New joint initiative presented by Switzerland & the Netherlands, with technical support from the 2° Investing Initiative, at the UN Climate Action Summit
Despite progress in recent years, the finance sector is still falling short of what’s needed to address climate change. To help bridge this gap, Switzerland and the Netherlands are calling on Member States and financial institutions to sign on to a new pledge to assess and monitor the climate impact and alignment of their financial flows with the Paris Agreement’s 1.5°C temperature goal.
The 2° Investing Initiative is providing key support to this pledge, notably via the Paris Agreement Capital Transition Assessment (PACTA) climate scenario analysis methodology. Free and open-source, the PACTA methodology analyses exposure to climate change-related sectors in equity and fixed-income portfolios over multiple scenarios – and compares it with scenarios needed for a climate-safe transition. More than 1,500 financial institutions worldwide have already applied the methodology on over $10 trillion in assets under management.
How the pledge works
Governments (national or sub-national), including some of the world’s biggest financial hubs, and financial institutions will commit to monitor their climate impact and their alignment with the 1.5°C temperature goal.
As well as Switzerland and the Netherlands, Denmark, Italy, Luxembourg, Norway, Portugal, Spain, and Sweden have agreed to commit, with additional interest from other major finance hubs. Private financial institutions, their industry representatives, public financial institutions, and supervisory authorities can also voluntarily commit to take action. Going forward, progress will be tracked to ensure the commitments made will result in climate impact in the real economy.
More on 2°ii’s contributions: the enhanced PACTA methodology
Committed governments and financial institutions will enjoy a number of free benefits, including the chance to participate in testing the enhanced version of the PACTA methodology in 2020. This version builds on our earlier, voluntary pilot project with Swiss pension funds and insurance companies in 2017. It also incorporates new insights from our partnership with ING and 16 other banks to test a methodology for corporate lending.
The enhanced version of the model will offer:
- The consideration of climate actions in addition to portfolio exposure;
- The ability to consider corporate loans’ climate goal alignment, and therefore make the test available for banks with global loan books;
- A target-setting framework to be finalized in 2020;
- A new tool to measure climate alignment of Swiss real estate and mortgage portfolios.
To learn more about the PACTA methodology and the internationally coordinated PACTA-Initiative 2020, supporting the Swiss/NL Initiative, please see www.transitionmonitor.com or contact transitionmonitor at theiafinance.wpengine.com