The goal of this program is to measure the alignment of the entire financial sector as well as the individual participating institutions. The outcome can be used by governments, supervisors, and participating FIs to inform their climate finance strategies.
Already, 2DII has helped to run the assessments in Switzerland and Liechtenstein. Additional governments and supervisors, including in Austria, Luxembourg, Netherlands, and Norway are set to do the same over the course of 2021. The assessment is also expected to be deployed in France with Finance for Tomorrow as part of Finance ClimAct, an initiative to help implement the EU Sustainable Finance Action Plan.
How it works
Governments, supervisors, and industry associations who have signed onto PACTA COP act as hosts of the coordinated assessments, inviting relevant financial institutions and associations to participate in the analysis on a voluntary basis. Participants then upload their equity and corporate bond portfolios to a dedicated, secure, and confidential platform, which in turn delivers individual climate alignment results with anonymized peer comparisons. Loan book portfolios are analyzed by the participating banks themselves. As part of this process, the participating financial institutions are also asked to respond to a qualitative survey on climate-related investment strategies, in order to capture other initiatives in greening their investments. 2DII also offers participants access to a new stress-testing module to help measure their exposure to transition risks.
As a last step, the host government, supervisor, or industry association receives an aggregate-level report containing the results for the entire participating financial sector. The report provides a unique overview of financial institutions’ exposure to key climate-relevant sectors and their alignment with the Paris Agreement goals, aggregated by peer group. All reports, including the aggregated results and the individual reports for the participating institutions, are confidential, and there is no obligation whatsoever to publish any information. It is the decision of the government to publish the meta results and the individual participants to publish their individual results.
PACTA COP builds off a successful pilot project that 2DII ran in partnership with the Swiss government. In 2017, the Federal Office for the Environment and the State Secretariat for International Finance invited pension funds and insurance companies to use the PACTA methodology to test the climate compatibility of their investments. 79 pension funds and insurance companies, representing about two-thirds of the total market as measured by assets under management, took part in the exercise. Afterwards, 40% of participants said that the analysis triggered climate-related actions.
Thanks to the success of this engagement, in September 2019, Switzerland and the Netherlands joined forces to launch an initiative to measure and align financial flows with the Paris Agreement’s 1.5°C goal. Under the terms of the initiative, various participating governments agreed to use 2° Investing Initiative’s PACTA methodology to compare investments and financing of their financial sectors with climate benchmarks.
In February 2021, acknowledging the long-term importance of these kinds of regular national assessments, the program was rebranded to “PACTA COP.”
For more information or questions related to this project, please e-mail: pactacop[at]2degrees-investing.org.
Results thus far:
Liechtenstein (2020): “Assessing the Alignment of the Liechtenstein Financial Sector with the Paris Agreement”
Austria (2020): Publication scheduled for 2021