Unit 4: Monitoring & Reporting Flows & Impacts of Green & Sustainable Finance

Question 1

What are the three main goals of the Paris Agreement?

Answer 1

1) Article 2.1a: Holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels

2) Article 2.1b: Increasing the ability to adapt to the adverse impacts of climate change and foster climate resilience and low greenhouse gas emissions development, in a manner that does not threaten food production

3) Article 2.1c: Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

Question 2

What are the two key aspects of Article 2.1c?

Answer 2

1) Tracking flows of investment to identified climate change mitigation and adaptation projects and activities

2) Tracking flows of investment that detract from change mitigation and adaptation projects and activities

Question 3

At a global level who plays the leading role in monitoring, measuring and reporting flows of climate change?

Answer 3

United Nations Framework Convention on Climate Change (UNFCCC)

Question 4

Who are the Annex II Parties?

Answer 4

Members of the OECD that are committed to providing $100 billion per year by 2020 to developing countries for climate change mitigation and adaption projects/activities.

This target has not been achieved.

Question 5

What is a BA?

Answer 5

Standing Committee publishes Biennial Assessments (BA) of Climate Finance Flows, most recently in 2018. These are based on Biennial Reports (BR) submitted in a common format by Annex II Parties, together with a variety of further reports from, for example, Multilateral Development Banks.

Question 6

What are the three initiatives that Green and Sustainable Finance Professionals be aware of?

Answer 6

1) Paris Agreement Capital Transition Assessment (PACTA)

2) Science Based Targets Initiative (SBTi)

3) ISO 14097

Question 7

What is PACTA?

Answer 7

Paris Agreement Capital Transition Assessment (PACTA)

PACTA enables investors to measure the alignment of their portfolios with climate scenarios. PACTA is also used by some regulators to assist in the assessment of climate risks faced by the organisations they regulate.

In 2020, PACTA released a similar toolkit for banks, which enables institutions to measure the alignment of their corporate lending portfolios with climate scenarios across a set of key climate-relevant sectors and technologies.

Question 8

What is SBTi?

Answer 8

Science Based Targets Initiative (SBTi)

Targets are considered ‘science-based’ if they are in line with what climate science deems necessary to meet the goals of the Paris Agreement.

In 2018, the SBTi launched a project to develop a framework for the finance sector to align lending and investment portfolios with the Paris Agreement.

Question 9

What is ISO 14097?

Answer 9

ISO 14097 - The International Standards Organization (ISO) has recently developed and published an international standard to support financial institutions in the measurement and reporting of emissions and financial flows.

The aim of ISO 14097 is to set a global framework for assessing and reporting investments and financing activities related to climate change. This should improve the availability, consistency, comparability and quality of data on climate finance.

Question 10

What is Green Tagging?

Answer 10

The identification of green and sustainable assets is sometimes referred to as ‘green tagging’. Being able to consistently identify and classify investments as ‘green’ (and/or ‘brown’ or ‘neutral’) is a key step in supporting the transition to a sustainable, low-carbon world.

Question 11

What are the two basic approaches to monitoring?

Answer 11

1) Process Monitoring: assessment and evaluation, often by independent third parties, of an organisation’s principles, policies, procedures and practices.

2) Impact Monitoring: identifying the desired environmental or broader sustainability outcomes before making an investment, and then monitoring and measuring impacts during the life of the investment, and often beyond.

Question 12

What are the four steps required in measuring and monitoring of sustainability performance to be considered ‘good practice’?

Answer 12

1) Identifying desired impacts and outcomes at the pre-investment stage

2) Regular, ongoing monitoring and reporting throughout the life of the investment

3) Verification of impact and outcomes, ideally via independent review

4) Public reporting of actual impacts and outcomes

Question 13

What does external review mean?

Answer 13

The term ‘external review’ is generally used as a catch-all to cover similar terms such as audit, assurance, attestation, certification, validation, verification and second- or third-party review.

Question 14

What are the four levels of review?

Answer 14

1) Self-Certification: also known as ‘first party review’. Self-review of green investments and projects by the organisation.

2) Second/Third-Party Review and Opinion: review by a suitably qualified expert or institution

3) Verification: when an investor obtains independent, third-party assurance against designated criteria identified in advance

4) Certification: process by which investments are measured against recognised external standards and criteria, i.e. the criteria are not defined by the investor themselves

Question 15

What is the most commonly used measure of GHG emissions?

Answer 15

CO2e (carbon dioxide equivalent)

Question 16

What is GWP?

Answer 16

Global Warming Potential (GWP)

Question 17

What are the common metrics used in reporting GHG emissions and environmental performance?

Answer 17

1) Energy Efficiency: Annual energy savings, usually expressed in annual megawatt or gigawatt hours (MWh/(GWh)

2) Clean/Renewable Energy: Reduction in greenhouse gas emissions (annual CO2e) or Renewable energy generation (annual MWh/(GWh)

3) Sustainable Land Use: Surface area under conservation/reforestation

4) Water Conservation: Annual water savings/reductions in leakages

5) Clean Transport: Reduction or avoidance of greenhouse gas emissions (annual CO2e)

Question 18

What are the three standardised approaches and methodologies for reporting environmental impacts?

Answer 18

1) PCAF

2) CDSB

3) CDP

Question 19

What is PCAF?

Answer 19

Partnership for Carbon Accounting Financials (PCAF) is a global collaboration between financial institutions to develop and implement a harmonised approach to measuring and reporting greenhouse emissions associated with lending and investments.

PCAF has published the Global GHG Accounting and Reporting Standard for the Financial Industry.

Question 20

What is CDSB?

Answer 20

Climate Disclosure Standards Board (CDSB) is an international consortium of business and environmental NGOs aiming to develop mainstream corporate reporting so that natural capital (environmental factors) are given as much emphasis and weight as financial capital.

The CDSB Framework:
- Supports compliance with regulatory reporting requirements with current and emerging requirements for environmental reporting
- Aligns with the recommendations of the TCFD.

Unlike PCAF, the CDSB Framework does not require (although does not prevent) measurement and reporting of Scope 3 emissions.

Question 21

What is CDP?

Answer 21

Carbon Disclosure Project (CDP) is the most established environmental reporting NGO, providing a widely respected and utilised global system of disclosures for investors, companies, cities, and regional and national governments.

As with the CDSB Framework, however, CDP do not require financial institutions to measure and report their Scope 3 (financed) emissions,

The CDP report that less than 20% of the financial institutions disclosing their environmental impact report any financed emissions at all.

Question 22

What are the five approaches and initiatives aim to measure, report and compare broader sustainability impacts?

Answer 22

1) Sustainability Accounting Standards Board (SASB): The SASB has published a set of 77 industry standards, with each setting out guidance as to the environmental, social and governance (ESG) issues most relevant to financial performance in each of these sectors.

2) Global Reporting Initiative (GRI): refers to a review by a suitably qualified expert or institution, depending on the scope and size of the investments or projects under consideration.

3) International Integrated Reporting Council (IIRC): <IR> Framework does not prescribe specific metrics for impact, as other approaches to sustainability reporting described above do; rather, it adopts a principles-based approach that recognises the wide variety of metrics that may be relevant to different organisations and sectors.</IR>

4) Impact Reporting and Investment Standards (IRIS): Developed by the Global Impact Investment Network (GIIN), the Impact Reporting and Investment Standards (IRIS) provide a ‘catalogue’ of standardised social and environmental metrics developed for use primarily by impact investors.

5) Investment Leaders Group (ILG): proposes both quantitative metrics that it believes are relatively straightforward and realistic to assess (referred to as ‘basic’ metrics or measures), and ‘ideal’ metrics or measures that would assess absolute performance, but are challenging to measure at present.

Question 23

What two key initiatives seek to harmonies sustainability reporting?

Answer 23

1) The establishment of a new Sustainability Standards Board (SSB) by the International Financial Reporting Standards Foundation, which would build on (and encompass) the work of existing approaches to measuring and reporting sustainability frameworks, including the CDP, CDSB, GRI, IIRC and SASB. Developments can be followed here.
2) The merger of the IIRC and SASB to create the Value Reporting Foundation