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We align financial markets with climate goals

The 2° Investing Initiative (2DII) is an independent, non-profit think tank working to align financial markets and regulations with the Paris Agreement goals. Globally focused with offices in Paris, New York, Berlin, London, and Brussels, 2DII coordinates some of the world’s largest research projects on climate metrics in financial markets. 2DII is also active in Brazil, Chile, Colombia, Japan, Malaysia, Mexico, Nigeria, Peru, the Philippines, and South Korea, among others, notably through the work of its Emerging Markets Program.

Research programs

PACTA / Climate Scenario Analysis

One of the long-term objectives of the Paris Agreement is making finance consistent with climate goals. PACTA aims to help financial institutions, supervisors, and governments contribute to this objective by providing them with insights into the extent to which their portfolios are aligned – or misaligned – with the Paris Agreement goals. This, in turn, helps them figure out how to steer their investment and lending portfolios towards a ‘greener’ pathway. Already, more than 3,000 financial institutions worldwide have used PACTA, in addition to major supervisors and central banks (EIOPA, California Department of Insurance, Bank of England, and more).

Retail Investing & Consumer Protection

2DII’s Retail Investing Research Program aims to empower consumers to achieve their sustainable investment objectives and to give financial advisors the tools they need to properly advise them. To accomplish this, in 2019 2DII launched a wide-ranging program that spans market research, policy analysis, legal research, and consumer surveys. Our research also aims to support the European Commission’s new series of reforms on this topic, such as requirements for financial advisors to take clients’ non-financial investment objectives into account.

1in1000 Program on Future Risks & Challenges

1in1000 is a new research program by 2DII to help financial institutions and supervisors address future risks and challenges. The program aims to integrate risks posed by climate change, ecosystem service & biodiversity loss, and the breakdown of social cohesion into financial processes and regulations. It focuses on developing long-term risk metrics, designing risk management tools & frameworks, and building capacity for financial institutions and supervisors. Find out more at www.1in1000.com.

Impact

Since COP21, climate target-setting by investors and banks has evolved into an increasingly popular concept. However, the lack of standardized frameworks and best practices in this field is emerging as a major obstacle to the alignment of global financial flows with the Paris Agreement goals. In order to address this issue, 2° Investing Initiative is working closely with financial institutions, policymakers, and other stakeholders across the sustainable finance sector in order to develop improved methodologies on impact and target-setting.

Emerging Markets

Countries in Latin America and many other emerging markets rank among the most vulnerable to climate change, as they are highly exposed to both physical risks and transition risks associated with the shift to a low-carbon economy. However, efforts to understand and respond to these risks are still in their early stages. To help address this issue, since 2018, 2DII has been expanding its work in emerging markets with an initial focus on Latin America. Our activities in the region aim to help investors, banks, supervisory authorities, regulators, and governments integrate climate change considerations into their activities, with a special focus on portfolio analysis. Thus far, 2DII has worked with financial institutions, supervisors, and regulators in Brazil, Chile, Colombia, Malaysia, Mexico, Nigeria, Peru, and the Philippines, among others.

New Developments

This program focuses on identifying and incubating new research areas, in order to maintain 2° Investing Initiative’s focus on cutting-edge developments in sustainable finance. It builds on 2DII’s numerous research innovations, including the development of the PACTA climate scenario analysis methodology, the expansion of the methodology to the banking sector, and the incubation of Asset Resolution, a data solutions spinoff. The program will help ensure that all of 2DII’s work is based on the most recent scientific advances in the field.

Our values

Non-commercial & committed to the public good
We have no commercial contracts and provide all of our research open source and IP rights-free. This policy minimizes financial conflicts of interest and guarantees the public good-driven nature of our work.

Independent and interest-neutral
Our governance and our funding structure is designed to be diversified and multi-stakeholder. This helps ensure that our research does not represent a particular interest group, but rather our best understanding of the truth.

Science- and evidence-based
We continuously aim to expand and improve the evidence base for decision-making in sustainable finance.

Our impact

One of the three long-term objectives of the Paris Agreement is “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development” (Article 2.1c). At the 2° Investing Initiative, we work to align financial markets and regulations with these goals. Nearly 10 years after our founding in 2012, many of the core concepts we devised have become integrated into market practices, as well as being placed on the regulatory agenda in the EU and beyond. Find an overview of some of our key impact below.

Putting climate issues on the financial policy agenda

2DII helped draft the preliminary version of France’s groundbreaking Article 173, which was part of France’s 2015 “Energy Transition for Green Growth” law. Even before the Task Force on Climate-Related Financial Disclosures (TCFD) issued its recommendations, Article 173 marked the first time that climate change reporting requirements were imposed on institutional investors. In addition to this law, 2DII has also contributed to the European Commission’s first report on sustainable finance and the High-Level Expert Group recommendations on disclosures, supervisors and retail investors.

Coining the concept of aligning financial portfolios with climate goals

With the launch of the Paris Agreement Capital Transition Assessment (PACTA) climate scenario analysis methodology, 2DII coined the concept of aligning portfolios with climate benchmarks. PACTA has since been used by more than 3,000 financial institutions around the globe with more than 600 portfolio alignment analyses conducted on a monthly basis. The concept of aligning financial portfolios with climate objectives has also been embedded in EU regulations and the Task Force on Climate-Related Financial Disclosures (TCFD).

Introducing climate scenario analysis and stress-testing into regulatory practices

In addition to its uptake by the financial industry, 2DII has also helped introduce climate scenario analysis and stress-testing into regulatory practices, through high-level collaborations with more than 10 governments and financial supervisors around the globe. These include the Bank of England, European Insurance & Occupational Pensions Authority (EIOPA), Japan Financial Services Agency, California Department of Insurance, Colombian Financial Superintendence, and more. In addition, 2DII is working with a number of European governments, including Switzerland, Austria, Norway, the Netherlands and more, to measure the alignment of their financial industries with climate benchmarks at a national level. Finally, through the work of its Emerging Markets program, 2DII is collaborating with government institutions across Latin America, Africa and Southeast Asia on capacity building, climate scenario analysis and risk management issues.

Empowering consumers to align their investments with their environmental convictions

As part of its Retail Investing Program, in 2020 2DII launched the first non-commercial resource platform for sustainably minded retail investors, MeinFairMögen (MyFairMoney), with over 30,000 unique visitors in the first 6 months since launch. The site acts as an independent, unbiased source for retail investors and financial advisors alike, comprising educational materials, a fund database rated by ESG criteria, and a suitability questionnaire. Beginning in 2021, this platform will be duplicated in 10 other European countries. It forms a core part of 2DII’s efforts to leverage retail investors’ convictions – and savings – to shift financial flows towards more sustainable activities.

Helping financial institutions develop science-based climate action strategies

To date, there is still limited understanding of how financial industry actions can contribute directly to impact – GHG emissions reductions – in the real economy. 2DII’s Evidence for Impact Program is addressing this knowledge gap, by developing free, open-source tools such as a Climate Impact Management System to guide FIs in setting up science-based climate contribution strategies; a Climate Action Guide, summarizing currently available knowledge regarding actions that financial institutions can deploy to contribute to emissions reductions in the real world; and more. In parallel, in 2020 2DII launched the Evidence for Impact Working Group, in collaboration with 30 leading financial institutions, 10 NGOs and academic institutions, to develop, test, and propose new solutions for the financial industry to contribute to the energy transition.

Annual reports