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RMI – Energy. Transformed.
Session 1A Corporate
Equity and Debt:
Non-GHG based climate indicator used in the PACTA
methodology for corporate equity and debt
George Harris – PACTA for Banks
Lead at RMI
RMI – Energy. Transformed.
RMI – Energy. Transformed.
Agenda
1. What needs to happen to achieve a 1.5°C world?
2. How can we compare the financial assets we own to what needs to
happen to achieve 1.5°C?
3. What do the results of Non-GHG (production based) metrics look like?
4. How do we create Non-GHG (production based) metrics?
5. What are the benefits of using Non-GHG (production based) metrics to
assess companies climate performance?
6. How can Non-GHG (production based) metrics be used to incentivise
emission reductions?
RMI – Energy. Transformed.
RMI – Energy. Transformed.
1. What needs to happen to achieve a 1.5°C
world?
1. A temperature goal is set at 1.5oC
2. This objective can be translated into a
carbon budget
3. Carbon budget can then segment by sectors
4. Within the sectors a technology deployment
road-maps can be defined
5. Demonstrating which high carbon
technologies need to be phase out and low
carbon technologies need to be built out
- If the technology transitions is achieved, the
corresponding carbon budget will be managed
2°
5°
4°
1.5°
3°
RMI – Energy. Transformed.
• Phasing out coal power • Scaling up renewable power
1. A 1.5°C world achieved through technology
shifts
RMI – Energy. Transformed.
RMI – Energy. Transformed.
1. Scope and Scenarios
Focus on sectors with well define
technology road maps
• Power generation (installed capacities –
MW)
• Oil and gas extraction (Barrels of oil eq)
• Coal mining (tonnes of coal)
• Automotive (number of cars per drive train
technology)
IEA WEO
STEPS, APS, SDS,
NZ
IEA ETP
RTS, 2DS, B2DS
JRC GECO
CurPol,
1.5oC
ISF
(NZAOA)
NZ
Scenario examples:
RMI – Energy. Transformed.
RMI – Energy. Transformed.
2. How can we compare the financial assets we
own to what needs to happen to achieve 1.5°C?
Metric design criteria:
• We need a forward looking assessment
• On a time horizon that is obtainable for company production forecasts, is actionable
and near term enough to incentivise the transition
• Consistent unit between the transition pathway and the companies future pathway
Part of the solution to this question lies in the PACTA approach:
• To use a Non-GHG (production based) metric - that directly measure technology shifts
using the same unit given in the scenarios
• Specifically we use - Forward looking 5-year production forecasts based on asset
level data
RMI – Energy. Transformed.
3. What do the results of Non-
GHG (production based) metrics
look like?
PACTA - Company level
volume production trajectory
Sector scope:
Source: https://www.climateaction100.org/net-zero-company-benchmark/
Source: https://www.transitionmonitor.com/
CA100+ Net Zero Company
Benchmark - capital allocation
alignment metric
Power Oil and
Gas
Coal
mining
Automotive
RMI – Energy. Transformed.
3. What do the results of Non-GHG
(production based) metrics look like?
PACTA – Portfolio level volume
production trajectory
Sector scope:
Source: https://www.transitionmonitor.com/
Power
Oil and
Gas
Coal
mining
Automotive
PACTA – Portfolio level
technology mix
RMI – Energy. Transformed.
4. How do we create Non-GHG (production
based) metrics?
Power
Oil and
Gas
Coal
mining
Automotive
Financial Data
Providers
Business
Intelligence Data
Providers
Forward looking Physical
Asset Level Production
Data
Financial Asset
Company Level
Production Data
• Portfolio weighted
approach
• Ownership approach
• Unweighted approach
Attribution rules
Equities
Corporate Bonds
Corporate Loan
Consolidation
methodologies
RMI – Energy. Transformed.
RMI – Energy. Transformed.
5. What are the benefits of using Non-GHG
(production based) metrics to assess companies
climate performance?
1. Complimentary to other indicators
• Forward looking production indicators can be used in conjunction with backward
looking, static and target-based GHG indicators
2. Objectively measuring climate performance of the corporate
• As it demonstrates how corporate CAPEX commitments are planned to translate into the
build out/phase out of low and high carbon technologies
3. Assessing credibility of corporate transition plans
• By objectively assessing progress towards corporate targets
RMI – Energy. Transformed.
RMI – Energy. Transformed.
6. How can Non-GHG (production based) metrics be
used to incentivise emission reductions?
• They can be used to incentivising emission reductions by:
• Allowing financial institutions to assess whether their counterparties and their own overall
portfolios are aligned with the scenario defined technology shifts
• They are decision-useful:
• As they are close to the decision point around allocation of capital for companies and financial
institutions. Making them decision-useful for credit and investment analysts
• Can be used to inform the following use cases:
• Risk management
• Target setting
• Steering and decision-making
• Business strategy and commercial activities
• Reporting and disclosure
RMI – Energy. Transformed.
RMI – Energy. Transformed.
Thank you
PACTA website - www.transitionmonitor.com
RMI website - www.rmi.org
Email:
gharris@rmi.org
pacta4banks@rmi.org
pacta4investors@rmi.org

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Workshop on Metrics for Climate Transition - PPT George Harris

  • 1. RMI – Energy. Transformed. Session 1A Corporate Equity and Debt: Non-GHG based climate indicator used in the PACTA methodology for corporate equity and debt George Harris – PACTA for Banks Lead at RMI
  • 2. RMI – Energy. Transformed. RMI – Energy. Transformed. Agenda 1. What needs to happen to achieve a 1.5°C world? 2. How can we compare the financial assets we own to what needs to happen to achieve 1.5°C? 3. What do the results of Non-GHG (production based) metrics look like? 4. How do we create Non-GHG (production based) metrics? 5. What are the benefits of using Non-GHG (production based) metrics to assess companies climate performance? 6. How can Non-GHG (production based) metrics be used to incentivise emission reductions?
  • 3. RMI – Energy. Transformed. RMI – Energy. Transformed. 1. What needs to happen to achieve a 1.5°C world? 1. A temperature goal is set at 1.5oC 2. This objective can be translated into a carbon budget 3. Carbon budget can then segment by sectors 4. Within the sectors a technology deployment road-maps can be defined 5. Demonstrating which high carbon technologies need to be phase out and low carbon technologies need to be built out - If the technology transitions is achieved, the corresponding carbon budget will be managed 2° 5° 4° 1.5° 3°
  • 4. RMI – Energy. Transformed. • Phasing out coal power • Scaling up renewable power 1. A 1.5°C world achieved through technology shifts
  • 5. RMI – Energy. Transformed. RMI – Energy. Transformed. 1. Scope and Scenarios Focus on sectors with well define technology road maps • Power generation (installed capacities – MW) • Oil and gas extraction (Barrels of oil eq) • Coal mining (tonnes of coal) • Automotive (number of cars per drive train technology) IEA WEO STEPS, APS, SDS, NZ IEA ETP RTS, 2DS, B2DS JRC GECO CurPol, 1.5oC ISF (NZAOA) NZ Scenario examples:
  • 6. RMI – Energy. Transformed. RMI – Energy. Transformed. 2. How can we compare the financial assets we own to what needs to happen to achieve 1.5°C? Metric design criteria: • We need a forward looking assessment • On a time horizon that is obtainable for company production forecasts, is actionable and near term enough to incentivise the transition • Consistent unit between the transition pathway and the companies future pathway Part of the solution to this question lies in the PACTA approach: • To use a Non-GHG (production based) metric - that directly measure technology shifts using the same unit given in the scenarios • Specifically we use - Forward looking 5-year production forecasts based on asset level data
  • 7. RMI – Energy. Transformed. 3. What do the results of Non- GHG (production based) metrics look like? PACTA - Company level volume production trajectory Sector scope: Source: https://www.climateaction100.org/net-zero-company-benchmark/ Source: https://www.transitionmonitor.com/ CA100+ Net Zero Company Benchmark - capital allocation alignment metric Power Oil and Gas Coal mining Automotive
  • 8. RMI – Energy. Transformed. 3. What do the results of Non-GHG (production based) metrics look like? PACTA – Portfolio level volume production trajectory Sector scope: Source: https://www.transitionmonitor.com/ Power Oil and Gas Coal mining Automotive PACTA – Portfolio level technology mix
  • 9. RMI – Energy. Transformed. 4. How do we create Non-GHG (production based) metrics? Power Oil and Gas Coal mining Automotive Financial Data Providers Business Intelligence Data Providers Forward looking Physical Asset Level Production Data Financial Asset Company Level Production Data • Portfolio weighted approach • Ownership approach • Unweighted approach Attribution rules Equities Corporate Bonds Corporate Loan Consolidation methodologies
  • 10. RMI – Energy. Transformed. RMI – Energy. Transformed. 5. What are the benefits of using Non-GHG (production based) metrics to assess companies climate performance? 1. Complimentary to other indicators • Forward looking production indicators can be used in conjunction with backward looking, static and target-based GHG indicators 2. Objectively measuring climate performance of the corporate • As it demonstrates how corporate CAPEX commitments are planned to translate into the build out/phase out of low and high carbon technologies 3. Assessing credibility of corporate transition plans • By objectively assessing progress towards corporate targets
  • 11. RMI – Energy. Transformed. RMI – Energy. Transformed. 6. How can Non-GHG (production based) metrics be used to incentivise emission reductions? • They can be used to incentivising emission reductions by: • Allowing financial institutions to assess whether their counterparties and their own overall portfolios are aligned with the scenario defined technology shifts • They are decision-useful: • As they are close to the decision point around allocation of capital for companies and financial institutions. Making them decision-useful for credit and investment analysts • Can be used to inform the following use cases: • Risk management • Target setting • Steering and decision-making • Business strategy and commercial activities • Reporting and disclosure
  • 12. RMI – Energy. Transformed. RMI – Energy. Transformed. Thank you PACTA website - www.transitionmonitor.com RMI website - www.rmi.org Email: gharris@rmi.org pacta4banks@rmi.org pacta4investors@rmi.org