ACT - Finance - Investments (Section 5.3.5.1 to Appendix)

The relevant data for this indicator are:

• Environmental policy and details regarding governance
• The reporter shall provide details on where the highest level of direct responsibility for climate change within the organization is

CDP Questionnaire mapping to this indicator:

• C1.1
• C1.1a
• C1.1b
• C1.1c
• C1.2
• C1.2a
• C1.1b

External sources of data may also be used for the analysis of this indicator.

The benchmark case is that climate change is managed within the highest decision-making structure within the financial institution.

The position at which climate change is managed within the financial institution structure is determined from the financial institution data submission and accompanying evidence. If the corporate structure does not match the structure of the maturity matrix, the analyst should assign a score based on the financial institution’s specific hierarchy (i.e., if responsibility for climate change mitigation lies at the highest level of decision-making within the organization, award “Low-carbon aligned”. If responsibility lies one level below the highest level, award “Next practice”, etc). The maturity matrix used for the assessment is the following:

Further guidance for each level of seniority is given below:

Level 1

• Highest level of accountability or decision-making within the organization, with responsibility for overall organizational or corporate strategic direction.
• Examples: Board, sub-set of the Board, Chief Executive Officer (CEO)

Level 2

• Person/committee that is one step in the corporate structure from the highest level of decision-making of the organization (i.e. reports to or is accountable to Level 1). Inputs into organizational strategy but does not make decisions on it. May have responsibility and accountability for business unit strategy formation and implementation of one or more business units.
• Examples: Vice President, Director, other C-Suite officer (e.g., Chief Financial Officer (CFO), Chief Procurement Officer (CPO), Chief Risk Officer (CRO), Chief Operating Officer (COO), Chief Sustainability Officer (CSO), etc.), other committee appointed by the Board

Level 3

• Person/committee that is two steps in the corporate structure from the highest level of decision-making of the organization. May have responsibility and accountability for business unit strategy formation and implementation for one business unit.
• Examples: Manager, Senior Manager

Level 4

• Person/committee that is three or more steps in the corporate structure from the highest level of decision-making of the organization. No responsibility or accountability for business unit strategy development.
• Examples: Officer, Senior Officer, Front Officer

Successful change within financial institution, such as the transition to a low-carbon economy, requires strategic oversight and buy-in from the highest levels of decision-making within the financial institution. Evidence of how climate change is addressed within the top decision-making structures is a proxy for how seriously the company takes climate change, and how well integrated it is at a strategic level. High-level ownership also increases the likelihood of effective action to address low-carbon transition.

Changes in strategic direction are necessarily future-oriented, which fits with this principle of the ACT initiative.

Managing oversight of climate change is considered as a good practice.

Financial institution board or executive management has expertise on the science and economics of climate change, including an understanding of policy, technology drivers that can disrupt current business. This expertise is used by the individual or committee to inform high-level decision-making within the financial institution.

The employees, receives specific and adapted climate training to align their business activities with financial institutions climate objectives.

The relevant data for this indicator are:

• Environmental policy and details regarding governance
• The reporter shall identify the position of the individual or name of the committee with this responsibility and outline their expertise regarding climate change and the low-carbon transition

CDP Questionnaire mapping to this indicator:

• C1.1
• C1.1a
• C1.1b
• C1.1c
• C1.2
• C1.2a
• C1.1b

External sources of data may also be used for the analysis of this indicator.

The presence of expertise on topics relevant to climate change and the low-carbon transition at the level of the individual or committee with overall responsibility for it within the company is assessed. The presence of expertise is the condition that must be fulfilled for points to be awarded in the scoring.

The analyst determines if the financial institution has expertise as evidenced through a named expert biography outlining capabilities. A cross-check is performed against 5.1 on the highest responsibility for climate change, the expertise should exist at the level identified or the relationship between the structures/experts identified should also be evident. To be awarded Low-carbon aligned, the financial institution must provide examples of how the individual or committee’s expertise has informed strategic investment planning and/or decision-making processes.

The maturity matrix used for the assessment is the following:

“Characteristics of climate change- and low-carbon transition-related expertise” include:

• Academic/professional qualification related to climate change and the low-carbon transition, including an understanding of the impacts and risks, and the solutions to implement (e.g., Bachelors, Masters, Doctorate, professional certification, diploma, etc.)
  • A purely energy-related background with no relationship to climate change and the low-carbon transition is not enough to qualify as expertise.
• Recent (i.e., within last 10 years) professional experience related to climate change and the low-carbon transition (e.g., previous employment in climate change/low-carbon transition-related role, or with a climate change/low-carbon transition-related organization, etc.)
• Recent (i.e., within last 10 years)/active membership of organization(s) driving corporate knowledge and action on climate change and the low-carbon transition (e.g., World Business Council For Sustainable Development, Solar Energy Industry Association, etc.)
• Technical knowledge related to climate change and the low-carbon transition, evidenced through recently (i.e., within last 10 years) published outputs written by the individual/committee (e.g., statements, reports, etc.)

Effective management of the low-carbon transition requires specific expertise related to climate change and its impacts, and their likely direct and indirect effects on the business. Presence of this capability within or closely related to the decision-making bodies that will implement low-carbon transition both indicates financial institution commitment to that transition and increases the chances of success.

Even though financial institutions are managing climate change at the Board level or equivalent level, a lack of expertise could be a barrier to successful management of low-carbon transition.

The relevant data for this indicator are:

• Environmental policy and details regarding governance
• The reporter should provide the following description of the transition plan including the following details:
• Whether the transition plan exists in a documented form and whether that document is public
• How the results of scenario testing influenced the transition plan
• Timescale for implementation of the transition plan
• Who has responsibility for its implementation (at the strategic, not operational, level)
• How successful implementation of the plan will be measured and monitored. (Should include details of any linked targets, emissions reduction or energy efficiency targets, or KPIs.)
• The role of a carbon price in the plan.

CDP Questionnaire applying to this indicator:

• C1.1
• C1.1a
• C1.1b
• C1.1c
• C1.2
• C1.2a
• C1.1b

The relevant data for this indicator are:

• Management incentives
• The reporter shall report whether the company provides incentives for the management of climate change issues, including the attainment of targets
• The reporter shall provide details on the incentives provided for the management of climate change issues
• The reporter shall provide details on the activities that are usually rewarded by incentives in the company

CDP Questionnaire mapping to this indicator:

• C1.3
• C1.3a

The analyst verifies if the financial institution has compensation incentives set for senior executive compensation and/or bonuses, that directly and routinely reward specific, measurable financing reduction emissions and/or the future attainment of emissions reduction targets, or other metrics related to the financial institution’s low-carbon transition plan. For cases in which the financial institution's structure does not match the one of the maturity matrix, the assessor should assign a score based on the financial institution’s specific hierarchy (i.e., if climate change management incentives are awarded to the highest level of decision-making within the organization, award “Low-carbon aligned”. If incentives are available one level below the highest level, award “Next practice”, etc.).

Note: the wording of the “What is the type of incentive” is based on the Executive Compensation Guidebook for Climate Transition developed by Willis Towers Watson, in partnership with the Climate Governance Initiative, a project in collaboration with the World Economic Forum (17).

Further guidance for each level of seniority is given below:

Level 1

• Highest level of accountability or decision-making within the organization, with responsibility for overall organizational or corporate strategic direction.
• Examples: Board, sub-set of the Board, Chief Executive Officer (CEO)

Level 2

• Person/committee that is one step in the corporate structure from the highest level of decision-making of the organization (i.e. reports to or is accountable to Level 1). Inputs into organizational strategy but does not make decisions on it. May have responsibility and accountability for business unit strategy formation and implementation of one or more business units.
• Examples: Vice President, Director, other C-Suite officer (e.g., Chief Financial Officer (CFO), Chief Procurement Officer (CPO), Chief Risk Officer (CRO), Chief Operating Officer (COO), Chief Sustainability Officer (CSO), etc.), other committee appointed by the Board

Level 3

• Person/committee that is two steps in the corporate structure from the highest level of decision-making of the organization. May have responsibility and accountability for business unit strategy formation and implementation for one business unit.
• Examples: Manager, Senior Manager

Level 4

• Person/committee that is three or more steps in the corporate structure from the highest level of decision-making of the organization. No responsibility or accountability for business unit strategy development.
• Examples: Officer, Senior Officer

Executive compensation should be aligned with overall business strategy and priorities. As well as commitments to action the company should ensure that incentives, especially at the executive level, are in place to reward progress towards low-carbon transition. This will improve the likelihood of successful low-carbon transition.

Monetary incentives at the executive level are an indication of commitment to successful implementation of a strategy for low-carbon transition.

The relevant data for this indicator are:

• The reporter shall provide the details and supporting documents on the organization’s climate change scenario testing

CDP Questionnaire mapping to this indicator:

• C1.1
• C1.1b
• C2.1
• C2.2
• C-FS2.2b
• C-FS2.2c
• C-FS2.2d
• C-FS2.2e

The analyst evaluates the description and evidence of the integration of climate risk in its risk management process and strategy

Level 1

• Highest level of accountability or decision-making within the organization, with responsibility for overall organizational or corporate strategic direction.
• Examples: Board, sub-set of the Board, Chief Executive Officer (CEO)

Level 2

• Person/committee that is one step in the corporate structure from the highest level of decision-making of the organization (i.e. reports to or is accountable to Level 1). Inputs into organizational strategy but does not make decisions on it. May have responsibility and accountability for business unit strategy formation and implementation of one or more business units.
• Examples: Vice President, Director, other C-Suite officer (e.g., Chief Financial Officer (CFO), Chief Procurement Officer (CPO), Chief Risk Officer (CRO), Chief Operating Officer (COO), Chief Sustainability Officer (CSO), etc.), other committee appointed by the Board

Level 3

• Person/committee that is two steps in the corporate structure from the highest level of decision-making of the organization. May have responsibility and accountability for business unit strategy formation and implementation for one business unit.
• Examples: Manager, Senior Manager

Level 4

• Person/committee that is three or more steps in the corporate structure from the highest level of decision-making of the organization. No responsibility or accountability for business unit strategy development. Examples: Officer, Senior Officer

Climate has been explicitly identified as a financial risk for years now (37). Surprisingly, according to European supervisors, financial institutions are not on the track to follow their climate risk exposure and managing it (‘a wait-and-see approach is still prevalent) (38). Even though climate change scenario analysis and testing have turned to be a common practice (with a large heterogeneity in its exercise but this will be the topic of the next section 5.6), climate risk management itself is still lagging in terms of best practice (39) (definition of a climate risk strategy, deployment and implementation, governance, allocation of roles & responsibilities associated with it).

Expectation: ‘Institutions are expected to incorporate climate-related and environmental risks as drivers of existing risk categories into their risk management framework, with a view to managing, monitoring and mitigating these over a sufficiently long-term horizon, and to review their arrangements on a regular basis. (40)

The relevant data for this indicator are:

• The reporter shall provide the details and supporting documents on the organization’s climate change scenario testing

CDP Questionnaire mapping to this indicator:

• C3.1a
• C3.1b
• C3.1d
• C3.1e
• C3.1f

The analyst evaluates the description and evidence of the climate scenario testing for the presence of best-practice elements and consistency with the other reported management indicators. The financial institution description and evidence are compared to the maturity matrix developed to guide the scoring and a greater number of points is allocated for elements indicating a higher level of maturity.

Best-practice elements to be identified in the test/analysis include:

• full coverage of the investor’s boundaries
• timescale from present to long-term (2035-2050)
• results are expressed in value-at-risk or other financial terms
• multivariate: a range of different changes in conditions are considered together
• changes in conditions are specific to a low-carbon climate scenario
• climate change conditions are combined with other likely future changes in operating conditions over the timescale chosen

Climate-related risk categories (18):

1. Market and Technology shifts
2. Reputation
3. Policy and Legal
4. Physical Risks

Results of stress testing should be presented as business impacts which can include consideration of (42):

• Scale: What is the order of magnitude of the potential impact?
• Timeframe: What can I conclude about the possible timescales over which this will emerge?
• Asset classes and sectors: What does my analysis tell me about the differential impact of climate change on different asset classes and/or sectors?
• Valuation: Can I draw out lessons from the way I value individual companies or assets (quantitative or qualitative)?
• Trends and drivers: What does the analysis tell me about the signals to watch for in order to track climate risks in specific asset classes, sectors or companies?

Refer for instance to International Energy Agency (IEA), World Energy Outlook 2019, Annex B, p 758 (19). CO₂ prices are displayed by world regions, predicted values in 2030 and 2050.

***

Comparison of key climate scenarios (30)

There are a variety of ways of analysing the potential impacts of climate-related changes on an investor, whether these are slow and gradual developments or one-off “shocks”. Supervisors are increasingly calling for techniques such as use of an internal price on carbon, scenario analysis and stress testing to be implemented to enhance asset managers ability to address risks that might adversely impact the collective investment schemes or individual portfolios they manage (20)

It is key to integrate climate risk scenarios into stress-testing models, with both physical and transition risks, as well as long-and short-term horizons. Scenario stress testing is an important management tool that help to analyse the strength of the strategies that have been put in place (20)

It is important for investors to understand the businesses likely to be strongly affected by climate change impacts (both direct and indirect).

As this practice is still to be fully onboarded by investors, the ACT methodology thus provides a broad definition of types of testing and analysis which can be relevant to this information requirement, to identify both current and best practices and consider them in the analysis.

The relevant data for this indicator are:

• Strategy for mobilizing investors and measures of success
• CDP Questionnaire mapping to this indicator:
  • C12.1
  • C12.1a

External sources of data may also be used for the analysis of this indicator.

The assessment will assign a maturity score based on the financial institution’s formalized, written strategy regarding its engagement with its investors expressed in a maturity matrix.

A financial institution that is placed in the ‘Low-carbon aligned’ category will receive the maximum score. A financial institution which is at a lower level will receive a partial score, with 0 points awarded for having no engagement at all.

^‡ 1. Information collection

• Promote or develop tools to enable clients understand the carbon footprint of your portfolio and of its money.
• Provide investors with climate-related risk and impact metrics of investments to help them understand the climate risks and impacts of the money they have been providing.

2. Engagement & incentivization

• Run an engagement campaign to educate investors about climate change/GHG emissions reductions/other low-carbon transition-related topics
• Offer financial incentives for investors directing their money towards climate funds
• Provide climate-related training, support, and best practices
• Provide rationale behind climate-related investment decisions

3. Innovation & collaboration (changing markets)

• Run a campaign to encourage innovation to reduce climate change impacts
• Provide asset owners with information and analytics on net zero investing and climate risk and opportunity
• (AM) Work in partnership with asset owners on decarbonization goals, consistent with an ambition to contribute reaching global net zero emissions by 2050
• Develop incentivizing non-financial indicators (e.g. climate dividends)
• Offer Article 9 climate funds
• Distribute specific investment products/funds integrating climate impact objectives (i.e. contributing to the financing of a low carbon economy or helping companies in the portfolio to define their climate strategy likewise Fideas has been doing along with ACT Step by Step inside its fund ‘ACTforClimate’)
• Develop Climate Paris Aligned indexes
• Labeled Index (Paris aligned benchmark & Climate transition benchmark) (21)

4. Fostering internal changes (teams/tools/processes)

• Incentivization of managers to put forward climate-positive solutions or funds

Relevance of the indicator:

Investors engagement module is included in this ACT methodology for the following reasons:

• Act on all the possible existing levers on the money value chain. Engaging with investors is also a great way to be part of the solution and go even beyond the engagement with their investees (module 7).
• It is important to mobilize and raise more money to be vested in favour of climate solutions, low carbon/enabling activities, or companies to decarbonize.
• Asset managers can have a direct influence on the investors and explain to what extent climate is a financial risk that must be taken into account when vesting money in companies or financial instruments. More, it has the responsibility to explain that climate is also an investment opportunity as well. The role of asset managers (whether primary or secondary) is to mainstream climate finance investments through dedicated climate finance funds. Important: for the narrative score and the global appreciation of the score, the rationale of the climate funds/vehicle commercialized should be scrutinized to understand if the approach is about (i) alignment or (ii) impact. The guidance here is to reward impact approaches, even though it is still difficult to evidence GHG emission reduction due to the financial institution’s individual action.

In this module, investors can be whether individuals, institutional or companies.

Scoring the indicator:

Because of data availability and complexity, a direct measure of the outcome of such engagement is not very feasible currently. Because there is no global agreement on what a robust enough labelled fund is, it has not been possible to compute the total of ‘green’ funds out of the total funds of a defined asset manager and associate score to it. Hence, the approach of a maturity matrix has be chosen as it allows the analyst to consider multiple dimensions of investors engagement and assess them together towards a single score for investors Engagement.

The relevant data for this indicator are:

• List of activities implemented to influence investees to reduce their GHG emissions, track record
• CDP Questionnaire mapping to this indicator:
  • C12.1
  • C12.1a

External sources of data may also be used for the analysis of this indicator.

The assessment will assign a maturity score based on the financial institution’s demonstration of recent and current activities with investors, expressed in a maturity matrix.

A financial institution that is placed in the ‘Low-carbon aligned’ category will receive the maximum score. A financial institution which is at a lower level will receive a partial score, with 0 points awarded for having no engagement at all.

This maturity matrix is indicative but does not show all possible options that can result in a particular score. The financial institution’s responses will be scrutinized by the analyst and then placed on the level in the matrix where the analyst deems it most appropriate.

Action levers must be presented as examples of past/present actions/initiatives, and not be theoretical/embedded in a strategy document (such examples should be scored in indicator 6.1). “Action levers” include, but are not limited to, the following examples, which are grouped into four engagement types (sources: 2022 CDP climate change questionnaire C12.1):

^‡ 1. Information collection

• Promote or develop tools to enable clients understand the carbon footprint of the asset managers portfolio and of its money.
• Provide regularly investors with climate-related risk and impact metrics of investments to help them measuring their risks and impacts.

2. Engagement & incentivization

• Run an engagement campaign to educate investors about climate change/GHG emissions reductions/other low-carbon transition-related topics
• Offer financial incentives for investors directing their money towards climate funds
• Provide climate-related training, support, and best practices
• Provide rationale behind climate-related investment decisions

3. Innovation & collaboration (changing markets)

• Run a campaign to encourage innovation to reduce climate change impacts
• Provide asset owners with information and analytics on net zero investing and climate risk and opportunity
• (AM) Work in partnership with asset owners on decarbonization goals, consistent with an ambition to contribute reaching global net zero emissions by 2050
• Develop incentivizing non-financial indicators (e.g. climate dividends)
• Distribute specific investment products/funds integrating climate objectives (i.e. contributing to the financing of a low carbon economy or helping companies in the portfolio to define their climate strategy likewise Fideas has been doing along with ACT Step by Step inside its fund ‘ACTforClimate’).
• Development or use of a climate score at portfolio level and discloses it

4. Fostering internal changes (teams/tools/processes)

• Regular staff training and upskilling on climate-related topics
• Incentivization of managers to put forward climate-positive solutions or funds

^† The metric used to measure impact depends on the action lever the metric refers to. Examples of “evidence of impact” might include, but are not limited to:

• Qualitative example: Feedback from investors saying that they appreciate and will use this new knowledge to start their journey on the low-carbon transition
• Quantitative example: Number of climate vehicles/funds commercialized have risen by X%
• Quantitative example: The percentage of engaged investors setting science-based targets has increased annually by X%

Relevance of the indicator:

Investors engagement is included in this ACT methodology for the following reasons:

• Act on all the possible existing levers on the money value chain. Engaging with investors is also a great way to be part of the solution and go even beyond the engagement with their investees.
• It is important to mobilize and raise more money to be vested in favour of climate solutions, low carbon/enabling activities or companies to decarbonize.
• Asset managers can have a direct influence on the investors and explain to what extent climate is a financial risk that must be taken into account when vesting money in companies or financial instruments. More, it has the responsibility to explain that climate is also an investment opportunity as well. The role of asset managers (whether primary or secondary) is to mainstream climate finance investments through dedicated climate finance funds. Important: for the narrative score and the global appreciation of the score, the rationale of the climate funds/vehicle commercialized should be scrutinized to understand if the approach is about (i) alignment or (ii) impact. The guidance here is to reward impact approaches, even though it is still difficult to evidence GHG emission reduction due to the financial institution individual action.

In this module, Investors can be whether individuals, institutional or companies.

Scoring the indicator:

Because of data availability and complexity, a direct measure of the outcome of such engagement is not very feasible currently. Because there is no global agreement on what a robust enough labelled fund is, it has not been possible to compute the total of ‘green’ funds out of the total funds of a defined asset manager and associate score to it. Hence, the approach of a maturity matrix has be chosen as it allows the analyst to consider multiple dimensions of investors engagement and assess them together towards a single score for investors Engagement.

The relevant data for this indicator are:

• The financial institution shall disclose details on its engagement strategy (objectives, levers) & associated framework.
• CDP Questionnaire mapping to this indicator:
  • C-FS2.2f
  • C-FS3.6
  • C-FS3.6b
  • C-FS12.1b
  • C12.1
  • C12.1b
  • FW-FS3.3
  • FW-FS3.3a
  • FW-FS3.4

External sources of data may also be used for the analysis of this indicator.

The assessment will assign a maturity score based on the financial institution’s formalized written strategy regarding its engagement with its investees, expressed in a maturity matrix.

A financial institution placed in the ‘Low-carbon aligned’ category will receive the maximum score. Conversely, a financial institution at a lower level will receive a partial score, with 0 points awarded for having no engagement at all.

Asset Managers and Asset Owners (direct investment)

“Other low-carbon transition-related recommendations” refers to key aspects of a company’s low-carbon transition, beyond emissions reductions and targets, that financial institutions can engage them on. These aspects can include performance indicators from any ACT performance modules, such as:

• Intangible investment
  • For example, the financial institution recommends that its investees increase their R&D spend in low-carbon technologies.
• Management
  • For example, the financial institution encourages its investees to conduct climate change scenario testing.
• Policy engagement
  • For example, the financial institution encourages its investees to support relevant climate policies.
• Business model
  • For example, the finance institution engages with its investees to develop new, low-carbon business models.

Action levers must be embedded in a strategy document, and not be presented as examples of past/present actions/initiatives (such examples should be scored in indicator 7.2). “Action levers” include but are not limited to the following individual action levers, which are grouped into five engagement types (sources: 2022 CDP climate change questionnaire CDP 12.1b (C-FS12.1b) (Banking/Asset manager):

• Education/information sharing
  • Run an engagement campaign to educate companies about your climate change performance and strategy
  • Share and disclose climate information about your portfolios and relevant certification schemes (i.e. taxonomic performance, Taxonomic Alignment Ratio, carbon portfolio performance)
  • Provide corporates with information and analytics regarding their business specific climate risks and opportunities
• Collaboration & innovation
  • Run a campaign to encourage innovation to reduce climate change impacts (e.g. climate solutions)
  • Work in partnership with corporates on decarbonization goals, consistent with an ambition to reach net zero emissions by 2050 or sooner across all assets
  • Integrate climate risks on asset pricing models (gives a +25% bonus points on the category assessed)
  • Engage with portfolio company, collaboratively through initiative or coalitions in line with 1.5°C scenario requirements
  • Engage simultaneously with numerous companies and stakeholders from the same sector or value chain (8)
  • Collaborative engagement with the management of publicly listed firms and private firms (23).
  • The asset owner, either individually or jointly with others, endorses or publishes position papers on pertinent climate topics that benefit from asset owner commitments in line with the Alliance ambitions to guide net-zero engagement activities or topics; (8)
  • Provide specific climate-related products (e.g. for an asset manager climate-thematic funds)
• Compliance & onboarding
  • Evaluate the asset manager’s climate change mitigation efforts, their management of climate risks/opportunities, and to ensure their alignment of stewardship activities and public messaging with the long-term climate interests of the Alliance on climate change. (8)
  • Climate change considerations in investees management position mechanism
  • Climate-related criteria in investment selection/screening/decision
  • Enhanced Climate Due Diligence
  • Signaling effects of publicized engagement with, and/or divestment from, companies that do not adequately alter, or commit to altering, corporate practices (23).
• Information collection (understanding client behavior)
  • Collect climate-related and carbon emissions information from companies as part of due diligence
  • Collect climate-related and carbon emissions information at least annually from long-term investments
• Engagement & incentivization (changing client behavior)
  • Exercise active ownership
  • Support (ambitious) climate-related shareholder resolutions
  • Integration of climate considerations in other types of resolutions (lobbying, reporting, remuneration)
  • Support climate-related issues in proxy voting (the proxy voting policy draws on widely recognized and accepted frameworks, such as the TCFD, to assess a range of different climate-related factors for voting at their portfolio companies)
  • Initiate and support dialogue with investee boards to set Paris-aligned strategies
  • Vote and offer climate resolutions in favor of climate-related disclosure practices among investees
  • Vote and offer climate resolutions in favor of investees to set a robust & credible transition plan
  • Investors engage simultaneously with numerous companies and stakeholders from the same sector or value chain (8)
  • Sectoral exclusion & divestment
  • Publish its approach to integrating climate risks and opportunities (both transition and physical) across their portfolio management and stewardship team’s training and activities (8)

Asset Owners (mandating Asset managers)

“Other low-carbon transition-related recommendations” refers to key aspects of a company’s low-carbon transition, beyond emissions reductions and targets, that financial institutions can engage them on. These aspects can include performance indicators from any ACT performance modules, such as:

• Intangible investment
  • For example, the financial institution recommends that its investees increase their R&D spend in low-carbon technologies.
• Management
  • For example, the financial institution encourages its investees to conduct climate change scenario testing.
• Policy engagement
  • For example, the financial institution encourages its investees to support relevant climate policies.
• Business model
  • For example, the finance institution engages with its investees to develop new, low-carbon business models.

Action levers must be embedded in a strategy document, and not be presented as examples of past/present actions/initiatives (such examples should be scored in indicator 7.2). “Action levers” include but are not limited to the following individual action levers, which are grouped into five engagement types (sources: 2022 CDP climate change questionnaire CDP 12.1b (C-FS12.1b) (Banking/Asset manager):

• Education/information sharing
  • Run an engagement campaign to educate companies about your climate change performance and strategy
  • Share and disclose climate information about your portfolios and relevant certification schemes (i.e. taxonomic performance, Taxonomy Alignment Ratio, carbon portfolio performance)
  • Provide corporates with information and analytics regarding their business specific climate risks and opportunities
• Collaboration & innovation
  • Run a campaign to encourage innovation to reduce climate change impacts (e.g. climate solutions)
  • Work in partnership with corporates on decarbonization goals, consistent with an ambition to reach net zero emissions by 2050 or sooner across all assets
  • Integrate climate risks on asset pricing models (gives a +25% bonus points on the category assessed)
  • Engage with portfolio company, collaboratively through initiative or coalitions in line with 1.5°C scenario requirements
  • Engage simultaneously with numerous companies and stakeholders from the same sector or value chain (8)
  • Collaborative engagement with the management of publicly listed firms and private firms (23).
  • The asset owner, either individually or jointly with others, endorses or publishes position papers on pertinent climate topics that benefit from asset owner commitments in line with the Alliance ambitions to guide net-zero engagement activities or topics; (8)
  • Provide specific climate-related products (e.g. for an asset manager climate-thematic funds)
• Compliance & onboarding
  • Evaluate the asset manager’s climate change mitigation efforts, their management of climate risks/opportunities, and to ensure their alignment of stewardship activities and public messaging with the long-term climate interests of the Alliance on climate change. (8)
  • Climate change considerations in investees management position mechanism
  • Climate-related criteria in investment selection/screening/decision
  • Enhanced Climate Due Diligence
  • Signaling effects of publicized engagement with, and/or divestment from, companies that do not adequately alter, or commit to altering, corporate practices (23).
• Information collection (understanding client behavior)
  • Collect climate-related and carbon emissions information from companies as part of due diligence
  • Collect climate-related and carbon emissions information at least annually from long-term investments
  • Engagement & incentivization (changing client behavior)
  • Exercise active ownership
  • Support (ambitious) climate-related shareholder resolutions
  • Integration of climate considerations in other types of resolutions (lobbying, reporting, remuneration)
  • Support climate-related issues in proxy voting (the proxy voting policy draws on widely recognized and accepted frameworks, such as the TCFD, to assess a range of different climate-related factors for voting at their portfolio companies)
  • Initiate and support dialogue with investee boards to set Paris-aligned strategies
  • Vote and offer climate resolutions in favor of climate-related disclosure practices among investees
  • Vote and offer climate resolutions in favor of investees to set a robust & credible transition plan
  • Investors engage simultaneously with numerous companies and stakeholders from the same sector or value chain (8)
  • Sectoral exclusion & divestment
  • Publish its approach to integrating climate risks and opportunities (both transition and physical) across their portfolio management and stewardship team’s training and activities (8)

Relevance of the indicator:

Strategies to influence companies or asset managers are included in this ACT methodology for the following reasons:

• For financial institutions engagement is considered as the most impactful/tangible lever for direct GHG emissions reduction in the economy.
• Financial institutions have an important responsibility as the financings can directly unlock project that will emit GHG emissions on a long period of time (primary market) or contribute indirectly to the attractiveness of the company by supporting its share/bond price (secondary market).
• A financial institution can have a great engagement strategy/policy and bad practices for climate (and conversely). As so, it is important to capture both aspects: strategy and actions
• A credible engagement strategy must demonstrate to have precise objectives with an associated timeline with possible sanctions, and with an important priority on the fossil fuel sector.
• The downstream money value chain represents the largest source of emissions and risks for financial institutions and must be addressed through a proper ambitious engagement strategy.

Scoring the indicator:

When an asset owner has both direct investment activities and mandates asset managers, the analyst will have to do the assessment for both tables. The final score will be then weighted depending on the asset under management breakdown between direct investments and delegated management.

Because of data availability and complexity, a direct measure of the outcome of such engagement is not very feasible at this time. It is often challenging to quantify the emission reduction potential and outcome of collaborative activities with the investee. Therefore, the approach of a maturity matrix allows the analyst to consider multiple dimensions of engagement and assess them together towards a single score for a strategy related to Investees’ Engagement.

The relevant data for this indicator are:

• Activities to influence companies’ GHG emissions (directly, collectively or via asset managers)

CDP Questionnaire mapping to this indicator:

• C-FS2.2f
• C-FS3.6
• C-FS3.6b
• C-FS12.1b
• C12.1
• C12.1b

External sources of data may also be used for the analysis of this indicator.

The assessment will assign a maturity score based on the financial institution’s demonstration of recent and current activities and initiatives with its companies or asset mangers, expressed in a maturity matrix.

A financial institution that is placed in the ‘Low-carbon aligned’ category will receive the maximum score. A financial institution which is at a lower level will receive a partial score, with 0 points awarded for having no engagement at all.

This maturity matrix is indicative but does not show all possible options that can result in a particular score. The financial institution’ responses will be scrutinized by the analyst and then placed on the level in the matrix where the analyst deems it most appropriate.

Asset Managers and Asset Owners (Direct investment)

Action levers must be presented as examples of past/present actions/initiatives, and not be theoretical/embedded in a strategy document (such examples should be scored in indicator 7.1). “Action levers” include but are not limited to the following individual action levers, which are grouped into four engagement types (sources: 2022 CDP climate change questionnaire C12.1a (24), (25)):

• Education/information sharing
  • Run an engagement campaign to educate companies about your climate change performance and strategy
  • Share and disclose climate information about your portfolios and relevant certification schemes (i.e. taxonomic performance, Taxonomic Alignment Ratio, carbon portfolio performance)
  • Provide corporates with information and analytics regarding their business specific climate risks and opportunities
• Collaboration & innovation
  • Run a campaign to encourage innovation to reduce climate change impacts
  • Work in partnership with corporates on decarbonization goals, consistent with an ambition to reach net zero emissions by 2050 or sooner across all assets
  • Integrate climate risks on asset pricing models (gives a +25% bonus points on the category assessed)
  • Engage with portfolio company, collaboratively through initiative or coalitions in line with 1.5°C scenario requirements
  • Engage simultaneously with numerous companies and stakeholders from the same sector or value chain (8)
  • The asset owner, either individually or jointly with others, endorses or publishes position papers on pertinent climate topics that benefit from asset owner commitments in line with the Alliance ambitions to guide net-zero engagement activities or topics; (8)
  • Provide specific climate-related products (e.g. for an asset manager climate-thematic funds)
• Compliance & onboarding
  • Evaluate the asset manager’s climate change mitigation efforts, their management of climate risks/opportunities, and to ensure their alignment of stewardship activities and public messaging with the long-term climate interests of the Alliance on climate change. (8)
  • Climate change considerations in investees management position mechanism
  • Climate-related criteria in investment selection/screening/decision
  • Enhanced Climate Due Diligence
  • Call publicly for company or sector action and systematically reinforce expectations through principle and merit-based voting as detailed here (22)
• Information collection
  • Collect climate-related and carbon emissions information from companies as part of due diligence
  • Collect climate-related and carbon emissions information from asset managers
  • Collect climate-related and carbon emissions information at least annually from long-term investments
• Engagement & incentivization
  • Exercise active ownership
  • Support (ambitious) climate-related shareholder resolutions
  • Integration of climate considerations in other types of resolutions (lobbying, reporting, remuneration)
  • Support climate-related issues in proxy voting (the proxy voting policy draws on widely recognized and accepted frameworks, such as the TCFD, to assess a range of different climate-related factors for voting at their portfolio companies)
  • Initiate and support dialogue with investee boards to set Paris-aligned strategies
  • Vote and offer climate resolutions in favor of climate-related disclosure practices among investees
  • Vote and offer climate resolutions in favor of investees to set a robust & credible transition plan
  • Investors engage simultaneously with numerous companies and stakeholders from the same sector or value chain (8)
  • Sectoral exclusion & divestment

Publish its approach to integrating climate risks and opportunities (both transition and physical) across their portfolio management and stewardship team’s training and activities (8) The metric used to measure impact depends on the action lever the metric refers to. Examples of “evidence of impact” might include, but are not limited to:

• Qualitative example: Feedback from clients saying that they appreciate and will use this new knowledge to start their journey on the low-carbon transition
• Quantitative example: Evidence that vote have led to transition plan adoption. Evidence that the engagement actions of the financial institution might be responsible for GHG emissions by X% from the company it provides fundings.

Asset Owners (mandating asset managers)

Action levers must be presented as examples of past/present actions/initiatives, and not be theoretical/embedded in a strategy document (such examples should be scored in indicator 7.1). “Action levers” include but are not limited to the following individual action levers, which are grouped into four engagement types (sources: 2022 CDP climate change questionnaire C12.1a (24), (25)):

• Education/information sharing
  • Run an engagement campaign to educate companies about your climate change performance and strategy
  • Share and disclose climate information about your portfolios and relevant certification schemes (i.e. taxonomic performance, Taxonomic Alignment Ratio, carbon portfolio performance)
  • Provide corporates with information and analytics regarding their business specific climate risks and opportunities
• Collaboration & innovation
  • Run a campaign to encourage innovation to reduce climate change impacts
  • Work in partnership with corporates on decarbonization goals, consistent with an ambition to reach net zero emissions by 2050 or sooner across all assets
  • Integrate climate risks on asset pricing models (gives a +25% bonus points on the category assessed)
  • Engage with portfolio company, collaboratively through initiative or coalitions in line with 1.5°C scenario requirements
  • Engage simultaneously with numerous companies and stakeholders from the same sector or value chain (8)
  • The asset owner, either individually or jointly with others, endorses or publishes position papers on pertinent climate topics that benefit from asset owner commitments in line with the Alliance ambitions to guide net-zero engagement activities or topics; (8)
  • Provide specific climate-related products (e.g. for an asset manager climate-thematic funds)
• Compliance & onboarding
  • Evaluate the asset manager’s climate change mitigation efforts, their management of climate risks/opportunities, and to ensure their alignment of stewardship activities and public messaging with the long-term climate interests of the Alliance on climate change. (8)
  • Climate change considerations in investees management position mechanism
  • Climate-related criteria in investment selection/screening/decision
  • Enhanced Climate Due Diligence
  • Call publicly for company or sector action and systematically reinforce expectations through principle and merit-based voting as detailed here (22)
• Information collection
  • Collect climate-related and carbon emissions information from companies as part of due diligence
  • Collect climate-related and carbon emissions information from asset managers
  • Collect climate-related and carbon emissions information at least annually from long-term investments
• Engagement & incentivization
  • Exercise active ownership
  • Support (ambitious) climate-related shareholder resolutions
  • Integration of climate considerations in other types of resolutions (lobbying, reporting, remuneration)
  • Support climate-related issues in proxy voting (the proxy voting policy draws on widely recognized and accepted frameworks, such as the TCFD, to assess a range of different climate-related factors for voting at their portfolio companies)
  • Initiate and support dialogue with investee boards to set Paris-aligned strategies
  • Vote and offer climate resolutions in favor of climate-related disclosure practices among investees
  • Vote and offer climate resolutions in favor of investees to set a robust & credible transition plan
  • Investors engage simultaneously with numerous companies and stakeholders from the same sector or value chain (8)
  • Sectoral exclusion & divestment

Publish its approach to integrating climate risks and opportunities (both transition and physical) across their portfolio management and stewardship team’s training and activities (8) The metric used to measure impact depends on the action lever the metric refers to. Examples of “evidence of impact” might include, but are not limited to:

• Qualitative example: Feedback from clients saying that they appreciate and will use this new knowledge to start their journey on the low-carbon transition
• Quantitative example: Evidence that vote have led to transition plan adoption. Evidence that the engagement actions of the financial institution might be responsible for GHG emissions by X% from the company it provides fundings.

Relevance of the indicator:

Activities to influence companies are included in this ACT methodology for the following reasons:

• Financial institutions have the ability to influence the climate strategy and performance of the companies its finance directly or to which the financial instruments is tied.
• The downstream money value chain represents the largest source of emissions and risks for financial institutions and must be addressed through a proper ambitious engagement strategy.
• A financial institution can have a great engagement strategy/policy and bad practices for climate (and conversely). As so, it is important to capture both aspects: strategy and actions.

Scoring the indicator:

Because of data availability and complexity, a direct measure of the outcome of such engagement is not very feasible at this time. It is often challenging to quantify the emission reduction potential and outcome of engagement activities. Therefore, the approach of a maturity matrix allows the analyst considering multiple dimensions of engagement and assess them together towards a single score for a strategy related to engagement with investees/asset managers.

The relevant data for this indicator are:

• Fossil Fuel exit policy and associated actions
• Actions in favour of deforestation activities exit

CDP Questionnaire mapping to this indicator:

• C-FS2.2f
• C-FS3.6
• C-FS3.6b
• C-FS12.1b
• C12.1
• C12.1b

External sources of data may also be used for the analysis of this indicator.

The assessment will assign a maturity score based on the financial institution’s demonstration of recent and current activities and initiatives with the companies operating in oil & gas sector and deforestation linked activities. This is expressed through a maturity matrix.

A financial institution that is placed in the ‘Low-carbon aligned’ category will receive the maximum score. A financial institution which is at a lower level will receive a partial score, with 0 points awarded for having no engagement at all.

This maturity matrix is indicative but does not show all possible options that can result in a particular score. The financial institution answers will be scrutinized by the analyst and then placed on the level in the matrix where the analyst deems it most appropriate.

Relevance of the indicator:

Activities to influence Oil & Gas clients and deforestation-linked activities are included in this ACT methodology for the following reasons:

• Financial institutions should not provide financing to companies in the GOGEL or GCEL list.
• Financial institutions have the ability to influence the climate strategy and performance of their investees/asset managers through their investments.
• The downstream money value chain represents the largest source of emissions and risks for financial institutions and must be addressed through a proper ambitious engagement strategy.

Scoring the indicator:

Because of data availability and complexity, a direct measure of the outcome of such engagement is not very feasible at this time. It is often challenging to quantify the emission reduction potential and outcome of engagement activities. Therefore, the approach of a maturity matrix allows the analyst considering multiple dimensions of engagement and assess them together towards a single score for all the activities related to engagement with investees/asset managers for Oil & Gas sector and deforestation linked-activities.

In the case where the financial institution has no exposition to Oil & Gas activities, the tool will put more weight on the 7.1 and 7.2 indicators and 7.3 will account for 2% of total module 7 weighting, instead of 8%. 7.1 and 7.2 indicators weight will respectively be 7% and 11%.

In the case where the financial institution has no exposition to deforestation linked activities, the tool will put more weight on the 7.1 and 7.2 indicators and 7.3 will account for 6% of total module 7 weighting, instead of 8%. 7.1 and 7.2 indicators weight will respectively be 5% and 9%.

The relevant data for this indicator are:

• Public climate change policy positions
• Description of this policy (scope & boundaries, responsibilities, process to monitor and review)
• Associations, alliances, coalitions or thinktanks that are likely to take a position on climate change legislation
• External sources of data shall also be used for the analysis of this indicator (e.g. RepRisk database, InfluenceMap, press news, actions in standard development)

CDP Questionnaire mapping to this indicator:

• C12.3

External sources of data may also be used for the analysis of this indicator.

The analyst will evaluate the description and evidence of the policy on trade associations and climate change for the presence of best practice elements and consistency with the other reported management indicators. The financial institution description and evidence will be compared to the maturity matrix developed to guide the scoring and a greater number of points will be allocated for elements indicating a higher level of maturity. Maximum points are awarded if all these elements are demonstrated.

Best practice elements to be identified in the test/analysis include:

• A publicly available policy is in place
• The scope of the policy covers the entire financial institution and its activities, and all associations, alliances, coalitions or thinktanks of which it is a member or to which it provides support. (Consideration should be given as to whether these associations, alliances, coalitions and thinktanks in turn are members of or otherwise support other such organizations that have climate-negative activities or positions).
• The policy sets out what action is to be taken in the case of inconsistencies
• Action includes option to terminate membership of the associations, alliances, coalitions or thinktanks
• Action includes option of publicly opposing or actively countering the association, alliance, coalition or thinktank’s position
• Responsibility for oversight of the policy lies at top level of the organization, and implementation lies at senior management level
• There is a process to monitor and review association, alliance, coalition and thinktank positions

Further guidance for each level of seniority is given below:

Level 1

• Highest level of accountability or decision-making within the organization, with responsibility for overall organizational or corporate strategic direction.
• Examples: Board, sub-set of the Board, Chief Executive Officer (CEO)

Level 2

• Person/committee that is one step in the corporate structure from the highest level of decision-making of the organization (i.e. reports to or is accountable to Level 1). Inputs into organizational strategy but does not make decisions on it. May have responsibility and accountability for business unit strategy formation and implementation of one or more business units.
• Examples: Vice President, Director, other C-Suite officer (e.g., Chief Financial Officer (CFO), Chief Procurement Officer (CPO), Chief Risk Officer (CRO), Chief Operating Officer (COO), Chief Sustainability Officer (CSO), etc.), other committee appointed by the Board

Level 3

• Person/committee that is two steps in the corporate structure from the highest level of decision-making of the organization. May have responsibility and accountability for business unit strategy formation and implementation for one business unit.
• Examples: Manager, Senior Manager

Level 4

• Person/committee that is three or more steps in the corporate structure from the highest level of decision-making of the organization. No responsibility or accountability for business unit strategy development.
• Examples: Officer, Senior Officer

Actions a financial institution can take when associations, alliances, coalitions or thinktanks of which it is a member or to which it provides support are found to be opposing “climate-friendly” policies follow a hierarchy of severity, as follows (source: (27), (28)):

1. Making public statements challenging associations, alliances, coalitions and thinktanks
   1. For example, the company speaks out, publicly distancing itself from statements or lobbying against climate policy by associations, alliances, coalitions or thinktanks of which it is a member or to which it provides support. The company explains how these statements or lobbying are inconsistent with its own emission reduction goals and with its support for climate policy.
2. Engaging with associations, alliances, coalitions or thinktanks to change their position.
   1. For example, the company works to end lobbying against climate policy through transparent and time-bound engagement with those organizations.
3. Withdrawing funding for/suspending or ending membership of the association, alliance, coalition or thinktank.
   1. For example, where attempts to change an association’s position prove ineffective or insufficient, the company discontinues its membership or withdraws funding from the association.

Associations, alliances, coalitions and thinktanks are a key instrument by which financial institution can indirectly influence policy on climate. Thus, when associations, alliances, coalitions and thinktanks take positions, which are negative for climate, financial institutions need to take action to ensure that this negative influence is countered or minimized.

This indicator is consistent with the ACT Framework and ACT Guidelines and common to the other sectoral methodologies.

The relevant data for this indicator are:

• The reporter shall provide details of those associations, alliances, coalitions and thinktanks that are likely to take a position on climate change legislation [C12.3c]
• The financial institution should attach supporting documentation, if this exists, giving evidence [C12.3d]

External sources of data shall also be used for the analysis of this indicator:

• RepRisk database,
• Climate Action 100+
• Ellen Macarthur Foundation
• Press news
• EP100 – Climate Group (www.theclimategroup.org/project/ep100)
• Low-carbon Technology Partnerships initiative (www.wbcsd.org/Programs/Climate-and-Energy/Climate/Low-Carbon-Technology-Partnerships-initiative)

CDP Questionnaire mapping to this indicator:

• C12.3

External sources of data may also be used for the analysis of this indicator.

The list of associations, alliances, coalitions and thinktanks declared in the CDP data and other external sources relating to the company is assessed against a list of associations, alliances, coalitions and thinktanks that have climate-negative activities or positions (InfluenceMap is usually used for this (29)). (Consideration should be given as to whether these associations, alliances, coalitions and thinktanks in turn are members of or otherwise support other such organisations that have climate-negative activities or positions.) Such activities or positions could include lobbying against climate policies and practices. The results will be compared to any policy described in 8.1 (“Financial institution policy on engagement with associations, alliances, coalitions or thinktanks”).

The relevant data for this indicator are:

• The financial institution should attach supporting documentation, if this exists, giving evidence on the position of the company on significant climate policies (public statements, etc.).
• The financial institution shall disclose details of the issues on which it has been directly engaging with policy makers and its proposed legislative solution.

CDP Questionnaire mapping to this indicator:

• C12.3

External sources of data shall also be used for the analysis of this indicator (e.g. RepRisk database, press news, actions in standard development)

The analyst evaluates the description and evidence on financial institution position on relevant climate policies for the presence of best practice elements, negative indicators and consistency with the other reported management indicators. The financial institution description and evidence will be compared to the maturity matrix developed to guide the scoring and a greater number of points will be allocated for elements indicating a higher level of maturity.

Examples of sectoral/cross-sectoral initiatives against climate change might include, but are not limited to:

• Science Based Targets initiative (SBTi)
• Net Zero Asset Owner Alliance (NZAOA)
• Race to Zero
• Glasgow Financial Alliance for Net Zero (GFANZ)

Further guidance for each level of seniority is given below:

Level 1

• Highest level of accountability or decision-making within the organization, with responsibility for overall organizational or corporate strategic direction.
• Examples: Executives, Board, sub-set of the Board, Chief Executive Officer (CEO)

Level 2

• Person/committee that is one step in the corporate structure from the highest level of decision-making of the organization (i.e. reports to or is accountable to Level 1). Inputs into organizational strategy but does not make decisions on it. May have responsibility and accountability for business unit strategy formation and implementation of one or more business units.
• Examples: Executives, Vice President, Director, other C-Suite officer (e.g., Chief Financial Officer (CFO), Chief Procurement Officer (CPO), Chief Risk Officer (CRO), Chief Operating Officer (COO), Chief Sustainability Officer (CSO), etc.), other committee appointed by the Board

Level 3

• Person/committee that is two steps in the corporate structure from the highest level of decision-making of the organization. May have responsibility and accountability for business unit strategy formation and implementation for one business unit.
• Examples: Manager, Senior Manager

Level 4

• Person/committee that is three or more steps in the corporate structure from the highest level of decision-making of the organization. No responsibility or accountability for business unit strategy development.
• Examples: Officer, Senior Officer

The relevant data for this indicator are:

• Participation in meetings/collaborations with public authorities/local actors
• Contracts with public authorities/local actors

CDP Questionnaire mapping to this indicator:

• C12.3

External sources of data shall also be used for the analysis of this indicator.

The analyst evaluates the description and evidence of the financial institution’s collaboration with local authorities for the presence of best-practice elements. Collaboration generally falls into two main categories, policy engagement and collective action/partnerships. Policy engagement could range from dialogue between the financial institution and local authority around the development of new climate-related policies, to participation in local pilot programs to finance these policies, to large-scale support for and implementation of these policies. Collective action/partnerships could range from participation in working groups, roundtables, ongoing initiatives, events and/or platforms for local authorities and companies to advance specific issues related to climate change/emissions reduction, to large-scale public-private partnerships (PPPs) with a climate change/emissions reduction focus.

In general, a partnership can only be classed as such if it goes beyond a mere contract between the public authority and the financial institution. It must be a collaboration that works to improve the current system/process and displays additionality (the collaboration reduces GHG emissions beyond business as usual, meaning the reductions would not have happened had the collaboration not been implemented). For example, a contract between a transport operator and a public authority would not be enough to be classed as a partnership by itself, whereas a partnership to reduce local GHG emissions by increasing the share of electric/hybrid/hydrogen buses and promoting greater uptake of public transport within the local area would be sufficient.

While the thematic areas of these collaborations will vary depending on the sector assessed, they should generally fall into one or more of four broad categories:

1. Electrification and energy (including demand management and grid flexibility)
2. Transport
3. Circular economy
4. Buildings

In each case, the level of maturity will depend on the level of commitment from the financial institution, and whether there is evidence that the collaboration has been successful in achieving local emissions reductions.

The financial institution description and evidence are compared to the maturity matrix developed to guide the scoring and a greater number of points are allocated for elements indicating a higher level of maturity.

A financial institution can be classed as a “significant partner” if the policy/partnership would not exist, or be significantly smaller/less successful, without the financial institution’s involvement/financings. The financial institution must be one of the few largest or most invested stakeholders in the policy/partnership.

Analysts should consider the size of the financial institution assessed. For example, financial institution operating in a single jurisdiction are not expected to be involved in collaboration with public authorities outside of that jurisdiction, and could still score Low-carbon aligned if they met each of the other criteria (for example, if they had demonstrated emissions reductions as a result of the policy/partnership being implemented/financed, and had a policy to become involved in more collaboration within their operational jurisdiction).

The relevant data for this indicator are:

• The financial institution policies or tools modifying its intrinsic way of processing and making business.

CDP Questionnaire mapping to this indicator:

• C-FS14.3a
• C3.5

External sources of data may also be used for the analysis of this indicator.

The analysis is based on the financial institution tools or policies degree of integration in its business activities. The analyst must assess the operational levers put in place to better support activities and companies in their transition.

The analysis is based on (up to) five tool or policy categories proposed by the financial institution. The analyst evaluates the business model shift through a maturity matrix.

If several tools or policies are accountable to this section, the final score will be the one given to the most mature activity (usually the one that is best scored too). The financial institution should not be penalized if it has built a mature business model and explores besides other tracks (which would be scored with a lower score) compared to another financial institution having only one mature business model.

Relevant activity areas for this indicator include:

• Integrating climate risks into asset pricing
• Develop taxonomy-based investment product (e.g., funds with a minimum taxonomy alignment percentage (turnover, CAPEX or OPEX))
• Building low carbon index (e.g., based on Climate Transparency benchmark and Paris Aligned Benchmark methodologies)
• Investment decision linked to climate criteria (e.g., taxonomic goal, x% of reduction in the investee company over the holding period)
• Climate Dividends (30)
• Changing holding period/maturity of its investment strategy (bonus)
• Management fees/carried interest tied to climate performance criteria
• Exclusion based on best recommendations (e.g., current and new fossil fuel project development)
• Interest rate subsidy/special interest rate

* Example: a 12% of Total revenue from green loans gives a 50% score for Profitability of financing activity which means ‘Mature business activity but not the main source of income or in a development stage (e.g. test)’.

This indicator measures the financial institution contribution through the share of its financings towards (i) aligned or (ii) transitional entities or activities, or (iii) climate change solutions versus out of its total asset under management. The goal is to capture the share of low-carbon activities/companies financed and its growth potential.

Low-carbon activities or associated financial products are defined according to the EU Green taxonomy.

Best practice elements to be identified in the test/analysis include:

• the business activity part in the of revenue (fees) (see maturity matrix);
• the business activity share in the total financings;
• the business activity future expansion;
• the expansion will occur on a defined timescale;

CDP Questionnaire mapping to this indicator:

• C-FS14.3a
• C3.5

The analysis is based on (up to) five financing activities towards (i) aligned entities or activities, (ii) transitional or (iii) climate change solutions proposed by the financial institution. The analyst evaluates the business activities shift through a maturity matrix.

If several financing activities for transition are accountable to this section, the final score will be the one given to the most mature financing activity (usually the one that is best scored too). The financial institution should not be penalized if it has built a mature business model and explores besides other tracks (which would be scored with a lower score) compared to another company having only one mature business model.

Best practice elements to be identified in the test/analysis include:

• Green investment ratio (aligned with the European taxonomy)
• Sustainability linked bonds share (aligned with Climate Bonds Standard (33) or the European Green bond standard (34))
• Green bonds share (aligned with Climate Bonds Standard (33) or the European Green bond standard (34))
• Share of companies with a credible and robust transition plan
• Share of companies with a transition plan assessed

The maturity matrix is provided below:

* To score the ‘Profitability of financing activity’ and ‘Size of financing activity’ categories, the analyst shall refer to the following matrix to score:

Example: a 8% of Total portfolio revenue from green bonds gives a 50% score for Profitability of financing activity which means ‘Mature business activity but not the main source of income or in a development stage (e.g. test)’.

This indicator is for financial institution financing emissive activities or companies (e.g. companies operating on emissive value chain, upstream of an intensive activity, supplying part of the final product (e.g. transport equipment manufacturer)). A financial institution that finances part of a highly emitting final product bears some responsibility for the emissions linked to this product but is also at risk in a low carbon world. This indicator aims to capture the evolution of a financial institution's loan mix towards low-carbon activities and companies. For example, an investor directly providing capital (primary market) to a company that produces equipment for the automotive sector can help increase its share of products for electric vehicles, thus contributing to the promotion of low-carbon vehicles and reducing its risk linked to thermal vehicles in a low-carbon world.

There is still a huge gap of financing in climate solutions (11) and financial institution have the power to bridge part of this gap (along with other actors). Investors must align their business practices with Paris Agreement mitigation goal and contribute reducing GHG emissions in the real economy according to their possibilities of impact (primary vs secondary market).

Scope 3.15 - Intensity

Aluminium

(Sectoral financed emissions)

Scope 3.15 - Intensity

Automotive

(Sectoral financed emissions)

Scope 3.15 - Intensity

Building

(Sectoral financed emissions)

Scope 3.15 - Intensity

Cement

(Sectoral financed emissions)

Scope 3.15 - Absolute

Chemicals

(Sectoral financed emissions)

Scope 3.15 - Intensity

Electric Utilities

(Sectoral financed emissions)

Scope 3.15 - Intensity

Glass

(Sectoral financed emissions)

Scope 3.15 - Intensity

Iron & Steel

(Sectoral financed emissions)

Scope 3.15 - Intensity

Oil & Gas

(Sectoral financed emissions)

Scope 3.15 - Intensity

Pulp & Paper

(Sectoral)

Scope 3.15 - Intensity

Real Estate

(Sectoral financed emissions)

Scope 3.15 - Intensity

Transport

(Sectoral financed emissions)

gCO2e/p.km

gCO2e/t/km

Scope 3.15 - Intensity

Asset Class

(Sectoral financed emissions)

Scope 3.15 - Absolute

Asset Class

(Asset class financed emissions)

Scope 3.15 - Absolute

General

(Global Financed emissions)

Scope 3.15 - Intensity

Aluminium

(Sectoral financed emissions)

Scope 3.15 - Intensity

Automotive

(Sectoral financed emissions)

Scope 3.15 - Intensity

Building

(Sectoral financed emissions)

Scope 3.15 - Intensity

Cement

(Sectoral financed emissions)

Scope 3.15 - Absolute

Chemicals

(Sectoral financed emissions)

Scope 3.15 - Intensity

Electric Utilities

(Sectoral financed emissions)

- SBT SDA

- IEA ETP 2017 – B2DS

Scope 3.15 - Intensity

Glass

(Sectoral financed emissions)

Scope 3.15 - Intensity

Iron & Steel

(Sectoral financed emissions)

Scope 3.15 - Intensity

Oil & Gas

(Sectoral financed emissions)

Scope 3.15 - Intensity

Pulp & Paper

(Sectoral)

Scope 3.15 - Intensity

Real Estate

(Sectoral financed emissions)

Scope 3.15 - Intensity

Transport

(Sectoral financed emissions)

gCO2e/p.km

gCO2e/t/km

Scope 3.15 - Intensity

Asset Class

(Sectoral financed emissions)

Scope 3.15 - Absolute

Asset Class

(Asset class financed emissions)

Scope 3.15 - Absolute

General

(Global Financed emissions)

Use of Proceeds amounts. Taxonomic activities financed. Breakdown of primary and secondary market and by sector and asset class.

General Corporate Purpose amounts. Financed Companies with a credible and robust transition plan.

The highest available ACT rating is

20 A +

Advanced vehicles include:

Plug-in hybrid vehicles (PHEV)

Battery electric vehicles (BEV)

Fuel cell electric vehicles (FCEV)

Conventional hybrids

Other high-efficiency ICE vehicles

Conventional hybrids and other high-efficiency ICE vehicles are advanced vehicles but they are not low-carbon vehicles.

Vehicles described as low-carbon (LCV) are defined as vehicles that have a drivetrain that have the potential to operate on non-fossil energy sources for at least > 50% of their common use phase. This includes:

Plug-in hybrid vehicles (PHEV)

Battery electric vehicles (BEV)

Fuel cell electric vehicles (FCEV)

Conventional hybrids are excluded from the definition of low-carbon vehicles. Because conventional hybrids do not eschew fossil fuels (aside from the minor addition of biofuels into the fuel mix), they are not qualified for the definition of an LCV.

Scope 1 emissions

Direct GHG emissions and removals

All direct GHG emissions (GHG Protocol Corporate Standard).

Category 1 from ISO 14064-1:2018: Direct GHG emissions and removals occur from GHG sources or sinks inside organizational boundaries and that are owned or controlled by the [reporting] organization. Those sources can be stationary (e.g. heaters,electricity generators, industrial process) or mobile (e.g. vehicles).

Scope 2 emissions

Indirect GHG emissions from imported energy

Indirect GHG emissions from consumption of purchased electricity, heat or steam (GHG Protocol Corporate Standard).

Category 2 from ISO 14064-1:2018: GHG emissions due to the fuel combustion associated with the production of final energy and utilities, such as electricity, heat, steam, cooling and compressed air [imported by the reported company]. It excludes all upstream emissions (from cradle to power plant gate) associated with fuel, emissions due to the construction of the power plant, and emissions allocated to transport and distribution losses.

Scope 3 emissions

Indirect GHG emissions

Other indirect emissions, such as the extraction and production of purchased materials and fuels, transport-related activities in vehicles not owned or controlled by the reporting entity, electricity-related activities (e.g. T&D losses) not covered in Scope 2, outsourced activities, waste disposal, etc. (GHG Protocol Corporate Standard). Scope 3 also encompass the emissions related to the use of sold-products.

ISO 14064-1:2018: GHG emission that is a consequence of an organization’s operations and activities, but that arises from GHG sources that are not owned or controlled by the [reporting] organization. These emissions occur generally in the upstream and/or downstream chain.

Category 3 : indirect GHG emissions from transportation

Category 4: Indirect GHG emissions from products used by an organization

Category 5: Indirect GHG emissions associated with the use of products from

the organization

Category 6: Indirect GHG emissions from other sources

A quantifiable goal (e.g. to reduce GHG emissions).

The following are examples of absolute targets:

metric tonnes CO₂e or % reduction from base year

metric tonnes CO₂e or % reduction in product use phase relative to base year

metric tonnes CO₂e or % reduction in supply chain relative to base year

The following are examples of intensity targets:

metric tonnes CO₂e or % reduction per passenger. Kilometre (also per km; per nautical mile) relative to base year

metric tonnes CO₂e or % reduction per square foot relative to base

metric tonnes CO₂e or % reduction per MWh

FI^′s sectoral trend > 0

Increase in FI’s sectoral emissions intensity

FI^′s sectoral trend ≤ 0 and EI_C(Y_R) ≥ EI_B(2050)

0 ≤ trend ratio ≤ 1 

Decrease in FI’s sectoral emissions intensity but its pathway does not go beyond the sectoral benchmark ambition

FI^′s sectoral trend < 0 

trend ratio > 1 

Decrease in FI’s sectoral emissions intensity and its pathway equals or exceeds the sectoral benchmark ambition

FI^′s sectoral trend ≤ 0 and EI_C(Y_R) ≤ EI_B(2050)

No increase in FI’s sectoral emissions intensity and its emissions intensity is already below the sectoral benchmark ambition for 2050