2° Investing Initiative launches PACTA for Banks, a first-of-its-kind climate scenario analysis toolkit

2° Investing Initiative (2DII) announces the launch of PACTA for Banks, a free, open-source climate scenario analysis toolkit based on the Paris Agreement Capital Transition Assessment (PACTA) methodology. Developed with the input of leading global banks, universities, and NGOs, PACTA for Banks enables users to measure the alignment of their corporate lending portfolios with climate scenarios across key climate-relevant sectors and technologies. It represents a major step forward in climate scenario analysis for lending, by providing banks with insights into the climate alignment of their corporate clients’ capital stock and expenditure plans.

Thanks to the toolkit, banks can get a granular view of the alignment of their corporate loan books by sector and related technologies, at both the corporate client and portfolio level. Banks can use this information to help steer their lending in line with climate scenarios; to inform their decisions around climate target-setting; and to gain insights into their engagement with clients on their respective climate actions. The toolkit can also help banks identify their exposure to transition risks associated with a disruptive shift to a low-carbon economy.

2DII developed PACTA for Banks as a free-of-charge public good, in partnership with and funding from a range of stakeholders across the banking, academic, and NGO sectors. Over the course of the last two years, the toolkit has been road-tested by 17 leading global banks from Europe, North and South America. These include ABN AMRO, Bancolombia, Barclays, BBVA, BNP Paribas, Citi, Credit Suisse, Groupe BPCE, ING, Itaú Unibanco, KBC, Nordea, Santander, Société Générale, Standard Chartered, UBS, and UniCredit. The toolkit has also been reviewed by over a dozen academic institutions and designed with the input of NGOs and industry experts. Contributing institutions include the Center of Economic Research at ETH Zurich and the research network Institut Louis Bachelier.

Next steps

While the launch of PACTA for Banks represents a significant milestone, this is by no means the end of the research process, and 2DII is committed to continue enhancing the toolkit in collaboration with its research partners. In particular, 2DII’s new partnership with Carbon Tracker Initiative (CTI) will further bolster the capabilities of PACTA for Banks by leveraging CTI’s power, oil and gas methodology. This will provide users with a granular and cost-optimised pathway to decarbonisation and a window into the distribution of assets that fall outside these limits, highlighting the associated financial risks.

Finally, 2DII and its partners will perform additional research on how to set meaningful targets and generate impact in the real economy. 2DII looks forward to continue working with a diverse array of stakeholders as part of this process, and encourages all who are interested to become involved.

More about PACTA

Developed by 2DII with backing from the UN Principles for Responsible Investment, PACTA enables users to measure the alignment of financial portfolios with climate scenarios and to analyze specific companies. Open-source and IP rights-free, it is also available as an online tool for equities and fixed income portfolios, in addition to the toolkit for lending portfolios.

As of June 2020, PACTA has been used by over 1,500 financial 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.

The methodology, data, and software are available here.

Photo: 2° Investing Initiative

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