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Project description:

The Paris Agreement pursues the goal of aligning global financial flows with
global mitigation targets. At the same time, however, investors have been offered few tools for incorporating associated risks into their decision-making. Policymakers have also lacked instruments for measuring the alignment of capital markets with the ‘below 2 °C’ target. The key point of focus for this project is a tool for modelling the risks of realigning the financial system with a low-carbon economy and so making these risks measurable. The tool will be provided free of charge for investments in low-carbon market portfolios in emerging markets and developing economies. Risks for green recovery measures have been integrated into the tool as part of the IKI’s Covid-19 Response Package. Alongside the assessment of investment risks, instruments for political decision-makers will also be developed, which can help in monitoring (towards the ‘global stocktake’) at a national level.

Project data:

Countries: Chile, Colombia, Mexico, Singapore
IKI funding: 3,806,294.00 €
Duration: 07/2018 till 12/2022
Status: open
Implementing organization: 2° Investing Initiative
Political Partner: Diverse climate change relevant institutions in the respective partner
countries/Diverse klimarelevante Institutionen in den entsprechenden Partnerländern

State of implementation/results:
  • 2DII has developed a series of tools for investors, banks and regulators in emerging markets and/or with financial exposure to emerging markets and continued to update the online scenario analysis tool PACTA. In the last six months, the Transition Disruption Metric (TDM) was included in the interactive report. The TDM, which is based on the FORECASTED POLICY SCENARIO developed by The Inevitable Policy Response (IPR), allows users to have a measurement of the level of disruption that their portfolio may have in 10 years, according to the degree of progress in the transition by the companies that make up the portfolio during the first 5 years.
  • New scenarios were added to the online tool which can be found
    here:… Among other updates, heavy duty vehicles were added to the PACTA for Banks data set.
  • 2DII is currently conducting a coordinated project (PACTA COP) together with the Brazilian Financial Supervisor (Comissao de Valores Mobiliarios, CVM) with co-funding from the GIZ (Deutsche Gesellschaft für Internationale Zusammenarbeit) and support from the Brazilian Ministry of Economy. The project has as aim to measure the alignment of the Brazilian Asset Management sector with Paris Agreement Goals. In July 2022, the PACTA team received all
    the data needed from CVM to proceed with the analysis. The report should be finalised before end 2022.
  • Other research:
  • Green Recovery: After pilot implementation in the EU, in April 2022, 2DII has updated the financial green market sentiment indexes (GMSIs) Europe. Furthermore, 2DII has started working with institutions in Latin America to implement the Green Recovery Framework.
    The results were published in May 2022 and have been disseminated through an online seminar across asset managers, pension funds, banks and regulatory bodies based in Latin America.
  • Impact: In February 2022, the beta version of the Climate Action Template went live. This template is designed to support financial institutions in describing truly replicable and effective climate action. In addition, 2DII will develop technical specifications for a public monitoring and action platform. In addition, 2DII proposed a framework to enable policymakers to assess the effectiveness of sustainable finance policies ex-ante. The basic framework has been produced and is now being reviewed by both 2DII and the Green Finance Platform, before being sent to the Sustainable Finance Effectiveness Working Group for finalisation and publication until the end of 2022.
  • Long-term investors: In March 2022, 2DII published the report "What is the Definition of a Long-Term Investor?" with definitions of terms and mechanisms to align financial markets with long-termism.
  • Comparing Covid-19 responses with climate change policies: In collaboration with the consultancy Vivid Economics, 2DII explored the characteristics of the response from policymakers to the COVID-19 pandemic and compares these lessons to the climate crisis. The findings are summarised in the research report “The Value of Life: What would climate policies look like if they mirrored the COVID-19 response?” published in April 2022.
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