About the PACTA 2020 Initative
Ahead of the UN Climate Action Summit 2019, the governments of Switzerland and the Netherlands presented a new initiative to measure and align financial flows with the Paris Agreement’s 1.5°C goal.
Under the terms of the pledge, participating governments and financial institutions will use the PACTA methodology devised by 2° Investing Initiative to compare their investments and financing with climate benchmarks.
The first assessments started in early 2020 and involve the governments of Austria, Denmark, Italy, Luxembourg, Norway, Portugal, Spain, and Sweden, in addition to Switzerland and the Netherlands. Private financial institutions, their industry representatives, public financial institutions, and supervisory authorities can also voluntarily participate. The expanded model will later be made available for asset managers and banks, in addition to Swiss pension funds and insurance companies.
Background: 2DII’s 2017 collaboration with the Swiss Federal Office for the Environment
This initiative is based on a successful pilot project that 2DII ran in partnership with the Swiss government. In 2017, the Federal Office for the Environment and the State Secretariat for International Finance invited pension funds and insurance companies to use the PACTA methodology to test the climate compatibility of their investments. 79 pension funds and insurance companies, representing about two-thirds of the total market as measured by assets under management, used the PACTA methodology to test their portfolios for climate compatibility. Following the exercise, 40% of participants said that the analysis triggered climate-related actions.
Thanks to the success of this engagement, Switzerland and the Netherlands joined forces to launch the 2020 PACTA initiative to measure and align financial flows with the Paris Agreement’s 1.5°C goal.
For more information on the 2017 assessment, see our report: “Out of the fog: Quantifying the alignment of Swiss pension funds and insurances with the Paris agreement.”
Results of the PACTA 2020 climate compatibility test in Switzerland now online
The country-level report published in partnership with the Swiss Federal Office for Environment: "Bridging the Gap: Measuring Progress on the Climate Goal Alignment and Climate Actions of Swiss Financial Institutions".
The full report is available here.
Participating institutions can access their individual results following the link below.
Over 4,000 portfolios from 179 financial institutions representing roughly 80% of the market have been assessed in a first-of-its kind study of the Swiss financial sector’s alignment with climate goals. The analysis of over CHF 3 trillion in financial assets shows progress on alignment with climate goals, but major gaps remain.
Critically, the assessment showed that the Swiss financial sector’s consideration of climate issues has increased demonstrably since the 2017 study, resulting in:
- Measurable improvement in terms of climate compatibility across a number of key sectors, notably gas on the high-carbon end and electric vehicles on the low-carbon end, both of which are now aligned with the IEA Sustainable Development Scenario;
- A dramatic increase in climate actions, such as shareholder engagement, with over 40% of recorded actions taking place in the past 18 months. Financial institutions that participated in the 2017 pilot led the way, with more than 50% saying they had taken action based on the results of that assessment.
- Strong progress in mainstreaming this topic: 69% of participants had defined a climate target or aspiration for at least one asset class; 65% were part of at last one sustainability initiative; and around 20% of portfolios submitted were labeled as ESG.
But despite improvements from 2017, the 2020 assessment shows that overall, Swiss financial markets are still not aligned with the Paris Agreement goals:
- In spite of increased deployment of new “green” technologies, the retirement of high-carbon technologies like coal power capacity is still far too slow to achieve the 1.5° or even 2°C goal;
- In terms of climate actions, portfolio analysis of financial institutions with coal exclusion policies showed that more than 50% of their listed equity and more than 70% of their corporate bond portfolios still contained coal assets;
- The delta between reduction in portfolio emissions and real-world impact may be widening. While the aggregate exposure to coal power in the listed equity portfolio of financial institutions participating in both 2017 and 2020 decreased by around 15-20%, the underlying investment of companies in coal power led to a nearly 50% increase in installed capacity. These findings highlight the benefit of tracking progress over time and distinguishing portfolio vs. real-world impact.
PACTA 2020 Participant Platform
PACTA 2020 Platform
Briefing for Investors
For more information about the initiative, please refer to the briefing document available below in English, French, and German.
Participation for Banks
Initially, the scope of the PACTA 2020 assessments focused on investment portfolios. Later, 2DII and several European banks collaborated to develop a framework to evaluate banks' loan books using the PACTA methodology.
As a result, banks have also been invited to join the PACTA 2020 initiative.
For more information about how banks can participate in the initiative, please contact email@example.com.