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PACTA / Climate Scenario Analysis Program

The Paris Agreement Capital Transition Assessment (PACTA) is a free, open-source methodology and tool, which measures financial portfolios' alignment with various climate scenarios consistent with the Paris Agreement.

Launched in 2018, PACTA was developed by 2º Investing Initiative (2DII) with a wide range of partners, including the UN Principles for Responsible Investment, University of Zurich, and Frankfurt School of Finance. Thus far, PACTA has been used by over 4,500 individuals from over 3,000 institutions worldwide, as well as by supervisors and central banks to assess their regulated entities (e.g. European Insurance and Occupational Pensions Authority (EIOPA), California Department of Insurance, Bank of England, and more). On average, more than 600 portfolios are tested every month using PACTA, for a total of over 18,000 tests so far.

Access the online version of tool here: TransitionMonitor.com.

How it works

PACTA compares what needs to happen in climate-relevant sectors in order to minimize global temperature rises, with financial institutions’ exposure to companies in these sectors. It employs a dynamic, forward-looking approach, based on the 5-year production plans of companies to which a portfolio is exposed.

The methodology measures alignment per sector or per technology, because what needs to happen to meet the goals of Paris Agreement varies by sector. Some sectors need to move more quickly than others; some sectors need to reform (e.g. power generation); and others need to phase out (e.g. fossil fuels).

The climate-relevant sectors currently covered by PACTA are power, coal mining, oil & gas upstream sectors, auto manufacturing, cement, steel, and aviation, with the shipping industry to be added soon. Collectively, these sectors account for about 75% of global greenhouse gas emissions.

A critical feature of PACTA is that it relies on global physical asset-level data as the core analytical concept, which provides granular, regional, sector-specific, forward-looking production pathways that can be compared with various scenarios.

The core alignment functionality is complemented by a stress-testing module for investors that measures various climate scenarios’ influence on asset prices. 2DII is also developing a stress-testing module for banks, which will be available by late 2021.

2DII has developed two tools to help apply the methodology:

  • PACTA for Investors, an online interactive tool for investors and others to apply PACTA to their equity and corporate bond portfolios.
  • PACTA for Banks, a stand-alone software package and toolkit that enables banks to apply PACTA to their loan books. As part of this, 2DII and Asset Resolution provide the underlying company production forecast data for free.

Both tools can be used by governments and supervisors to assess their regulated entities’ alignment with climate benchmarks. In addition to enabling users to measure the alignment of their portfolios, PACTA helps investors implement the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), as well as comply with related regulations (Article 173 of France’s Law on Energy Transition for Green Growth, upcoming EU disclosure requirements, and more).

Governance

In June 2021, 2DII launched an expert-led, multisector Advisory Group to advise on new governance for PACTA. As PACTA’s community of users and capacities has expanded, 2DII is keen to address key governance, operational, and conceptual questions in collaboration with a diverse array of climate finance specialists. The Advisory Group’s main mission will be to propose a long-term governance framework, which in turn will help ensure the methodology’s scientific integrity and independence; promote co-ownership of the open-source methodology by its stakeholders; and contribute to the harmonization of the growing number of climate alignment concepts and methodological choices.

To find out more about the PACTA Advisory Group, see here.

Financial institutions using the tool
3,000+
Countries represented among users
90+
Securities covered in the database
30,000+
Companies included in the database
40,000+

PACTA for investment portfolios

  • More than 3,000 financial institutions have used the tool to analyze their portfolios
  • Users from 90+ countries
  • A climate-related financial database covering:
    • 30,000+ securities
    • 40,000+ companies
    • 230,000+ energy-related physical assets

PACTA for regulators and supervisors

PACTA for corporate lending

  • Available on TransitionMonitor.com as a free, open-source toolkit since September 2020
  • Developed with the input of NGOs, universities, as well as 17 major international banks: the five Katowice Pledge banks (BBVA, BNP Paribas, ING, Société Générale, Standard Chartered), ABN Amro, Bancolombia, Barclays, Groupe BPCE, Citi, Credit Suisse, Itaú Unibanco, KBC, Nordea, Santander, UBS, and Unicredit

Note on the funders: The PACTA tool has received funding from the European Union’s Life programme under LIFE Action grant No. GIC/FR/00061 PACTA. It has also received support from the International Climate Initiative (IKI). The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) supports this initiative on the basis of a decision adopted by the German Bundestag.

This work reflects only the author’s view and the funders are not responsible for any use that may be made of the information it contains.

 

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