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In this project 2ii collaborates with banks to extend the existing 2°C scenario analysis framework to corporate lending portfolios including a road-test with participating banks of the methodology developed in the course of the project.
The project offical titled as”KliFin-Scanner” (Climate finance product scanner for retail investors and banks) aims to develop a non-financial objectives questionaire for retail investors. This quesitonare will allow retail investors to create their individual non-financial objectives investment profile, which can then be matched to financial products. The questionaire and the corresponding matching software will be integrated in a free-to-use information website available to all retail investors in Germany. They will open-source and be available as white label solution for integratino in bank own infrastructe. The project runtime is 01.01.2018 – 30.06. 2020.
The project Aiming for Impact funded by the KR Foundation and the French environmental agency ADEME puts the impact of investment-related climate actions on the agenda. So far, most actions focus on requesting better disclosure of company activities, and are likely to have only marginal impacts on investment plans.
2016 saw the official launch of the SEI Metrics Projects providing a free and open-source portfolio test for listed equity portfolios. Over 200 institutional investors around the world have signed up to test their portfolios, including large asset managers, pension funds, insurance companies, banks, and sovereign wealth funds. Since its launch, over 2,000 portfolios have been tested for 2°C alignment with over $3 trillion in assets under management.
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 have 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.
2016 saw the official launch of the Energy Transition Risk project (ET Risk), 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 seeks to develop the toolbox of energy transition risk assessment – reference scenarios for financial analysis including a 2°C scenario analysis, ET risk data, as well as financial models. The project is funded by the European Commission H2020 programme.
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May 2018: This new discussion paper aims to pave the way for the development of a framework for assessing and moving forward the “contribution of green bonds to scaling up the investments in green projects”. The paper focuses on the case of ‘Use-of-Proceeds Green Bonds’ (UoP GB) that represent 95% of the market in 2016. It discusses the link between
increasing investment in UoP-GB on the one hand, and the growth of investments in green projects by issuers on the other hand, suggesting how this approach can be enhanced to achieve further impact.
May 2018: Our new working paper “The bigger picture” shows that under optimistic assumptions around breakthrough technologies, oil demand could drop by 50% in only 22 years. A combination of shared economy, 3D printing, autonomous vehicles, nanotechnologies, and artificial intelligence, among others, could shave around 30 million barrels per day off of global oil demand. Once you add the ‘traditional’ assumptions around the effects of electric vehicles and the end of oil in the power sector, oil demand could drop to 47 million barrels per day by 2040.
The paper builds on a comprehensive literature review of the potential effects of breakthrough technologies, building on the optimistic assumptions founds in academic literature, as well as research by industry experts (McKinsey). Squarely in the realm of the possible, the analysis represents an alternative vision of what an oil demand crash could look like if technology disruption materializes. Our objective in this paper is not to forecast, but rather to show where optimistic technology assumptions lead the oil sector, providing the potential basis for alternative stress-testing frameworks for fossil fuels.
April 2018: In the context of mobilising policy actions with regard to sustainable finance, the European Parliament and Commission are considering introducing a Green Supporting Factor (GSF) or Brown Penalty (BP) for capital reserve requirements. The objective of this working paper is to identify the potential impacts of introducing a GSF or a Brown Penalty.
Feb. 2018: Testing the Japanese listed equity market alignment with the 2°C climate goal – Energy technology diversification assessment relative to the IEA 2°C scenario
On 28 February, 2018, the 2° Investing Initiative (2°ii) released a report analysing the alignment of the Japanese stock market with the Paris Agreement on climate change, in partnership with Professor Jusen Asuka of Tohoku University, Dr. Michiyo Morisawa, Director of the CDP Japan office and Head of PRI Japan, Pr. Yoshihiro Fujii, Representative Director of Research Institute for Environmental Finance (RIEF), and the Institute for Global Environmental Strategies (IGES). Based on a comparison of the Tokyo Stock Price Index (TOPIX) with the International Energy Agency (IEA) 2°C scenario, the Japanese listed companies of the TOPIX appear to be globally misaligned with the 2°C climate goal. It means that investors exposed to the TOPIX index are, so far, not in line with the commitment of the Japanese Government to keep global warming well below the +2°C limit. These results call for investors to define more informed investment strategies towards decarbonization, and for policy makers to better incentivize the financial sector so that it can contribute effectively to the fight against climate change.
Jan 2018: An overview of the current state of the household credit market. We argue that household credit has so far been an overlooked topic in climate finance. While there are some tentative steps from early movers to assess the climate impact of various types of household credit much potential remains to be unlocked.