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Emerging Markets Program

Countries in Latin America and many other emerging markets rank among the most vulnerable to climate change, with exposure to both physical risks (floods, droughts, etc.) and transition risks associated with the shift to a low-carbon economy.

However, efforts to understand and respond to these risks are still in their early stages.

To help address this issue, since 2018, 2° Investing Initiative has been expanding its work in emerging markets with an initial focus on Latin America. Our activities in the region aim to help investors, banks, supervisory authorities, regulators, and governments integrate climate change considerations into their activities, with a special focus on portfolio analysis.

Key workstreams of the program include:

Capacity building

Workshops and other engagement activities together with our partners: UN Environment Program Finance Initiative (UNEP-FI), WWF Singapore, Inter-American Development Bank (IDB), UN Principles for Responsible Investment (UNPRI), the Mexican Green Finance Committee (CCFV in Spanish), and the Asia Sustainable Finance Initiative (ASFI).

Portfolio assessment partnerships

Application of the PACTA scenario analysis and climate stress testing tools in partnership with four industry associations and two supervisors in Latin America. Partners include:

  • Colombian Insurers Federation (FASECOLDA)
    • Portfolio size: USD 14.941 billion
    • Number of investors: 34
  • Mexican Association of Financial Intermediaries (AMIB)
    • Portfolio size: USD 92.947 billion
    • Number of investors: 29
  • Colombian Financial Superintendence (SFC) – Analysis of pension funds
    • Portfolio size: USD 89.426 billion
    • Number of investors: 4
  • Colombian Trust Association (ASOFIDUCIARIAS)
    • Portfolio size: USD 7.279 billion
    • Number of investors: 11
  • Mexican Pension Funds Association (AMAFORE)
    • Portfolio size: USD 189.531 billion
    • Number of investors: 10
  • Brazilian Superintendence of Complementary Welfare (PREVIC)
    • Portfolio size: USD 180.050 billion
    • Number of investors: 299

Research

Development of new methodologies and research literature to address the specific needs of emerging markets stakeholders. Most recently, we published two new reports on the use of climate scenario analysis by financial institutions in Latin America. Together, the reports provide critical evidence to policy makers, supervisory authorities, investors, and banks on the need to quantify, manage, and disclose climate-related risks.

Transition Risk Assessment of Latin American Financial Institutions and the use of Scenario Analysis

  • The first report focuses on the five largest financial markets in the region (Argentina, Brazil, Chile, Colombia, & Mexico). Using the PACTA climate scenario analysis methodology and proxy metrics, the report highlights the extent to which both banks and investors could be potentially exposed to transition risks.

Gauging the Exposure to Transition Risks of Colombian Insurers’ Investment Portfolios through the Use of Climate Scenario Analysis

  • Written in partnership with FASECOLDA, the second report uses the PACTA methodology to analyze the Colombian insurance sector’s listed equity and corporate bond portfolios (total AuM: US$14.9 billion). In 2021, 2DII will continue its partnership with FASECOLDA, to monitor progress and to apply a stress-testing tool that will help model the losses associated with transition risks.

 

Funding information: This program receives funding from the International Climate Initiative of the German Ministry of Environment and the Inter-American Development Bank.