Developing Sustainable Energy Investment (SEI) metrics, benchmarks, and assessment tools for the financial sector

Project Information

SEI Metrics

Grant agreement ID: 649982

DOI

10.3030/649982

Project closed

EC signature date 2 February 2015

Start date 1 March 2015

End date 28 February 2018

Funded under

• SOCIETAL CHALLENGES - Secure, clean and efficient energy

Total cost

€ 2 498 253,75

EU contribution

€ 2 349 378,75

Coordinated by

SUSTAINABLE FINANCE OBSERVATORY
France

Periodic Reporting for period 2 - SEI Metrics (Developing Sustainable Energy Investment (SEI) metrics, benchmarks, and assessment tools for the financial sector)

Reporting period: 2016-09-01 to 2018-02-28

Summary of the context and overall objectives of the project

The SEI Metrics research project developed a climate performance framework and associated investment products that measure the exposure of financial portfolios to the new climate economy. The metrics, benchmarks, and tools enable investors to align their portfolio with energy-technology roadmaps, such as those published by International Energy Agency (IEA) in the annual World Energy Outlook. Key outputs of the project include 2° investing criteria for financial assets and portfolios. The project ran from March 2015 to March 2018 and mobilised over €2.5m in funding, notably from the European Commission Horizon 2020 program. By working across the entire sector from corporates to asset owners, as well as involving policy makers, the SEI Metrics project will impact trends in capital allocation and ensure optimal exposure of financial institutions to the transition to a low-carbon economy. The project outputs enable:

• Asset managers to develop 2° investing funds and develop green marketing strategies;
• Index providers to develop diversified 2° investing benchmark indices for long-term investors;
• Asset owners and banks to set quantifiable progress targets on climate performance and assess the exposure of their portfolios to energy transition scenarios; and
• Public authorities to integrate climate performance metrics into disclosure requirements and finance sector incentives.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

The following summarizes the work completed in each work package and the main results achieved so far:

WP1:

Development of energy-investment roadmaps and financing roadmaps, as well as related financing targets.

WP2:

2ii led the development of corporate 2°C alignment methodologies assessing 2°C alignment across 10 key sectors. The methodologies have been road-tested and discussed with over 10 companies in partnership with the CDP / ADEME-led Assessing Carbon Transition (ACT) project. University of Zurich developed a report to measure the exposure of companies to physical assets through their subsidiary network. In parallel to the work of corporate methodologies, a paper on measuring the climate-friendliness of sovereign bonds has been completed by 2° investing Initiative and Beyond Ratings. Climate Bonds Initiative has published a standard for real estate, and 2° Investing Initiative developed a framework for household finance.

WP3:

2ii has led the development of a portfolio assessment tool involving a software and a range of 2°C benchmarks for corporate bonds and listed equity portfolio – on the basis of the sector methodologies developed in WP2. The tool was launched in December 2015 with over 250 investors road-testing the tool to date, as well as three financial supervisory authorities and one government. Over 90% of surveyed investors (~25) have said they were likely or very likely to use the tool to inform investment decisions, mandate design, and / or shareholder engagement.

WP4:

CDP has drafted two papers on the future of climate disclosure, focusing on technology linking databases (XBRL) and pitfalls of climate-related disclosure. 2° Investing Initiative has published a paper together with UNEP-Fi and GHG Protocol landscaping climate metrics in financial markets for investors, as well as a second paper on banks. Outreach with data providers in turn has led 6 data providers (South Pole Group, Trucost, S&P, Sustainalytics, ET Index, Grizzly RI) to advertise the 2°C alignment tool developed in the SEI metrics projects to their clients as part of their services. In order to extend assessment frameworks with higher quality data, 2ii has partnered with EY to develop forward-looking ‘committed emissions’ databases for a range of key sectors. These have been published and internalized in 2°C scenario analysis models.

WP5

2ii launched a working group with 5 index providers (MSCI, FTSE, S&P Dow Jones Indices, Solactive, Euronext) in the summer of 2015 to inform the requirements of index design related to 2°C benchmarks. One index provider (Euronext) used the methodology to ‘sanity test’ the index they build in the run-up to COP21. A public 2°C aligned optimization tool for financial portfolios was launched in January 2018.

WP6

2ii published a range of policy notes and working papers, as well as consultations, as part of the project, designed to support policymakers awareness of the SEI metrics project and associated financial policy options. The French Law on mandatory climate disclosure integrates the SEI metrics logic of 2°C alignment. A range of policymakers and regulators are looking at using the framework for internal assessment and / or as part of policy guidance. In partnership with WWF EPO, outreach has been coordinated to support EU institutions on the topic, notably in the context of the HLEG.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

The number of users of the 2°C alignment tool exceeded the expectations by a factor of 25. Over 250 financial institutions directly measure 2°C alignment in their listed equity and / or corporate bonds portfolios, on over $1 trillion in assets under management. In addition, the uptake of the results of the project by regulators and policy makers was substantial. Over three financial supervisory authorities have analyzed the 2°C alignment of their regulated entities (insurance companies and / or pension funds) using the model, on over $5 trillion in assets under management. It is not possible to the determine the magnitude of the investments reallocated to companies with higher investments in renewable energy sources made by the investors that have used the 2°C alignment tool. However, disclosure from some of the users has shown that the analysis presented by the model has led to changes in investments policies.

Market and regulators support has contributed to an increased outreach of the project outputs both to industry players and policy makers. In 2017 the model has been recognized as industry leading by Responsible Investor Magazine and in the context of investors that have applied the model being recognized for best practice in disclosure in the context of the French climate disclosure awards. The policy recommendations of the project have been reflected in the HLEG recommendations and the EU Action Plan on Sustainable Finance, with further action expected in 2018 / 2019.

Further outreach has been ensured through the collaboration with ESG data provides. Over 6 ESG data providers have advertised the model to their clients in partnership with the SEI metrics consortium. Over 4,000 industry stakeholders been reached on the topic.

Moving forward outreach of the tool will be ensured through the public portfolio optimization tool relative to climate goals has been published. The method developed in the project will as well contribute to the development of standards reducing transaction costs and increasing clarity (final standards expected 2019).

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