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19 09, 2019

Progress on the PACTA methodology for corporate lending: ING publishes its first Terra progress report

On September 19, 2019, one of our longstanding partners, ING, published their first progress report on Terra, their approach to steer its €600 billion lending book in line with the goals of the Paris Agreement to keep global warming to well-below two degrees. As ING put it: “With the Terra approach, ING aims to be a positive force in the fight against climate change. The progress report presents ING’s pathway towards climate alignment in the sectors most responsible for climate change and is intended to be published every year.

The disclosure addresses developments and climate alignment for the sectors: power generation, fossil fuels, automotive, shipping, aviation, steel, cement, residential mortgages and commercial real estate. These are the sectors in ING’s portfolio that are most responsible for greenhouse gas emissions. In a Climate Alignment Dashboard (CAD) the report presents which sectors are on track for climate alignment and where work is still in progress. This climate change disclosure is a first for banks.”

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16 09, 2019

17 international banks now piloting the 2° Investing Initiative’s flagship climate scenario analysis methodology

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.

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15 09, 2019

Event: Bridging the Gap – from Portfolio Alignment to Impact

The 2° Investing Initiative is delighted to invite you to:
BRIDGING THE GAP:
FROM PORTFOLIO ALIGNMENT TO IMPACT

Technical discussion on evidence-based and impact-oriented targets

When? September 24th 2019 – from 9am to 12pm
Where? ING Financial District office
1133 Avenue of the Americas, 9th Floor New York, NY 10036

2° Investing Initiative will bring together experts from the banking sector to discuss ways to build understanding of impact-oriented climate commitments. The audience will be invited to participate in a debate on the technical challenges to applying these target-setting and tracking concepts for banks and review a way forward.

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27 08, 2019

Climate Tools Workshop, Sept. 9, 2019: Aligning Climate Targets, Pledges and Actions of Financial Institutions and Corporations with the Paris Agreement

2° Investing Initiative and Beyond Ratings, with support from the Institut Louis Bachelier, are delighted to invite you to:

Climate Tools Workshop: Aligning Climate Targets, Pledges and Actions of Financial Institutions and Corporations with the Paris Agreement 

When? 9 September 2019 from 5.00pm to 7.00pm
Where? Palais Brongniart 16 place de la Bourse 75002 Paris

2° Investing Initiative will bring together asset owners, asset managers and technical experts to discuss ways to foster interaction between investors and companies, develop a more comprehensive understanding of their needs for climate-related tools, as well as showcase and gather feedback on existing and emerging tools.

Since COP21, climate alignment target-setting by investors and banks has evolved into a popular concept accepted by mainstream financial institutions and governments.

However, until now, target-setting has mostly been seen by large financial institutions as a way to measure changes in the climate assessment of their portfolio by improving the value of the underlying indicator to communicate on progress, rather than one to drive impact in the real economy.

In order to drive actual impact but also to comply with marketing regulations, it is critical to establish market standards on:

What is a relevant target from a technical perspective? (discussion on current target frameworks)
How to evaluate investment and impact opportunities triggered by the Paris Agreement objectives?
How to measure and report progress toward climate targets?How to implement a climate strategy and what existing tools can support investors’ actions?

A number of our own ongoing initiatives are related to those issues, notably the following:

  • The creation of a comprehensive PACTA climate toolkit with new functionalities such as a target-setting simulator, company reports consultation module, stress testing excel tool
  • The development of a model to identify investment opportunities arising under a 2°C carbon budget in partnership with Beyond Ratings, now part of the Information Services Division (ISD) of London Stock Exchange Group (LSEG).

Why attend ?

  • Learn from industry experts on existing and emerging climate-related tools
  • Hear from investors and corporates on how these tools are shaping their actions
  • Influence the development of emerging tools and methodologies for measuring the impact of climate actions

Programme

16h50 – 17h: Welcome
17h – 17h20: Introduction: Shifting the economy toward the objectives of the Paris Agreement
17h20 – 17h50: Support technology pathways assessment within the Financial sector: Presentation of the methodology & concept, functionalities and case study
17h50 – 18h10: Q&A and roundtable discussion
18h10 – 18h40: Setting decarbonisation targets for Institutional Investors: Deep dive into PACTA target setting module, methodology and concept
18h40 – 19h: Q&A and roundtable discussion

The workshop will be followed by an hour of networking drinks organized at Chai Brongniart 33 Place de la Bourse, 75002 Paris.

Speakers

Simon Messenger, France and UK Director, 2°investing Initiative
Rodolphe Bocquet, CEO, Beyond Ratings
Emeric Nicolas, Head of Data Science and Systems, Beyond Ratings
Emmeline Stein, Analyst, 2° Investing Initiative

To register, please email comms [at] 2degrees-investing.org

This project has received funding from the European Union’s H2020 programme under grant agreement 785087

 

7 08, 2019

Now launched: the Bank of England stress test on TransitionMonitor.com

In August, the 2° Investing Initiative officially launched the Bank of England climate insurance stress-testing tool on the Paris Agreement Capital Transition Assessment (PACTA) website. The tool uses the breakdown of exposure to different climate-relevant sectors to calculate the effects of climate stress on the portfolio’s value. UK insurance companies, as well as investors outside of the UK interested in understanding their performance under the UK stress test, can now go online to run a free, anonymised stress test. Users will be able to generate the stress test results in combination with a freely available Excel tool and the online PACTA scenario analysis software.

The tool further builds on our “Storm Ahead stress test scenario report (January 2019), which provides guidelines for integrating scenario analysis into stress tests of regulated entities.

Background

On June 18th, 2019, the Bank of England Prudential Regulation Authority launched its biennial insurance stress test, asking the biggest regulated life and general insurers to provide information about the impact of a range of stress tests on their business. The stress test also includes an exploratory exercise related to climate change, which looks into potential impacts to firms’ liabilities and investments stemming from physical and transition risks. The 2° Investing Initiative has been supporting the Bank of England with designing the climate-related aspects of the stress test.

More about PACTA

The PACTA climate change scenario analysis tool was launched in September 2018 with support from the UN Principles for Responsible Investment (UNPRI), a UN-backed investor body, and California Insurance Commissioner Dave Jones. The tool builds on a previous version that has been used by more than 250 investors, many of whom are PRI signatories, as well as four regulators, including the Dutch Central Bank, the Swiss financial regulator, and the California Insurance Commission.

The tool analyses exposure to climate-change related risks in equity and fixed-income portfolios over multiple scenarios, producing a customized, confidential output report. It has an interactive feature that allows the user to study the effects of different parameters on alignment, for example by modifying the scenarios and geographies of the analysis. It also uses graphs to help investors to see the gap between their existing portfolio and 2˚ benchmarks.

The tool is housed on TransitionMonitor.com, which includes a number of other tools, all open source and IP rights-free. These include the PACTA methodology for corporate lending portfolios as well as a target-setting module designed to help set science-based targets for financial portfolios (slated for late 2019).

The PACTA project has received funding from the European Union’s Life NGO programme under grant agreement No LIFE16 GIC/FR/00061 PACTA.

19 06, 2019

Impact washing gets a free ride

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 to financial products among retail investors and numerous financial institutions. Concurrently, the evolution of several financial regulations at the EU level appears to support this movement. In this context, however, the recent EU Ecolabel Technical Report issued by the EC’s JRC has raised serious concerns as to its consistency with such trends. This papers shows that the approach developed in the Ecolabels Report is technically inaccurate, as it is based on flawed assumptions regarding impact in the context of finance, and does not comply with the EU’s own regulations as regards to Ecolabels. As such, the proposed approach appears to be a dead end, generating potential financial and legal risks, especially from a consumer protection perspective, and undermining the overall environmental objectives of the EU. This paper suggests an alternate approach, consistent with the state of scientific research and compliant with existing rules on the Ecolabel and consumer protection, which centers on implementing an Environmental Management System to design and execute the investment strategy.

Full text

13 06, 2019

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 (GSF) under capital requirement frameworks, that would incentivize banks to lend to ‘green’ activities. This takes capital requirement frameworks away from their risk-based origins and this move is widely contested, including by many financial supervisors. This paper suggests an alternative pathway that satisfies both the objective of aligning capital requirements as a way to shift capital towards sustainability, while preserving their core role of supporting risk management in the financial system and avoiding the drawbacks of a GSF. The paper introduces the concept of Sustainability Improvement Loans (SILs), which could merit lower capital charges as they are lower risk. We define SILs and how they could incentivize sustainability practices and reduce risk. The potential pathway to policy application and its estimated effects on banks’ capital and profitability is then discussed, as well as the extent to which the policy is aligned with the financial stability prerogative of financial supervisors.

Full Report

13 06, 2019

A new year gift from the 2° Investing Initiative Copy

Dear Friends and members of the 2° Investing Initiative,

We are launching a new excel-based tool that will allow financial institutions to define scenario-based targets for their portfolio allocation and engagement actions.

Financial institutions using the tool simply have to input their current portfolio exposure – sourcing data from the PACTA website or any data provider in the market – to figure out where their portfolio should be headed to align with the goals of the Paris Agreement. The goal of the tool is to support financial institutions in understanding science-based climate targets under the PACTA model and to apply them using a data provider and data inputs of their choice, independent of the PACTA online tool (Link).

As always, look forward to your comments, feedback, and questions.

Wishing you all the best for 2019 from the entire 2° Investing Initiative team.

3 04, 2019

Announcement: 2° Investing Initiative is now a GRESB industry partner

We are delighted to announce that 2° Investing Initiative just became a GRESB industry partner and now belongs to the GRESB Strategic Alliance Partnership!

In the scope of our collaboration with Beyond Ratings, we are currently developing a platform for national climate technology and investment transition pathways. This model will cover 10 sectors, including Real Estate*, and will fill an essential market gap in providing, at a country level, sectoral technology pathways consistent with 2°C scenarios. Such technology road maps respond to the existing market demand of governments and investors and support corporate needs to better grasp how they can plan technological investments with regards to climate performance.

When looking for industry partners in the Real Estate sector, we identified GRESB as a leader for sustainability-related data, and connection between our two organisations was natural in terms of mission alignment on sustainability and climate topics. We are looking forward to our collaboration with GRESB in the next months!

* Other sectors already covered in the 2°ii database include: Coal production, Oil&Gas production, Power generation, Aviation, Cement, Shipping, Steel, Automotive, Agriculture (ongoing)

7 03, 2019

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 narrative is driving a number of commitments around investing in the low-carbon economy. This narrative has focused equally on divesting from high-carbon assets and on mobilizing the “clean trillion”.

Largely missing from the debate, however, has been the role of investors in financing and scaling new zero carbon innovation technologies. Such investment in innovation requires much lower overall levels of financing – billions rather than trillions.

This report addresses the missing role of investors and policymakers in this debate, and how they can contribute to solving the climate innovation puzzle.

Full Report