2° Investing Initiative widens climate scenario analysis to bank lending

Think-tank unveils open-source tool based on its Paris Agreement Capital Transition Assessment (PACTA) methodology

2° Investing Initiative (2DII) has launched a climate scenario analysis tool for bank lending books, after a lengthy road test with 17 global financial institutions. 

The move will see the think-tank expand its Paris Agreement Capital Transition Assessment (PACTA) methodology beyond equities and bonds, to offer financial institutions a “granular view of the alignment of their corporate loan books by sector and related technologies, at both the corporate client and portfolio level”.

Sectors covered by the platform include fossil fuel extraction, power generation, automotives and steel & cement. 

It is hoped that banks will use the tool, which is free to use, to help steer their lending towards alignment with Paris-based climate scenarios, set climate targets and engage with clients.  

Over the last two years, it has been trialled by a number of banks including: ABN AMRO, Barclays, BBVA, BNP Paribas, Citi, Credit Suisse, ING, Nordea, Santander, Société Générale, Standard Chartered, UBS and UniCredit. 

2DII said it will partner with Carbon Tracker to develop the tool further, including work on “cost-optimised” decarbonisation pathways for banks. It will also direct its research towards how to set “meaningful targets and generate impact in the real economy”. 

Over 1,500 financial institutions have used 2DII’s PACTA tool since it was launched in 2018, as well as supervisors and central banks, such as the European Insurance and Occupational Pensions Authority (EIOPA), California Department of Insurance and the Bank of England.

Jan Raes, Global Sustainability Advisor at ABN AMRO, said that “now that PACTA for Banks is freely available, we encourage our industry peers to adopt 2DII’s methodology in order to ramp up their contributions to the Paris objectives”.

Last week, NGO Reclaim Finance launched an online tool designed to assess and compare financial institutions coal exclusion policies. It found that just 16 out of 214 financiers assessed had “a robust coal phase-out policy”. Most policies were deemed “too weak” to prevent further growth of the climate-damaging coal sector.

Samu Slotte, Head of Sustainable Finance at Danske Bank, recently told RI that banks had the power to drive clients towards Paris alignment using engagement, backed with the threat of divestment.