Measuring Paris Agreement alignment and financial risk in financial markets - Internationale Climate Initiative (IKI)
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Measuring Paris Agreement alignment and financial risk in financial markets

As of: June 2020

Objective and activities

The project responds to the Paris Agreement objective of aligning financial flows with global climate objectives by developing and disseminating 2°C assessment frameworks to at least 100 financial institutions with investments in partner countries and developing an open source framework that can be adopted by other actors. The project will  allow policymakers to measure the 2°C alignment of their capital markets and have access to a reporting framework for domestic market investors. In partnership with investment consultancy Mercer, it complements this 2°C assessment framework by further developing the Mercer climate risk assessment tool. The tool and dissemination activities developed in the course of the project will create the infrastructure to allow investors to measure 2°C alignment for free in partner countries and access climate risk assessments at a low cost, with at least 40 partner country risk assessments offered for free in the project and 100 2°C tests.

State of implementation/results

  • 2DII has developed a range of tools for investors, banks and regulators in emerging markets.
  • Investors:

    • 2DII has updated the online scenario analysis tool PACTA, which is currently hosted at tool.transitionmonitor.com/… The update included a data update (data from December 2018) as well as new functions for adapting the analysis and visualizing the analysis results.
    • A total of 780 investors had used the tool by the beginning of March. Of these, 37 of these investors are either located in emerging markets or have offices in emerging countries that have used the tool. At least 66 investors in industrialized countries evaluated portfolios with investment activities in emerging markets.

    Banks:

    • The PACTA tool as a pilot for banks is now reaching its final phases. At the end of May, 2DII will publish the method documentation, the software and the related documentation for its application, as well as the input databases required for its application. Around 45 banks have already expressed interest in using this tool.

    Regulators:

    • 2DII has developed a second version of the bottom-up tool for climate stress tests (the first version is available at www.transitionmonitor.com/… The tool is now being tested and applied in partnership with two supervisory authorities; the European Insurance and Occupational Pensions Authority and the Colombian Financial Superintendence. Ongoing improvements to the tool and its application to portfolios of other supervisory authorities are currently planned until the end of 2020.

    Ministries:

    • 2DII has launched the PACTA 2020 initiative, which supports governments’ pledge to “assess and monitor the climate impact and the alignment of their financial flows with the 1.5°C temperature goal of the Paris Agreement”. Around nine European governments have now signed up to this pledge. Outreach activities to recruit governments in emerging markets are ongoing. The PACTA 2020 initiative offers governments the possibility to apply the PACTA scenario analysis and stress testing tools for free. Investors in each participating country can access a dedicated interface at www.transitionmonitor.com/…

    Project data

    Country:
    Brazil, Chile, Colombia, Mexico, Singapore

    Implementing organisation:
    2° Investing Initiative

    BMU grant:
    2.806.403,00 €

    Duration:
    07/2018  till  06/2021


    Website(s):



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