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Since COP21, climate target-setting by investors and banks has evolved into an increasingly popular concept embraced by a number of financial institutions and governments. However, the lack of standardized frameworks and best practices in this field is emerging as a major obstacle to the alignment of global financial flows with the Paris Agreement goals.

In order to address this issue, the 2° Investing Initiative has been working closely with stakeholders to develop improved methodologies for impact measurement and target-setting.

Notably, 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 based on two key premises: first, that the impact of financial institutions should be measured according to the change that they bring about in the behaviour of economic actors (households, companies). And second, that a high standard of evidence is needed in order to identify and quantify impact. The Working Group is in the process of co-developing three key deliverables:

  • A Climate Action Guide designed to help financial institutions understand the real-world implications of committing to different climate actions, as well as opportunities to coordinate these actions across existing and potential initiatives (e.g. Principles for Responsible Banking, etc.). The first users of the Climate Action Guide will be the 161 financial institutions participating this year in the Swiss government-convened PACTA climate compatibility test, with planned roll-out to additional stakeholders later this year.
  • A Climate Action Repository, which will allow financial institutions to submit climate actions, to track their implementation, and to evaluate their long-term impact on the real economy.
  • 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.

Collaboration with banking industry and other players

In addition to the Evidence for Impact Working Group, since 2018 2DII has worked with the “Katowice Banks” (BBVA, BNP Paribas, ING, Société Générale, and Standard Chartered) to develop new target-setting frameworks and action toolkits for the banking industry. The Katowice Banks have since been joined by 12 others, together representing approximately 20% of the top 100 global banks in terms of AuM, to road test PACTA for Banks.

Additionally, since its launch in late 2018, more than 1,500 global financial institutions and dozens of financial regulators and supervisors have used the PACTA methodology for investment portfolios, which measures portfolios’ alignment with the Paris Agreement goals and helps investors set new targets.

Funders’ information: Our target-setting research is supported, among others, by the InvECAT project, which has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 785087.

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