The overall long-term targeted impacts of the PACTA project can be summarised by two key objectives:
- Paris Agreement Art. 2.1c monitoring & reporting. The project seeks to develop a framework used by governments to measure, monitor, and respond to the alignment of financial markets with climate goals. This framework can eventually form part of the UNFCCC stock-take, inform national dialogue around policies, support potential policy adjustments, and allow governments to develop voluntary ‘soft law’ and mandatory ‘hard law’ regulatory frameworks that help to mobilize non-state actors in contributing to and aligning with the Paris Agreement.
- Financial supervision of transition risks. The project seeks to equip financial supervisory authorities with the tools to measure and monitor financial risks in capital markets associated with the transition to a low-carbon economy. The ultimate goal is to reduce both the information asymmetry associated with climate policies and associated market trends between private sector actors and policymakers, ensure a stable and smooth transition to a low-carbon economy that does not disrupt financial markets, and to improve the efficient intermediation of capital in a way that prices correctly long-term risks and by extension reduces the costs of the transition.
Launch of the PACTA tool
As part of the project, we officially launched the online PACTA tool in September 2018, with the support from the Principles for Responsible Investment (PRI) and California Insurance Commissioner Dave Jones. The free online tool analyses exposure to transition risks in equity and fixed income portfolios over multiple scenarios. It allows investors to see the gap between their existing portfolio and two-degree benchmarks. An earlier version has been used by over 250 investors – many of whom are PRI signatories – and four regulators, including the Swiss financial regulator and the California Insurance Commission. You can find the tool here.