PACTA for Investors
PACTA Tool for Listed Equity and Corporate Bonds
PACTA is a free software that calculates the extent to which corporate capital expenditures and industrial assets being financed through equity, bond, or funds are aligned with various climate scenarios.
The development of PACTA however dates back to 2014 when 2DII began developing the tool in partnership with academic organizations including the Frankfurt School of Finance and the University of Zurich, funding from the European Commission, German and Swiss governments, and support from UN Principles for Responsible Investment. Since the tool was launched, more than 4,500 individuals from more than 3,000 institutions have used it to conduct over 18,000 tests, with an average of 600+ tests per month. Overall, the total assets under management of financial institutions using the tools amounts to more than USD 106 trillion.
As of June 2022, 2DII transferred the stewardship of the Paris Agreement Capital Transition Assessment (PACTA) to RMI, in order to scale the impact of the tool in the financial sector and in the real economy. Under RMI’s stewardship, PACTA remains a free, independent and open-source methodology and tool.
PACTA as part of the Climate Aligned Finance team, supports RMI’s mission by providing the financial and supervisory community, with forward looking, science-based analysis with the aim of helping to shift capital flows in greener directions and enabling the financial sector to contribute to the goals of the Paris Agreement.
PACTA Tool for Listed Equity and Corporate Bonds
The PACTA tool to analyze listed equity and corporate bond portfolios was relaunched in March 2021 with a new interactive format. For the first time, investors can now analyze multiple portfolios simultaneously, save their results online, and receive interactive results on their alignment with the Paris climate goals (view a sample report here).
The tool is free to use, and requires a csv file including the ISIN, value and currency of the investment to run the analysis. A sample portfolio file is available on the tool’s website to guide users on how to format their portfolios before uploading them for analysis. All uploaded data and results files can be deleted from the platform at any moment by the user.
IMPORTANT: In order to run the tool, you require a Initiative Registration Code. If you are not part of a government organised initiative, the code is “GENERAL”. Otherwise, you will receive a project specific code.
The PACTA for Investors Methodology allows users to perform climate scenario analysis on investment portfolios.
PACTA compares what needs to happen in sectoral decarbonization pathways, here referred to as “climate scenarios”, with financial actors’ exposures to companies in climate-relevant sectors. PACTA provides a five-year forward-looking, bottom-up analysis. It looks at the investment and production plans of companies, which are in turn based on physical asset-based company-level data, and consolidates that information to identify the energy transition profile of the companies and their related financial instruments. This information is aggregated at the portfolio level and compared to the production plans projected in different climate scenarios. The (mis-) alignment between the portfolio and these scenarios allows users to infer on the potential exposure to transition risks and opportunities.
Please refer to the PACTA for Investors methodology document for more detailed information about the rationale behind the assessment.
Users wishing to provide feedback about the methodology or the tool, are encouraged to contact RMI via firstname.lastname@example.org.
PACTA for Investors Methodology Document
For more information about the PACTA methodology please refer to the Knowledge Hub.
PACTA Knowledge Hub
The R code underlying the PACTA tool for equity and corporate bond portfolios can be inspected on GitHub here.
Please note that while the methodology is available for anyone to apply, data licensing means we are not able to share the underlying asset-based company data (ABCD) and financial data that underpins the tool. If you are interesting in obtaining the necessary data, please contact our data provider Asset Impact at email@example.com
The PACTA for Investors Data Set is provided by Asset Resolution. The model sources, where possible, forward-looking asset-based Company data (ABCD) for key technologies (e.g. future production plans) in order to provide geography-specific assessments for climate relevant sectors mapped to the company level. It thus bypasses wherever possible backward-looking, corporate level reporting, although such reporting can be used for validating forward – looking parameters (e.g. GHG emissions). For more information about the data sources for each sector, please contact Asset Impact.
The metrics used in each sector depends on the existence of clearly identified technology decarbonization pathways. For Power, Fossil Fuels and Automotive, there are clear low- or zero-carbon technologies available. For example, in the Power sector, power generation must transition from fossil fuels to renewables. But there are other sectors where technology decarbonization pathways are not so well defined, such as Steel, Cement and Aviation. For these last sectors, given that the climate change scenarios do not prescribe technology roadmaps, but give absolute values of production and carbon emissions, the approach PACTA takes is to measure emission intensity to measure alignment.
Production Volume Trajectory
The production volume trajectory metric aims to measure the alignment of a portfolio’s projected production volumes, based on the five-year capital plans of companies, to those given in climate scenarios. It is used for the fossil fuels, power, and automotive sectors. Changes in production volumes result either from transfer of production from one technology to another (e.g. internal combustion engines to electric vehicles) or from sheer expansion or contraction in the production coming from the technology/fuel (e.g. a company brings a new coal-fired power plant online). Projected production volumes at a 5-year horizon are considered at the individual client level at the technology level. The resulting volume trajectories are then compared with the trends set as targets in climate scenarios.
Technology / Fuel Mix
The technology mix metric focuses on technology shifts within the power, fossil fuels and automotive sectors, namely: (i) the changes in the technological processes by which outputs are produced (e.g. shift from coal-fueled to renewable-fueled power capacity), and (ii) changes in the nature of the output itself (e.g. shift from internal combustion engines to electric vehicles). This metric measures the bank’s relative exposure to the economic activities that are impacted by the transition to a low-carbon economy.
The emission intensity metric measures the average CO2 intensity of the portfolio in the steel and cement sector. This emission intensity is given as CO2/economic unit of output (for example, CO2/per ton of steel produced). This is then compared to an emission intensity reference point set by a climate scenario.
While this is not the main metric of choice for the largest sectors tackled in this methodology, the emission intensity of the activities financed by the portfolio is nonetheless the first metric in sectors for which no clear technology pathways have been set out (namely, steel and cement). Put differently, for these sectors, no zero-carbon alternative yet exists. As such, it is not possible to use the technology mix metric or the volume production volume trajectory metric to measure alignment. However, it is still imperative to steer capital in a way that aims to decrease carbon emissions in these sectors – hence the emission intensity metric is used.