Developing a Framework for Financial Institutions to Set Science-based Targets

Transcription

1 Developing a Framework for Financial Institutions to Set Science-based Targets 2 nd Expert Advisory Group Webinar Dec 5 th 2018 An initiative by In collaboration with

2 Agenda Introduction Project Updates and Schedule Methods Discussion: Real Estate and Mortgage Q&A Project Finance Q&A Corporate Debt & Listed Equity Q&A Plan for Method Road Testing Next Steps and Close 5 min 10 min 15 min 10 min 10 min 10 min 10 min 10 min 5 min 5 min 2

3 Speakers Nate Aden Senior Fellow World Resources Institute Giel Linthorst Director Navigant Jakob Thomä Director 2 Investing Initiative 3

4 SBTi & Related Updates 36 publicly-committed financial institutions Annual target update validation criteria in January Newly Released Scope 3 Compendium: -1.pdf 4

5 Schedule for next few months Oct Dec 2018 Asset class methods development Jan 2018 Methods and guidance drafts April 2019 Road-testing workshops Summarize feedback Dec 5 th nd EAG call Jan March 2019 Road testing and public consultation Dec 2019 Finalize methods & guidance; begin to validate financial institution SBTs 5

6 Within the range of methods, few are focused on Paris alignment 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 The TPI tool enables the assessment of companies carbon management quality and carbon performance, within a selected sector. Some sectors have carbon 3 Transition Pathways Initiative intensity alignment info with 2d/b2d 4 EcoAct Listed Equity, Corporate Debt (Loans and Bonds), Real Estate, Mortgages. 5 Platform Carbon Accounting Financials (PCAF) 6 Carbon Tracker Initiative 2 C Scenario Analysis Tool Focus on companies exposure to carbon transition risk; available to Bloomberg Terminal subscribers 7 Climetrics Fund Rating Methodology The Climetrics rating measures the climate risks and opportunities of a fund against all other funds in its sample. The higher a fund s rating, the better its performance on climate-related risks and opportunities. Climetrics mostly measures climate-related risks known as transition risks (to low-carbon economy). 8 Banktrack emissions 9 Carbon Delta 10 European Commission Tech Expert Group Taxonomy of economic activities & investment strategy benchmarks 6

7 Broad SBTi approaches: Absolute Contraction & Supplier Engagement 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: Absolute: Absolute emission reduction targets that are consistent with the level of decarbonization required to keep global temperature increase below 2 C compared to pre-industrial temperatures. Company target examples: Integrated mining and resources producer Hindustan Zinc Limited commits to reduce absolute Scopes 1 and 2 GHG emissions 14% by 2026 from a 2016 baseyear. Hindustan Zinc Limited also commits to reduce absolute Scope 3 GHG emissions 20% by 2026 from a 2016 base-year. *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: Formulation: Companies shall provide information to the SBTi on what percentage of emissions from 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 Boundary: Companies may set supplier engagement targets around any relevant upstream categories. Timeframe: Companies supplier engagement targets must be fulfilled within a maximum of 5 years from the date the company s target is submitted to the SBTi for an official validation. Level of ambition: The company s suppliers shall set science-based emission reduction targets. 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

8 Asset-class method 1: Real Estate 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 Absolute contraction: absolute emissions of real estate portfolio reduce by same percentage as the global pathway in the target year 8

9 Questions for EAG Feedback Is the draft method feasible and actionable? Can you suggest alternative methods for this asset class? 9

10 Asset-class method 2: Mortgages A financial institution can align its Mortgage portfolio with the Paris Agreement and set an emissions reduction target by: 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) 2. Absolute contraction: absolute emissions of mortgage portfolio reduce by same percentage as the global pathway in the target year (i.e. -21% in 2030 compared to 2017 for 2DS) 10

11 Questions for EAG Feedback Is the draft method feasible and actionable? Can you suggest alternative methods for this asset class? 11

12 Asset-class method 3: Project Finance 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) 2. Absolute contraction: absolute emissions of 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) 12

13 Questions for EAG Feedback Is the draft method feasible and actionable? Can you suggest alternative methods for this asset class? 13

14 Asset-class methods 4 & 5: Corporate Debt & Listed Equity 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. 14

15 Asset-class methods 4 & 5: Corporate Debt & Listed Equity 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. 15

16 Asset-class methods 4 & 5: Corporate Debt & Listed Equity PACTA Approach Based on technology / fuel - mix logic. Applies SDA for cement and steel. Doesn t cover paper & pulp, other industrials 16

17 Asset-class methods 4 & 5: Corporate Debt & Listed Equity 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 valuebased 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 companies. If the impact is targeted through engagement, the scope is the own portfolio 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. 17

18 Asset-class methods 4 & 5: Corporate Debt & Listed Equity 18

19 Questions for EAG Feedback Is the draft method feasible and actionable? Can you suggest alternative methods for this asset class? 19

20 Public Comment & Road Testing Process Dec 2018 Jan 2018 Feb 2018 Mar 2018 April - June 2018 Tentative Timeline Confirm road testers and asset class Share methods with road testers and stakeholders Check-in call for road testers Road testers send back assessment report and stakeholders send comments Workshop to discuss road testing experience and summarize feedback Aiming for at least 5 road testers per asset class method An invitation will be shared for road testing Seeking data providers to assist assetclass level assessment Road testers to share target modelling results and feedback on methods Results will be used for case studies in the guidance 20

21 Next Steps Revise methods in preparation for road testing Arrange data providers Prepare feedback forms Distribute methods for public comment Prepare workshops for road tester feedback Outline of guidance document 21

22 Thanks! Nate Aden, World Resources Institute, Giel Linthorst, Navigant, Jakob Thoma, 2 Degree Investing Initiative, jakob@2degrees-investing.org. For additional information, see: 22