Austrian pension funds have been encouraged to submit their portfolios for an analysis of their alignment with regard to climate change, as the federal government kicked off its involvement in an initiative to measure and align financial flows with the Paris Agreement’s 1.5°C goal.
“PACTA 2020”, as the initiative is called, builds on a pilot project in Switzerland in 2017, when the government invited domestic pension funds and insurance companies to have the “climate compatibility” of their investments examined using the Paris Agreement Capital Transition Assessment (PACTA) model developed by think tank 2° Investing Initiative.
The Netherlands joined forces with Switzerland to launch the 2020 initiative last autumn.
Austria is one of the other countries that has signed up for testing based on an expanded version of the PACTA tool, and last month the government issued an invitation for domestic financial institutions and institutional investors to take part.
Andreas Zakostelsky, chair of the Austrian occupational pension funds association and general director of the VBV-Group, told IPE that the country’s Pensionskassen had received the PACTA 2020 invitation letter, and the assessment had already been discussed within the industry.
“The association has recommended its members to participate, in particular as a positive contribution and commitment to the Green Finance Initiative in Austria by the financial sector,” he said.
Participation is voluntary and free, with institutional investors and financial institutions having until mid-August to register.
The 2017 analysis of Swiss portfolios found that the Swiss pension funds’ investments were on average in line with global climate warming of 6°C by the end of this century.
BMK, Austria’s climate protection and environment ministry, said participating institutions could simulate various options for action and develop strategies and targets in order to reduce climate risks in investment strategies and make portfolios “climate friendly”.
“In this way, they can best prepare for future obligations from EU regulation and climate stress tests,” it said.
The government has already adopted a national energy and climate plan, which BMK said explicitly provides for financial portfolios’ “climate compatibility” to be assessed.
The government is gearing up to present a “green finance agenda” in the third quarter of this year, said to be intended to make a significant contribution to a green economic recovery from the coronavirus crisis.
According to 2° Investing Initiative, the PACTA tool was developed “to address a gap in the analyses conducted by investors”, who historically had based their assessment of climate-related risk and impact on backward-looking carbon footprints.
PACTA aggregates forward-looking asset-level data about investees, up to parent company level.
The tool, which analyses exposure to climate change-related sectors in equity and fixed income portfolios, was initially only available for investment portfolios but the think tank has since developed it to allow for application to corporate lending portfolios, and the scope of the 2020 initiative has thus been broadened beyond asset managers and asset owners to include banks.
2° Investing Initiative said that as of April 2020, PACTA has been used by more than 1,000 financial institutions as well as by supervisors and central banks such as the European Insurance and Occupational Pensions Authority, the Bank of England, and Sweden’s Finansinspektionen.