Paris Agreement Capital Transition Assessment Tool

In order to expand the tool`s reach into new sectors, in February 2019, with a group of 17 banks, we began testing the PACTA climate scenario methodology for business loan portfolios. The methodology and metrics that support the analysis allow banks to study the direction of their loan portfolios at reference points at 2oC. It is a major step forward in the analysis of climate scenarios by giving banks an overview of the climate impact of their clients` investment plans in the seven sectors covered by the methodology (oil and gas, coal, electricity, automotive, cement, steel and shipping). By increasingly examining the gaps between their credit portfolios and their climate repositories, banks will be able to use the methodology used for other applications over time, including communication and direction towards positive climate effects. After the end of the pilot phase in Q1 2020, the open source software without IP rights will be published, allowing each bank to perform the analysis completely autonomously. The Paris Capital Valuation Agreement (PACTA) for banks allows banks to measure the direction of their corporate lending portfolios on climate scenarios in a number of important climate-related sectors and technologies. It is a major step forward in the analysis of climate scenarios for lending, giving banks an overview of the climate direction of the capital stock and the spending plans of their corporate clients. Even in the midst of the 2020 uncertainties, investors, banks and governments are likely to continue to face increasing pressure to incorporate risks and climate impacts into their risk management frameworks and strategic planning. PACTA`s stated objective is to provide a robust analytical tool that allows financial institutions and regulators to assess the direction of their investment portfolios and regulatory programs on the Paris Agreement14 While PACTA materials highlight the increasing frequency of use of the tool15, the extent of the use of this tool and the weight that users attach to it remains an outstanding issue. It is perhaps even more important that the usefulness of such an instrument be limited, at least to some extent, by the quality of the underlying data. Companies wishing to rely on this instrument for planning purposes, as well as companies whose operations are evaluated under this instrument, can be well served by making a number of efforts to assess both the quality and consistency of the relevant data. Donor Opinion: The PACTA tool was created as part of the European Union`s Life Programme as part of the GIC/FR/00061 PACTA life-action grant.

It has also received support from the International Climate Initiative (IKI). The Federal Ministry of Environment, Nature Protection and Reactor Safety (BMU) supports this initiative on the basis of a decision of the German Bundestag.