Developing a Framework for Financial Institutions to Set - - PowerPoint PPT Presentation
Developing a Framework for Financial Institutions to Set Science-based Targets 2 nd Expert Advisory Group Webinar Dec 5 th 2018 In collaboration with An initiative by Agenda Introduction 5 min Project Updates and Schedule 10 min Methods
An initiative by In collaboration with
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Introduction 5 min Project Updates and Schedule 10 min Methods Discussion: Real Estate and Mortgage 15 min Q&A 10 min Project Finance 10 min Q&A 10 min Corporate Debt & Listed Equity 10 min Q&A 10 min Plan for Method Road Testing 5 min Next Steps and Close 5 min
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Nate Aden Senior Fellow World Resources Institute Giel Linthorst Director Navigant Jakob Thomä Director 2° Investing Initiative
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https://sciencebasedtargets.org/wp- content/uploads/2018/12/SBT_Value_Chain_Report
36 publicly-committed financial institutions
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Oct – Dec 2018 Asset class methods development Dec 5th 2018 2nd EAG call Jan 2018 Methods and guidance drafts Jan – March 2019 Road testing and public consultation April 2019 Road-testing workshops Summarize feedback Dec 2019 Finalize methods & guidance; begin to validate financial institution SBTs
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Method Developer Notes Link 1 Navigant/Ecofys SDA-based approach for mortgages and real estate 2 2 Degrees Investing Initiative SEI metrics-based approach for listed equity and corporate debt 3 Transition Pathways Initiative The TPI tool enables the assessment of companies’ carbon management quality and carbon performance, within a selected sector. Some sectors have carbon intensity alignment info with 2d/b2d http://www.lse.ac.uk/GranthamInstitute/tpi/ 4 EcoAct Listed Equity, Corporate Debt (Loans and Bonds), Real Estate, Mortgages. https://eco-act.com/ 5 Platform Carbon Accounting Financials (PCAF) http://carbonaccountingfinancials.com/ 6 Carbon Tracker Initiative 2° C Scenario Analysis Tool Focus on companies’ exposure to carbon transition risk; available to Bloomberg Terminal subscribers https://www.carbontracker.org/carbon-tracker-bloomberg- app/ 7 Climetrics Fund Rating Methodology The Climetrics rating measures the climate risks and
performance on climate-related risks and opportunities. Climetrics mostly measures climate-related risks known as transition risks (to low-carbon economy). https://www.climetrics-rating.org/methodology 8 Banktrack https://www.banktrack.org/show/pages/banks_and_financed_ emissions 9 Carbon Delta https://www.carbon-delta.com/ 10 European Commission Tech Expert Group Taxonomy of economic activities & investment strategy benchmarks https://ec.europa.eu/info/publications/sustainable-finance- technical-expert-group_en
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Current SBTi criteria regarding scope 3 absolute contraction and supplier engagement targets:
*C16 - Level of ambition for scope 3 emissions reductions targets: Emission reduction targets (covering the entire value chain or individual scope 3 categories) are considered ambitious if they fulfill any of the following:
required to keep global temperature increase below 2°C compared to pre-industrial temperatures. *C16.1 – Supplier engagement targets: Company targets to drive the adoption of science-based emission reduction targets by their suppliers are considered acceptable when the following conditions are met:
relevant upstream categories is covered by the engagement target or, if that information is not available, what percentage of annual procurement spend is covered by the target.3
categories.
from the date the company’s target is submitted to the SBTi for an official validation.
Japanese multinational chemical company Sumitomo Chemical commits to reduce absolute scope 1 and 2 GHG emissions 30 % by 2030 and 57% by 2050 from a 2013 base-year. Sumitomo Chemical also commits that 90% of its suppliers by product weight will institute science-based GHG reduction targets by 2024. Integrated mining and resources producer Hindustan Zinc Limited commits to reduce absolute Scopes 1 and 2 GHG emissions 14% by 2026 from a 2016 base-
emissions 20% by 2026 from a 2016 base-year.
Company target examples:
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A financial institution can align its Real Estate portfolio with the Paris Agreement and set an emissions reduction target by: Two Approaches: 1. Convergence: emissions intensity of real estate portfolio of financial institutions converges to same emissions intensity as global pathway in 2050
estate portfolio reduce by same percentage as the global pathway in the target year
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Two Approaches: 1. Convergence: emissions intensity of mortgage portfolio of financial institutions converges to same emissions intensity as global pathway in 2050 (i.e. 11 kg CO2/m2 for 2DS)
mortgage portfolio reduce by same percentage as the global pathway in the target year (i.e. -21% in 2030 compared to 2017 for 2DS) A financial institution can align its Mortgage portfolio with the Paris Agreement and set an emissions reduction target by:
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A financial institution can align its Power generation projects in the portfolio with the Paris Agreement and set an emissions reduction target by: Two Approaches: 1. Convergence: emissions intensity of power generation projects in the portfolio of a financial institution converges to same emissions intensity as global pathway in 2050 (i.e. 0,04 kg CO2/kWh)
power generation projects in the portfolio reduce by same percentage as the global pathway in the target year (i.e. -40% in 2030 compared to 2017 for 2DS)
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Targets are set at individual business activity level (e.g. electricity generation, automobile production) within the portfolio, for those business activities for which a specific SDA or PACTA approach exists. For a target to qualify, it has to be set for a minimum number of business activities, as defined in the Criteria and Recommendations document. Sectors where the target is already “on track” based on existing science-based targets by companies or asset-level data do not qualify for a SBT, but equally do not count towards the threshold of minimum number of business activities (i.e. are treated as the equivalent of a sector not in scope of the SDA or PACTA approach). IN PLAIN ENGLISH: FINANCIAL INSTITUTIONS SET TARGETS AT ‘SECTOR LEVEL’ IN THEIR PORTFOLIO USING EITHER THE PACTA OR SDA APPROACH, WITH THE NEED TO SET TARGETS FOR A MINIMUM NUMBER OF SECTORS.
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SDA Approach ➢ Based on emissions intensity related to sectoral ‘activity’ ➢ No approach for fossil fuels & no consideration of absolute volumes.
Note: SDA has been subsequently updated to eliminate value-added activity indicators.
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PACTA Approach ➢ Based on ‘technology / fuel’- mix logic. ➢ Applies SDA for cement and steel. Doesn’t cover paper & pulp, other industrials
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Key technical issues: ➢ Allocation rules: No constraint between portfolio weight or balance sheet approach for determining allocation rules, although balance sheet approach has to use either book value- based or equity ownership-based denominator. ➢ Data requirements: Data sources are not predefined, but should satisfy minimum number of criteria (be expressed in units consistent with SDA or PACTA approach, minimum coverage, geographic granularity where relevant, etc.) ➢ Portfolio target: There is no ‘single’ indicator at portfolio level. ➢ Scope: The scope is the ‘portfolio’ which the financial institution is targeting. So if the financial institution is targeting impact through divestment, the SBT has to be achieved for ‘divested’
➢ Actions: SBT are recognized if they are associated with a set of actions designed to reduce GHG emissions in the real economy. Targets without actions do not qualify.
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Dec 2018 Confirm road testers and asset class Jan 2018 Share methods with road testers and stakeholders Feb 2018 Check-in call for road testers Mar 2018 Road testers send back assessment report and stakeholders send comments April - June 2018 Workshop to discuss road testing experience and summarize feedback
asset class method
testing
class level assessment
results and feedback on methods
the guidance Tentative Timeline
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For additional information, see: https://sciencebasedtargets.org/financial-institutions/