Back to search results

Measuring Paris Agreement alignment and financial risk in financial markets

As of: September 2021

The Paris Agreement pursues the goal of aligning global financial flows with global mitigation targets. At the same time, however, investors have been offered few tools for incorporating associated risks into their decision-making. Policymakers have also lacked instruments for measuring the alignment of capital markets with the ‘below 2 °C’ target. The key point of focus for this project is a tool for modelling the risks of realigning the financial system with a low-carbon economy and so making these risks measurable. The tool will be provided free of charge for investments in low-carbon market portfolios in emerging markets and developing economies. Risks for green recovery measures have been integrated into the tool as part of the IKI’s Covid-19 Response Package. Alongside the assessment of investment risks, instruments for political decision-makers will also be developed, which can help in monitoring (towards the ‘global stocktake’) at a national level.

State of implementation/results

  • There are plans to include risks from green recovery activities in the risk-modeling tool to help steer investments toward low-carbon economic activities. Governments as well as NDC Partnership’s Economic Advisors who are funded by the IKI can use the tool.
  • 2DII has developed a number of tools for investors, banks, and supervisory authorities in emerging markets.
Investors:
  • 2DII has updated the PACTA web-based scenario analysis tool, currently hosted at platform.transitionmonitor.com.Reports now offer interactive features through which pop-ups can be accessed, providing more data points than static charts. In addition, drop-down menus that allow customization of the charts have been added.
  • As of early March, the tool has been used by over 4800 individual users from approximately 1000 organizations, of which 2200 individuals work for either an asset manager, pension fund, or insurance company.
Banks:
  • The PACTA tool was launched on 10/11/2020 as a pilot for banks. The toolkit consists of the software, supporting documents (e.g. a methodology document), training materials, and a free data set. About 30 banks have already started using the software.
Supervisory Authorities:
  • 2DII has launched the beta version of the bottom-up climate stress testing tool in collaboration with the European Insurance and Occupational Pensions Authority, the Colombian Financial Supervisory Authority, and the Brazilian Supervisory Authority. The tool is being continuously improved; the application to portfolios of other supervisory authorities as well as the public release are planned by mid-2021.
Ministries:
  • 2DII launched the PACTA 2020 initiative, which supports the governments' pledge to 'assess and monitor climate impacts and the alignment of their financial flows with the Paris Agreement's 1.5 ° C temperature target'. The initiative has now been renamed PACTA COP and offers governments the opportunity to use PACTA's scenario analysis and stress testing tools free of charge. Investors in participating countries can access a special interface at www.transitionmonitor.com/… 2DII has implemented such projects with Switzerland, Austria, and Liechtenstein. Outreach activities to enlist governments in emerging markets are ongoing.

Project data

Country:
Chile, Colombia, Mexico, Singapore

Implementing organisation:
2° Investing Initiative

BMU grant:
3.806.294,00 €

Duration:
07/2018  till  12/2022


Website(s):



  • Twitter
  • Facebook
  • Google+