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Since COP21, climate target-setting by investors and banks has evolved into an increasingly popular concept.

However, there has been limited focus to this date on understanding how these kinds of initiatives will contribute to impact – that is, greenhouse gas emissions reductions – in the real economy.

The central objective of the Impact Program is to address this issue, by assisting FIs in setting climate strategies designed to contribute to the Paris Agreement goals. We are taking a two-pronged approach to achieving this objective.

First, we are developing a Climate Impact Management System to guide FIs in setting up science-based climate contribution strategies. A preliminary version of this report is currently available for consultation here.

Second, we are building new tools to assist FIs in applying the Climate Impact Management System. These tools will assist FIs in not only identifying companies that are critical from a climate perspective and should thus be targeted, but also in understanding what actions can be undertaken to influence these investees toward sustainability. We are focusing on three main tools:

  • A Climate Action Guide, which is an interactive guide summarizing currently available knowledge regarding actions that financial institutions can deploy to contribute to emissions reductions in the real world. It allows FIs to explore all actions applicable to their type of institution and asset of interest and maps each action to “levels of evidence”, reflecting the current proofs of effectiveness associated with the action in the academic literature. A variety of additional information is also provided for each action, such as relevant initiatives or articles, names of professionals that can help in implementing the action, etc. The Guide is available here: https://platform.transitionmonitor.com/climate-action-guide#/start
  • A Climate Action Planning Template to systematically record climate actions and contribute to building scientific evidence of their impact on emissions reductions in the real economy. The objective here is to upgrade the state of evidence regarding the real world impact of climate actions, with the ultimate goal of being able to identify causality between a given financial institution’s action and the related changes in the real economy.
  • A Climate Action Tracker, which will allow financial institutions to submit climate actions, to track their implementation, and to evaluate their long-term impact on the real economy.

Collaboration with financial industry players

In March 2020, 2DII launched the Evidence for Impact Working Group, in collaboration with 30 leading financial institutions, 10 NGOs and academic institutions, and with funding from the European Commission and the Swiss government, among others. The Working Group is closely involved in the development and testing of the deliverables listed above.

In addition to the Evidence for Impact Working Group, 2DII is working with a wide range of financial industry stakeholders to develop the above-mentioned frameworks and tools.

Since 2018, for instance, 2DII has worked closely with the “Katowice Pledge Banks” (BBVA, BNP Paribas, ING, Société Générale, and Standard Chartered) to develop new target-setting frameworks and action toolkits for the banking industry. Notably, 2DII collaborated with the Katowice Banks and 12 others to road test PACTA for Banks, a first-of-its-kind climate scenario analysis toolkit. Since its launch in late 2018, more than 1,500 global financial institutions and dozens of financial supervisors have used the PACTA methodology for investment portfolios, which measures portfolios’ alignment with the Paris Agreement goals and helps investors set new targets.

2DII is also working on these issues with a network of French financial institutions established as part of Finance ClimAct, a five-year project to help implement the EU Sustainable Finance Action Plan. Operationally, 2DII is working with the French Ecological Transition Agency (ADEME) to support French financial institutions in adopting climate targets and decarbonization plans as laid out under Article 173. 2DII will also work with interested financial institutions to road-test the tools developed as part of the Evidence for Impact work.

Funders’ information: Our target-setting research is co-funded by the European Union’s Horizon 2020 research and innovation programme under grant agreement No 785087.

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