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 a specific set of scenario input and asset-based company level data is provided, the methodology used to calculate the metrics is stand-alone. Any climate change scenario or asset-based company data (ABCD) set could be used to implement the methodology, provided that the ABCD 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 from sectoral pathways (scenarios) to micro-economic actors (portfolios/clients) and for allocating the physical asset-based company data to financial instruments such as loans.
- Section 2 provides the mathematical formulas used to calculate the metrics.
- Section 3 concludes with a breakdown of the sectors covered, 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 RMI via pacta4banks@rmi.org.
PACTA for Banks Supporting Documents
RMI has provided a series of documents and additional resources for banks to use as part of the PACTA for Banks Toolkit:
Scenario Input Files: PACTA has prepared a series of climate change scenario input files. These should be used in conjunction with the PACTA for Banks Software. These scenarios range from business-as-usual to better than Paris-aligned and are explained further in the Scenario Supporting Document.
Scenario input files with 2023 start year – to be used with Q4 2023 data
- 2023 IEA JRC ISF Auto Fossil Fuel Power (start year 2023)
- 2023 CO2 Intensity IEA JRC ISF Steel Cement Aviation (start year 2023)
Scenario input files with 2022 start year – to be used with Q4 2022 data
- 2022 IEA JRC Auto Fossil Fuel Power (start year 2022)
- 2022 CO2 Intensity IEA JRC Steel Cement Aviation (start year 2022)
Scenarios prior to 2022 are available upon request via pacta4banks@rmi.org.
Scenario Supporting Document: RMI has provided a supplementary document introducing climate change scenarios and summarising the key differences between them. Included in this document is an explanation of the methodology and assumptions used to convert third party scenario publications into the scenario input files above.
Scenario Supporting Document 2022
Emission Factor Models:
* The following correspond with Q4 2021 ABCD set from Asset Impact.
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.
Aviation Asset Level Emission Model: This document details the methodology behind the aviation emission intensities used in the PACTA for Banks Free Data Set.
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.