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September 15, 2020

2° Investing Initiative launches PACTA for Banks, a first-of-its-kind climate scenario analysis toolkit

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2° Investing Initiative (2DII) announces the launch of PACTA for Banks, a free, open-source climate scenario analysis toolkit based on the Paris Agreement Capital Transition Assessment (PACTA) methodology. The methodology, data, and software are available here.

Developed with the input of leading global banks, universities, and NGOs, PACTA for Banks enables users to measure the alignment of their corporate lending portfolios with climate scenarios across key climate-relevant sectors and technologies. It represents a major step forward in climate scenario analysis for lending, by providing banks with insights into the climate alignment of their corporate clients’ capital stock and expenditure plans.

Thanks to the toolkit, banks can get a granular view of the alignment of their corporate loan books by sector and related technologies, at both the corporate client and portfolio level. Banks can use this information to help steer their lending in line with climate scenarios; to inform their decisions around climate target-setting; and to gain insights into their engagement with clients on their respective climate actions. The toolkit can also help banks identify their exposure to transition risks associated with a disruptive shift to a low-carbon economy.

2DII developed PACTA for Banks as a free-of-charge public good, in partnership with and funding from a range of stakeholders across the banking, academic, and NGO sectors. Over the course of the last two years, the toolkit has been road-tested by 17 leading global banks from Europe, North and South America. These include ABN AMRO, Bancolombia, Barclays, BBVA, BNP Paribas, Citi, Credit Suisse, Groupe BPCE, ING, Itaú Unibanco, KBC, Nordea, Santander, Société Générale, Standard Chartered, UBS, and UniCredit. The toolkit has also been reviewed by over a dozen academic institutions and designed with the input of NGOs and industry experts. Contributing institutions include the Center of Economic Research at ETH Zurich and the research network Institut Louis Bachelier.

Next steps:

While the launch of PACTA for Banks represents a significant milestone, this is by no means the end of the research process, and 2DII is committed to continue enhancing the toolkit in collaboration with its research partners. In particular, 2DII’s new partnership with Carbon Tracker Initiative (CTI) will further bolster the capabilities of PACTA for Banks by leveraging CTI’s power, oil and gas methodology. This will provide users with a granular and cost-optimised pathway to decarbonisation and a window into the distribution of assets that fall outside these limits, highlighting the associated financial risks.

Finally, 2DII and its partners will perform additional research on how to set meaningful targets and generate impact in the real economy. 2DII looks forward to continue working with a diverse array of stakeholders as part of this process, and encourages all who are interested to become involved.

More about PACTA:

Developed by 2DII with backing from the UN Principles for Responsible Investment, PACTA enables users to measure the alignment of financial portfolios with climate scenarios and to analyze specific companies. Open-source and IP rights-free, it is also available as an online tool for equities and fixed income portfolios, in addition to the toolkit for lending portfolios.

As of June 2020, PACTA has been used by over 1,500 financial institutions worldwide, as well as by supervisors and central banks to assess their regulated entities (e.g. European Insurance and Occupational Pensions Authority (EIOPA), California Department of Insurance, Bank of England, and more). On average, more than 600 portfolios are tested every month using PACTA.

Access PACTA here

Access PACTA for Banks here.

More about PACTA here.

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Testimonials:

“PACTA for Banks represents a milestone in our efforts to mobilize the banking and financial services sector in the fight against climate change. Freely available for any bank worldwide, it empowers users to measure the alignment of their lending portfolios across key climate-relevant sectors, to inform their decisions around climate target-setting, and to design more sophisticated climate action strategies. We are proud to offer PACTA for Banks as a public good, free of commercial conflicts of interest and developed with input from more than 15 banks and dozens of NGOs, universities, and government institutions worldwide.”

— Maarten Vleeschhouwer, Head of PACTA at 2° Investing Initiative

“BBVA, BNP Paribas, ING, Société Générale and Standard Chartered, all partner banks in favor of climate-aligned finance, congratulate 2DII on the launch of the PACTA for Banks methodology. Months of dedication, honest collaboration and scientific analysis have yielded an open-source toolkit which will provide transparent, comparable results across sector portfolios allowing banks to understand their degree of alignment. With this, 2DII has made a critical step in helping the financial sector to realize its full potential to finance the transition. It has been a pleasure working closely with 2DII towards this goal and we are already benefitting from applying PACTA for Banks: the publication of our PACTA Application Paper is planned for mid-September. We join 2DII in welcoming more peers to take advantage of the advanced tools now at their disposal and start aligning portfolios in line with the goals of the Paris Agreement.”

— The Katowice Banks (BBVA, BNP Paribas, ING, Société Générale and Standard Chartered)

 

“ABN AMRO is committed to contributing to the Paris Agreement goals and started measuring and reporting to enable the steering of portfolios in line with the Paris Agreement. This is why ABN AMRO and 16 other global banks teamed up with 2DII to help road test the PACTA for Banks methodology and notably to assess the energy mix of our portfolio. Now that PACTA for Banks is freely available, we encourage our industry peers to adopt 2DII’s methodology in order to ramp up their contributions to the Paris objectives.”

— Jan Raes, Global Sustainability Advisor, ABN AMRO Bank

“For Bancolombia, sustainability is not isolated from business, is the actual strategy that materializes our purpose of promoting sustainable economic development to achieve everyone’s well-being. In this context, the bank is committed to incorporate climate change as a factor for decision-making, in line with its link to the Business Ambition for 1.5 ° C Campaign, to mitigate global warming. Participating in PACTA will allow access to information and standards that will us to accompany clients in the transition towards a low carbon economy”.

— Juan Carlos Mora, CEO of Bancolombia

“Developing effective climate tools for banks is a key enabler in helping the sector address the challenge of climate change. Santander will continue to work with PACTA and support in the development of approaches to facilitate the transition to a low carbon economy.”

— Lara de Mesa, Head of Responsible Banking, Banco Santander

“PACTA for banks methodology has set a precedent for assessing the climate alignment of corporate lending portfolios. UBS has been using scenario-based approaches since 2014 to assess our exposure to climate change risks. Pilot-testing the PACTA toolkit underscores our commitment to continue working collaboratively to further develop climate risk methodologies.”

— Liselotte Arni, Head of Environmental and Social Risk, UBS

“HSBC is proud to have been involved in beta-testing PACTA for Banks. The toolkit and methodology are an important tool to enable the financial sector to begin aligning its lending portfolio with the Paris Agreement goals.”

— Daniel Klier, Global Head of Sustainable Finance, HSBC

“The PACTA methodology has provided useful insights into the level of climate alignment of our power generation portfolio and helps to build the groundwork for future portfolio simulations that support our strategic planning process. The support from the 2DII team has been instrumental in allowing us to perform the beta test under very ambitious timelines.”

— Michel van den Berg, Sustainability Advisor, Rabobank

 

 

Funding information:

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 LIFE program. The views expressed here are the sole responsibility of the authors and do not necessarily reflect the views of the funders.

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