and eventually, to help assess if the methodology could become more broadly used in the banking industry.
The following banks are among the pilot members:
- ABN Amro
- Bancolombia
- Barclays
- BBVA
- BNP Paribas
- Groupe BPCE
- Citi
- Credit Suisse
- ING
- Itaú Unibanco
- KBC
- Nordea
- Santander
- Société Générale
- Standard Chartered
- UBS
- UniCredit
More about the PACTA methodology
Banks have a major role to play in the fight against climate change, above all through their financing – the capital they provide to fund their customers’ activities.
The PACTA methodology can be used to inform these discussions, because it can enable banks to direct their lending towards financing the transition to a low-carbon economy. It concentrates on the technology changes that companies need to make in order to be aligned with a chosen climate scenario.
By applying the PACTA methodology for corporate lending, we can thus understand companies’ current production levels and their disclosed plans to change this balance over time with what transition pathways prescribe for different sectors in order to reach the below-2°C goal.
Why the pilot group matters
The pilot group members are part of a community of practice: sharing their experiences with each other and collaborating to help develop an industry-wide climate scenario analysis approach. Such an approach would help to significantly increase transparency and therefore, collective efforts to fight against climate change.
2°ii, together with the pilot group members, are continuing to speak with other banks, consultants, and additional stakeholders to encourage them to road test the methodology, provide us with their feedback, and help further contribute to these efforts. Because the methodology will be open source and IP rights-free, all of the pilot group members and other stakeholders will be able to continue progressing independently, even after the end of the road-testing phase.
Jakob Thomae, managing director at the 2° Investing Initiative, said: “One year on from the beginning of our official kick-off with ING, we are delighted that 16 other international banks have joined their ranks, helping us road-test this cutting-edge methodology. The methodology is the first of its kind, helping banks align their lending models with climate scenarios. We hope that in the future, more banks will join this community of practice, eventually helping to transform the methodology into a leading industry standard.”
