Methodology & Supporting Materials
The PACTA for Banks Methodology allows users to perform climate scenario analysis on corporate lending portfolios. It consists of three core components: physical asset-level data, financial exposures, and climate scenarios. The PACTA methodology relies on an assessment of physical assets (such as steel or power plants) linked to financial assets (such as loans, bonds, and shares) and the alignment of these assets with climate scenarios.
While 2DII can provide for scenario input and asset-level data, the methodology is a stand-alone methodology. Any climate change scenario or asset level data (ALD) set could be used to implement the methodology, provided the ALD and scenarios use the indicators on which the methodology is built.
The methodology document presented here is broken down into 3 sections:
- Section 1 explains the methodology and the underlying rationale in more detail. It describes the output metrics and discusses the required inputs. Additionally, it details the scope of the methodology. Finally, it discusses different options for allocating the macro carbon budgets (scenarios) to micro-economic actors (portfolios/clients) and for allocating the physical asset-level data to financial instruments such as loans.
- Section 2 provides the mathematical formalization behind the metrics.
- Section 3 concludes with a breakdown of the sectors, including sector overviews, the metrics used, and data inputted.
This is a publicly available, “living” methodology, meaning that we are constantly exploring ways to improve it and expand its scope.
Users wishing to contribute to this process are encouraged to contact 2DII via firstname.lastname@example.org.
PACTA for Banks Supporting Documents
2DII has provided a series of documents and additional resources for banks to use as part of the PACTA for Banks Toolkit:
Formatted Scenarios: 2DII has prepared a series of climate change scenarios to be used in conjunction with the PACTA for Banks Software. These scenarios range from business-as-usual to better than Paris-aligned. A document introducing climate change scenarios and detailing the methodology that 2DII has used to derive these scenarios from the raw underlying data, provided by third party scenario providers, is provided.
- Scenario Supporting document
- CO2 Intensity Scenario File (2020) for Steel Cement.csv
- Scenario File (2020) Fossil Fuel Power and Auto
Steel Asset Level Emission Model: This document details the methodology behind the steel emission intensities used in the PACTA for Banks Free Data Set.
Cement Asset Level Emission Model: This document details the methodology behind the cement emission intensities used in the PACTA for Banks Free Data Set.
Disclosure and Communication Guidelines: 2DII will highlight some examples of good practice when it comes to disclosing PACTA results. In addition to this, a list of methodological parameters will be presented.
Credit Portfolio Alignment: An application of the PACTA methodology by Katowice Banks in partnership with 2DII
At the 2018 COP24 in Katowice, five international banks - BBVA, BNP Paribas, ING, Société Générale and Standard Chartered - publicly pledged to develop an open-source methodology to progressively steer (or ‘align’) their lending portfolios with the goals of the Paris Agreement.
Since 2018, in addition to undertaking individual efforts, the Katowice Banks as a group has worked collectively with the 2° Investing Initiative to contribute to the development of PACTA for Banks. This document provides an overview of the application of the PACTA methodology and the options viewed as most useful by the Katowice Banks.
This project is part of the International Climate Initiative (IKI). The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) supports this initiative on the basis of a decision adopted by the German Bundestag. The views expressed here are the sole responsibility of the authors and do not necessarily reflect the views of the funders.