The 2˚ Investing Initiative and the five Katowice signatories, BBVA, BNP Paribas, ING, Société Générale and Standard Chartered, look back on progress over the past year and what’s ahead. Find the full statement below:
As five leading global banks with a combined loan book of over €2.4 trillion – BBVA, BNP Paribas, ING, Société Générale and Standard Chartered – we believe we have a critical role to play in supporting Article 2.1c of the Paris Agreement: “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”
This is why at last year’s COP24 in Katowice, we made a historic commitment: pledging to measure the climate alignment of our lending portfolios, and to explore ways to progressively steer financial flows through our core lending towards the Paris Agreement’s goals.
The Katowice commitment contributed to inspiring the Collective Commitment to Climate Action, signed by 34 banks (representing $13 trillion in loans) willing to commit to aligning their business with the Paris Agreement, as part of the UNEP FI Principles for Responsible Banking, signed by more than 130 banks around the world. Both were announced in September 2019 in New York at the UN Secretary General’s Climate Action Summit.
At the heart of this pledge was the commitment to develop open-source methods and tools for measuring the alignment of our lending portfolios with the Paris Agreement goals, partnering with organizations like the 2˚ Investing Initiative. As part of this commitment, we’re also leading the implementation of these tools to “put the money where our mouth is,” and actually align our portfolios with these goals within the timeframe of the Collective Commitment to Climate Action.
One year on from Katowice, we’re proud to say that we’ve made strong progress on refining these methodologies and tools and improving their application. One of the 2˚ Investing Initiative’s flagship tools, the Paris Agreement Capital Transition Assessment (PACTA) climate scenario analysis methodology, has played a key role in driving these efforts forward.
Open-source, anonymized and IP rights-free, the PACTA methodology calculates the extent to which corporate capital expenditures and industrial assets behind a given equity or bond are aligned with various climate scenarios. Recognizing the potential of this methodology, in 2018 we began working with the 2˚ Investing Initiative to finesse PACTA’s application to corporate lending portfolios. Since then, 12 other major banks from Europe, North and South America have joined with us to help test and further improve the methodology, in a bid to expand its uptake across the banking sector.
Already, this collaboration has shown promising results. PACTA represents a major step forward in climate scenario analysis, by providing banks with insights into the climate impact of their clients’ capital expenditure plans across the seven sectors already in scope (oil & gas, coal, power, automotive, cement, steel, and shipping). It employs a sector-based approach focusing on the economic activity carried out by owned assets of companies, in the most carbon-intensive segments of these value chains (namely: upstream O&G, power generation, car fleet emissions, cement & steel manufacturing, shipping operations). In these, it tackles the alignment of production capacity and emission intensity. PACTA targets shifts in investment of companies from high-carbon to low-carbon technologies, empowering banks to steer towards a positive climate impact.
As more banks test PACTA on their lending portfolios, we expect that this will help improve the methodology and its applicability for piloting credit portfolios. It also provides banks with the opportunity to collaborate and harmonize the method for measuring the Paris alignment of financial products.
After more than a year’s work of intensive work on refining this methodology, in 2020 the finalised IP rights-free, open source software will be released, enabling any bank to carry out the analysis. We hope this development will further drive the ambitious promise we made at Katowice, in turn enabling the global banking industry to ramp up its contributions to the Paris goals.