Since COP21, climate target-setting by investors and banks has evolved into an increasingly popular concept. However, the lack of standardized frameworks and best practices in this field is frustrating efforts to align 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 on impact and target-setting.

The Evidence for Impact Working Group

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 defined as 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 on.
  • 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.
  • 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.

Collaboration with financial industry players to develop new tools & methodologies

In addition to the Evidence for Impact Working Group, 2DII is working with a wide range of financial industry stakeholders to develop and test new methodologies for impact and target-setting.

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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