Peer-to-peer exchange: Climate Metrics and Disclosure

Once a financial institution defines a climate change strategy and related climate change objectives and targets, it needs to track and monitor the progress made and report internally to the senior management, as well to external stakeholders. Some institutions have developed dedicated cross-institutional committees to support and oversee the implementation of their climate change strategy. The choice of metrics and indicators to include in tracking and monitoring frameworks can be complex, particularly given the increase in commitments around Paris alignment, net-zero finance, and given the growing importance of climate-related risk management. Indicators may include absolute GHG emissions tracking of activities and portfolios, investment volume of aligned finance, or the institution’s total own climate footprint. Selecting the most appropriate indicators is important as it can influence internal practices to deliver impact in the real economy but can also create perverse incentives.

This webinar was an opportunity for FI professionals from strategy, risk and climate/sustainability departments to share their experience and hear from their peers.

Discussions focused on the types of metrics and KPIs that have proven to be the most useful from an FI perspective to track and monitor:

•  Contribution to mitigation goals (financed GHG emissions of activities and portfolios, avoided emissions).
• Support for the transition (volume of aligned finance, share of taxonomy-compliant activities, actual contribution to emission reductions in the real economy).
• Climate-related financial risk exposure (carbon price, portfolio exposure).
• Internal institutional climate mainstreaming (trainings, focal points, organizational arrangements).

Secondly, as Principle 5 of Mainstreaming Climate in Financial Institutions highlights the need to be transparent and report, wherever possible, on the climate performance of your institution, this webinar will be also an opportunity for institutions to exchange on these processes.

Agenda of the Webinar:

• Introductory remarks (Secretariat) – 5 minutes
• Presentation (Secretariat) – 5 minutes
• Roundtable open discussion – 40 minutes

Participants were invited to share their experience on a voluntary basis. 

Proposed guidance questions:

Part 1: Tracking & Monitoring

• What type of metrics and KPIs have you chosen to track and monitor (at asset, sector, and
  portfolio level):
  • Support for the transition (volume of finance, impact on real economy).
  • Alignment with mitigation goals (GHG emissions of portfolio, portfolio alignment using tools such as PACTA?).
  • Climate-related financial risk exposure (carbon price, portfolio exposure)
  • Internal climate mainstreaming (trainings, focal points, organizational arrangements)
• How were your targets set? What were the trade-offs to choose the right indicators related to those targets?
• How were different issues considered when establishing the metrics to use?
  • Links with the core business strategy and climate/sustainability strategy
  • Links with transaction-level decision making.
  • Links with incentives for management and operational teams
  • Data availability / transaction costs

Part 2: Disclosure

• What internal processes have you developed to ensure transparency? How do you report and disclose on your:
  • Support for the transition (volume of finance, impact on real economy).
  • Alignment with mitigation goals.
  • Climate-related financial risk exposure (carbon price, portfolio exposure).
  • Internal climate mainstreaming.

Part 3:

• What are the key barriers you have encountered?
• What key recommendations would you have for your peers?
• What has been working best for you?

 

Concluding remarks (Secretariat) – 10 minutes

 

Summary

• The IDC, KfW, PIDG, AFD shared their experience on the use of metrics and indicators for new assessment (alignment, risk, just transition) and at both the asset/project level as well as the portfolio level.
• SIs indicated the benefits of harmonization between different departments and trainings of operational teams within the FIs, particularly in the case of institutions that have heterogeneous branches and product offerings. Implementing online systems to input data ensures visibility within these different arms of the organization  and was proposed as a potential action to maximize this.
• Institutions noted that disclosure and data availability need to progress. Disclosure of SIs must be robust to avoid litigation and reputational risk. FIs had initially called for increased disclosure at the counterparty level, but now regulators are increasingly requiring this from FIs themselves. Therefore, it is becoming necessary for FIs to avoid exposure to litigation risks.
• Simplification of disclosures increases uptake; however, this may reduce the robustness of assessment therefore necessitate more resources through internal capacity development or advisory services to make determinations.
• There is a need for FIs to develop tools that facilitate the needs of operational teams, in particular deal teams. Scorecards have been used by some SIs to help in this process.
• It was noted that there is increased availability of data due to technological advancements for example: through sensor technology for heating systems or satellite data for reforestation projects. These digital solutions can be included in loan schemes; however, data issues persist.