ACT - Finance - Banks (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 credit allocation 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 

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 (25). According to European supervisors, Banks are not on the track to follow their climate risk exposure and managing it (‘a wait-and-see approach is still prevalent’) (26). Even though climate change scenario analysis and testing have turned to be a common practice (with a large heterogeneity (27) 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 (28) (definition of a climate risk strategy, deployment and implementation, governance, allocation of roles & responsibilities associated with it).

25. Breaking the tragedy of the horizon – climate change and financial stability – speech by Mark Carney. Speech given at Lloyd’s of London. https://www.bankofengland.co.uk/speech/2015/breaking-the-tragedy-of-the-horizon-climate-change-and-financial-stability. 

26. https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.thematicreviewcerreport112022~2eb322a79c.en.pdf. 

27. https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssm.climateriskstresstest2021~a4de107198.en.pdf.

28. https://acpr.banque-france.fr/sites/default/files/medias/documents/20200525_synthese_gouvernance_anglais.pdf.  

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.³

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 bank’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:

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:

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 (30). CO₂ prices are displayed by world regions, predicted values in 2030 and 2050.

There are a variety of ways of analysing the potential impacts of climate-related changes on a bank, 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 banks’ ability to assess climate-related risk.

To date, around 60% of European banks do not yet have a climate risk stress-testing framework. It is key to integrate climate risk scenarios into their 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 to account for various transmission channels and asset classes. It is important for financial institution 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 banks, 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.

This indicator assesses the strategic policy and the process which are formalized and implemented into business decision making process to influence, enable or otherwise shift savers’ choices and behaviours in order to reduce:

• Their GHG emissions tied to their banking account (even if it can look tautological).
• Their GHG emissions tied to their own activities i.e. their business activities for a company or their individual lifestyle for consumers.

The relevant data for this indicator are:

• Methods for engaging with savers, strategy to prioritizing actions and measures of success, especially for savers which high level of savings
• Data on savers’ GHG emissions and climate change strategies
• 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 savers (corporates and individuals), 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.

Indicative (non-exhaustive) list to help in the matrix assessment:

^‡ 1. Information collection (understanding savers behavior)

- Collect climate change and carbon preferences at least annually from savers

- Promote or develop tools to enable clients calculate the carbon footprint of their lifestyle/activities or assess their contribution to Paris Agreement mitigation goal (for corporates e.g. ACT Step by Step or ACT assessment)

2. Engagement & incentivization (changing savers behavior)

- Run an engagement campaign to educate savers about climate change/GHG emissions reductions/other low-carbon transition-related topics for their saving schemes

- Offer financial incentives for savers directing their savings towards climate solutions/low carbon activities/helping companies to transition

- Provide climate-related training, support, and best practices

- Directly work with savers on climate-related topics, such as defining common GHG emission reduction plans for their saving schemes

- Promoting sustainable consumption

3. Innovation & collaboration (changing markets)

- Run a campaign to encourage innovation to reduce climate impacts on products and services

- Collaborate with savers on innovative low-carbon/transition savings products

- Report on savings schemes' climate performance to savers

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

- Regular staff training and upskilling on climate-related topics and related saving schemes

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

Relevance of the indicator:

Deposits are a key financial resource for many credit institutions. The deposit relationship, whether with a corporate or a retail (consumer) saver, is often one entry point for the institution in order to provide other product and services. Savers engagement is included in this ACT methodology for the following reasons:

• It is important to act on all the possible existing levers. Engaging with savers is also a great way to be part of the solution and go even beyond the engagement with their clients.

Savers can be whether corporates or consumers:

• For corporates, it is a great opportunity for the bank to raise climate change issues and orientate & influence the commercial relationship in favour of climate discussions and for instance put light on sustainable financial products in order to help finance the decarbonization strategy of the corporate.
• For individuals, depending on the strategy defined, it can also be an opportunity to help them orientate their savings towards sustainable financial products and funds and to make them understand how the money they put at the bank can directly or indirectly finance high emitting sectors. Providing a carbon footprint tool, whether for their personal lifestyle or for their banking account emissions, can be very insightful to understand the environmental impact of their choices.

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. Because there is no taxonomic labelled fund savers (individuals or corporates) could place their money in or because the additionality of the engagement actions made with corporates or individuals is not measurable, the approach of a maturity matrix allows the analyst to consider multiple dimensions of savers engagement and assess them together towards a single score for savers Engagement.

The relevant data for this indicator are:

• List of activities implemented to influence savers 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 its savers, expressed in a maturity matrix.

A financial institution that is placed in the ‘Low-carbon aligned’ category will receive the maximum score. A company 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):

Indicative (non-exhaustive) list to help in the matrix assessment:

1. Information collection (understanding savers behavior)

- Collect climate change and carbon preferences at least annually from savers

- Promote or develop tools to enable clients calculate the carbon footprint of their savings/activities or assess their contribution to Paris Agreement mitigation goal (for corporates e.g. ACT Step by Step or ACT assessment)

2. Engagement & incentivization (changing saver behavior)

- Run an engagement campaign to educate savers about climate change/GHG emissions reductions/other low-carbon transition-related topics for their saving schemes

- Offer financial incentives for savers directing their savings towards climate solutions/low carbon activities/helping companies to transition

- Provide climate-related training, support, and best practices

- Directly work with savers on climate-related topics, such as defining common GHG emission reduction plans for their saving schemes

- Promoting sustainable consumption

3. Innovation & collaboration (changing markets)

- Run a campaign to encourage innovation to reduce climate impacts on products and services

- Collaborate with savers on innovative low-carbon/transition savings products

- Report on savings schemes' climate performance to savers

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

- Regular staff training and upskilling on climate-related topics and related saving schemes

- Incentivization of relationship 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:

o Qualitative example: Feedback from savers e.g. consumers finding insightful to get insights on their behaviors or saying that they appreciate and will use this new knowledge to start their journey on the low-carbon transition

o Quantitative example: Increase of X% in sustainable financial products/preferences

o Quantitative example: Increase of X% in savers conducting a carbon accounting assessment

Relevance of the indicator:

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

• It is important to act on all the possible existing levers. Engaging with savers is also a great way to be part of the solution and go even beyond the engagement with their clients.

Savers can be whether corporates or consumers:

• For corporates, it is a great opportunity for the bank to raise climate change issues and orientate & influence the commercial relationship in favour of climate discussions and for instance put light on sustainable financial products in order to help finance the decarbonization strategy of the corporate.
• For individuals, depending on the strategy defined, it can also be an opportunity to help them orientate their savings towards sustainable financial products and funds and to make them understand how the money they put at the bank can directly or indirectly finance high emitting sectors. Providing a carbon footprint tool, whether for their personal lifestyle or for their banking account emissions, can be very insightful to understand the environmental impact of their choices. Promoting sustainable.

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. Because there is no taxonomic labelled fund savers (individuals or corporates) could place their money in or because the additionality of the engagement actions made with corporates or individuals is not measurable, the approach of a maturity matrix allows the analyst to consider multiple dimensions of savers engagement and assess them together towards a single score for savers 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 counterparties, 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.

“Other low-carbon transition-related recommendations” refers to key aspects of a counterparty’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 clients increase their R&D spend in low-carbon technologies.
• Management
  • For example, the financial institution encourages its borrower to conduct climate change scenario testing.
• Policy engagement
  • For example, the financial institution encourages its borrower to support relevant climate policies.
• Business model
  • For example, the finance institution engages with its clients to develop new, low-carbon business models or activities.

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 counterparties about your climate change performance and strategy
  • Run an engagement campaign to educate counterparties about climate change
  • Share information about your carbon portfolio performance and relevant certification schemes (i.e. taxonomic performance, BTAR)
  • 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
  • Making lending conditional on the adoption of sustainable practices and can also engage collaboratively with company management while negotiating future funding agreement (32)
  • Provide specific climate-related products (e.g., sustainability linked loans)
• Compliance & onboarding
  • Included climate change considerations in borrower’s client management mechanism
  • Use of climate covenants in business relationship
  • Enhanced Climate Due Diligence
  • Sectoral exclusions related to GHG emissions
  • Restrictions on lending to unsustainable projects (32)
• Information collection (understanding client behavior)
  • Collect climate change and carbon information at least annually from long-term clients
• Engagement & incentivization (changing client behavior)
  • Providing non-banking solutions such as:
  • Engage with clients on measuring exposure to climate-related risk
  • Support clients in their decarbonization journey (e.g. carbon footprint assessment, help defining a climate strategy (see ACT Step by Step))
  • Require better climate-related disclosure practices
  • Require clients to set a credible and robust transition plan
  • Providing banking solutions such as:
  • Provide specific climate-related products
  • Dedicate bonified credit lines specifically to climate solutions
  • Offer financial incentives for counterparties reducing their significant direct & indirect GHG emissions

Relevance of the indicator:

Strategies to influence counterparties 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 shall not be spectators and act as just responding to the financing need of the private sector. It has an important responsibility as the financings can directly unlock project that will emit GHG emissions on a long period of time. In other words, operating on what is called the “primary market” must directly contribute to the transition as it brings additional capital to enable/unlock new projects (including green or decarbonization one or, on the opposite, ceasing the financing of new O&G expansion projects for instance. In sum, banks have a major role to play in financing the transition.
• The financial sector, being a key actor among the primary market, has a direct impact and contribution on the financed projects. As so, banks have the ability to influence the climate strategy and performance of clients through financial products or services (capital market).
• 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 collaborative activities with the borrower. 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 engagement with clients.

The relevant data for this indicator are:

• Activities to influence clients GHG emissions
• % of products/services
• Data on clients’ choices and preferences towards reducing GHG emissions

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 clients, 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.

• 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 (33), (34):
• Education/information sharing
  • Run an engagement campaign to educate counterparties about your climate change performance and strategy
  • Run an engagement campaign to educate counterparties about climate change
  • Share information about your carbon portfolio performance and relevant certification schemes (i.e. taxonomic performance, Target Alignment Ratio)
  • 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
  • Making lending conditional on the adoption of sustainable practices and can also engage collaboratively with company management while negotiating future funding agreement (32).
  • Provide specific climate-related products
• Compliance & onboarding
  • Included climate change considerations in clients client management mechanism
  • Use of climate covenants in business relationship
  • Enhanced Climate Due Diligence
  • Sectoral exclusions related to GHG emissions
  • Restrictions on lending to unsustainable projects (32)
• Information collection (understanding client behavior)
  • Collect climate change and carbon information at least annually from long-term clients
• Engagement & incentivization (changing client behavior)
  • Providing non-banking solutions such as:
  • Engage with clients on measuring exposure to climate-related risk
  • Support clients in their decarbonization journey (e.g. carbon footprint assessment, help defining a climate strategy (see ACT Step by Step))
  • Require better climate-related disclosure practices
  • Require clients to set a credible and robust transition plan
  • Providing banking solutions such as:
  • Provide specific climate-related products
  • Dedicate bonified credit lines specifically to climate solutions
  • Offer financial incentives for counterparties reducing their significant direct & indirect GHG emissions
• 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 engaged clients have reduced their use-phase GHG emissions by X%

Relevance of the indicator:

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

Financial institutions have the ability to influence the climate strategy and performance of clients through their financial products or services (capital market).

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 to consider multiple dimensions of engagement and assess them together towards a single score for a strategy related to engagement with clients.

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 its clients operating in oil & gas sector and deforestation linked activities, 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.

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 credit lines or capital market activities to companies in the GOGEL or GCEL list.
• Financial institutions have the ability to influence the climate strategy and performance of clients through their financial products or services (capital market).
• 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 to consider multiple dimensions of engagement and assess them together towards a single score for all the activities related to Client Engagement for Oil & Gas sector and deforestation linked-activities.

In the case where the financial institution has no exposition to Oil & Gas activities, nor through capital market 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, nor through capital market 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: (36), (37)):

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.

Update has been made on the addition of a new category dealing with the compliance if the financial institution with the climate initiatives it is member or signatory of. To date, climate initiatives or alliances do have a lot of members and have active positions in favour of climate. Still, actions by the members themselves sometimes lag behind. The idea is to assess the potential greenwashing of some actors.

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 (38)). (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 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 Banking Alliance (NZBA)
• 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 granting credit lines 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 credit risk assessment
• Climate criteria tied to decision process/granting process
• Interest rate subsidy/special interest rate
• Green Weighting/Brown weighting factor
• Integrating Climate-related Risks into Capital Requirements
• Mobilizing savers (consumers or even companies) to finance the transition (e.g. Public Private Partnership, citizen-co-financed wind energy, priority sectors or asset classes)
• Credit sectoral policies 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.
• Climate Dividends (39) / ecological transition Dividends (e.g. the income helps to finance sustainable projects with a bonified interest) or Carbon dividends (two different concepts)

* 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 the total outstanding loan amount. 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 loans referring to a taxonomic sustainable criterion
• Sustainability linked loans tied to science based GHG emission reduction KPI
• Climate solution financing (18)
• High emitting asset phase-out
• Sustainability linked bonds with conditions in line with a 1.5°C scenario
• Any financial product linked to KPIs incentivizing clients to foster their decarbonization
• EMDE Climate finance
• Public Private Partnership financing
• Charity
• 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:

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 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, a bank granting a loan 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 and financial institution have the power to bridge part of this gap (along with other actors). Banks must align their business practices with Paris Agreement mitigation goal and contribute reducing GHG emissions in the real economy.

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 by sector and asset class.

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

Use of Proceeds amounts. Taxonomic activities advised. Breakdown by sector and asset class.

General Corporate Purpose amounts. Advised companies with a credible and robust transition plan.

Actions implemented to influence savers to reduce their GHG emissions

Size and Number of savers engaged

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