It has been nearly one year since 2° Investing Initiative launched PACTA for Banks, a free, open-source climate scenario analysis toolkit that enables users to measure the alignment of their corporate lending portfolios with various climate scenarios. Now, 2DII is proud to announce a number of enhancements: new scenarios, data, and software updates as well as the inclusion of aviation. New research areas have also been identified. Find out more below, as well as information on upcoming webinars and training opportunities.

New sector:

Aviation. Users will now be able to measure the alignment of their corporate loan exposures to airline companies against climate change scenarios. To achieve this, 2DII worked with the data provider, Asset Resolution, to develop an emission factor model for the airline industry, which has in turn been reviewed by the Katowice Banks. This open-source model and free data will allow the user to determine CO2 emissions per passenger kilometer for each passenger airline company and to set climate scenario alignment targets based on PACTA’s Emission Intensity metric for the sector (a convergence metric based on the Sectoral Decarbonisation Approach).

The following sectors are already included since the first release of the toolkit: Power Generation, Fossil Fuels, Light-Duty Vehicles, Cement and Steel.

Further details on these sectoral updates can be found here.

New scenarios:

PACTA for Banks now includes additional climate change scenarios against which to benchmark your climate scenario alignment. This includes the following scenarios:

• IEA’s World Energy Outlook (IEA-WEO-2020): Available for Power and Fossil Fuels sectors.
• IEA’s Net Zero (IEA-NZ-2021): Available for Power, Fossil Fuel, Automotive LDV
• Institute for Sustainable Futures Net Zero (ISF-NZ-2020) Available for: Power, Fossil Fuels, Steel, Cement, Aviation. This scenario was developed by ISF on request of the Net Zero Asset Owners Alliance (NZAOA)

More information on climate change scenarios and the differences among them are available here. The scenario input files can be found here.

New data:

Together with our data partner Asset Resolution, we’re excited to announce the release of the Q4 2020 PACTA for Banks data set, which is freely available to any bank wishing to run PACTA.

In addition to updated data, the new set contains:

• New sector: Aviation
• Unique identifiers:
  • Legal Entity Identifiers (LEIs) have been included where available. This will aid users in matching their loan book to the asset-level data set.
  • Asset Resolution IDs (AR_ID). This ID is unique to the companies contained in the free bank’s data set. This will allow banks that have already undergone the matching process to update their data whilst preserving previous matches.

The data is available upon acceptance of the terms and conditions here.

New software:

2DII is happy to announce the release of the new package r2dii.plot, which allows you to visualize PACTA results. It generates plots for the volume trajectory, technology mix, and emission intensity metrics.

PACTA for Banks Software Updates:

2DII offers PACTA users a free suite of open-source R software packages to implement the PACTA for Banks. This includes:

• r2dii.data – Dummy data set to practice implementing PACTA
• r2dii.match – Algorithm to match an asset-level data set to a bank’s loan book
• r2dii.analysis – Functions to implement the PACTA alignment methodology
• r2dii.plot – Tools to visualize PACTA results (NEW)

Since the launch of the free PACTA for Banks Software in September 2020, there have also been several updates to the open-source R code packages. A full list of updates per package is available via the following links:

• r2dii.data 
• r2dii.match
• r2dii.analysis

Further research & opportunities:

PACTA for Banks is an open-source, iterative methodology, developed with input from numerous partners in the financial, academic and NGO sectors. As such, we rely on input from the PACTA community of users to ensure its continuous enhancement, and we are keen to work with you on future upgrades to PACTA for Banks.

Currently, 2DII has identified four key areas of further research:

• The role of emission intensities for sectors with technology pathways: PACTA measures alignment in sectors with clearly defined technology pathways, such as power and automotive, using the volume trajectory and technology mix metrics. These metrics focus on your exposure to technologies in those sectors, given the need to shift from high-carbon to low-carbon technologies. Only for sectors without clearly defined technology pathways does PACTA use emission intensities per unit of output (e.g.tCO2/ tonne of steel). Key open questions are: Is there value in including emission intensities calculations also for sectors with technology pathways? Would this be beneficial in terms of measuring alignment, setting targets, or communicating on PACTA results? What methods should be used to measure alignment and set targets?
• Comparing results year on year: As banks are starting to analyze their loan books for a second or even third time, there is an open question of how to interpret and compare their results year on year. By comparing PACTA results year by year, users can begin to benchmark their climate alignment improvement and start to better understand the alignment outcome of the actions they have taken. However, a different balance sheet composition may lead to different targets, and proper consideration needs to be given to the question of rebaselining boundaries and recalculating targets. Furthermore, due to PACTA’s bottom-up, asset-level approach to measuring alignment, we can also begin to track changes in the real economy. This will help to assess whether the actions taken by banks are affecting emissions in the real economy and whether they are based on real or virtual changes in corporate assets.
• Measuring alignment of project finance: Project finance has an important role to play in the transition to the low carbon economy and is a significant part of banks’ balance sheets. Improvements in data quality have opened the door to explore this topic in more detail, but questions still remain as to the methodological implications of measuring alignment of project finance exposures, and how these exposures can be allocated across loan books.
• Additional fossil fuel industry metrics: Currently, alignment in the fossil fuel industry is measured using the volume trajectory and partially using the technology mix metrics. The Katowice Pledge Banks in their PACTA application paper have already hinted at additional metrics that could be used, such as a financing trend. Moreover, with various fossil fuel companies transitioning into the renewable energy technology, power generation and biofuels sectors, metrics like Total Primary Energy Demand, which could show these transitions, might be of interest in measuring alignment. Finally, in light of the IEA’s new net-zero scenario, it is clear that no new fossil fuel production assets can be built as of 2022, which may also be used as a reference point in measuring alignment. All of these factors lead 2DII to believe there is value in building out and including additional fossil fuel metrics in the PACTA for Banks methodology.

If you are interested in funding any of the above research areas, co-writing funding proposals, or directly contributing to the analytical work, please register your interest by emailing banks@2degrees-investing.org.

PACTA for Banks: Uptake & case studies

Since last year’s launch, over 60 banks have requested access to the free PACTA for Banks data set, including banks from 6 continents. In addition, four global central banks have requested access to the free PACTA for Banks data set, and 2DII is actively working with the Dutch Central Bank to implement the methodology on the aggregated loan book of their supervised entities. PACTA was recently cited in the EBA’s Report “On Management and Supervision of ESG Risks for Credit Institutions and Investment Firms”.

A number of banks have also cited PACTA in their sustainability reports, including:

• ING 2020 Terra Progress Report
• Standard Chartered 2020 TCFD report
• Morgan Stanley 2020 TCFD report
• ABN Amro report (2020), “Guiding a bank’s energy portfolio to Paris”
• ABN Amro report (2021), “Guiding a Bank’s Portfolio to Paris”
• KBC 2020 Sustainability Report
• Nedbank 2020 TCFD Report

Upcoming events:

PACTA for Banks Training Webinar 3: “Analysis and visualization” 

• Date: TBC in September
• Agenda: 2DII will present the r2dii.analysis and r2dii.plot software packages, including practical examples

Questions? Comments? Want to get involved?

Please email banks@2degrees-investing.org.

About our funders: This project is part of the International Climate Initiative (IKI). The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) supports this initiative on the basis of a decision adopted by the German Bundestag. This project has also received funding from the European Union’s LIFE program under grant agreement LIFE18IPC/FR/000010 A.F.F.A.P.

Disclaimer: The views expressed in this work are the sole responsibility of the authors and do not necessarily reflect the views of the funders. The funders are not responsible for any use that may be made of the information it contains.