ISO/DIS14097:2020(E)

ISO TC 207/SC7 WG 10

2020-02-21

Secretariat: AFNOR

Framework including principles and requirements for assessing and reporting investments and financing activities regarding climate change

Rev ISO 14097 CD stage

(Raw document resulting from WG10 Paris December 2019 meeting and January 2020 web-meetings)

Warning for WDs and CDs

This document is not an ISO International Standard. It is distributed for review and comment. It is subject to change without notice and may not be referred to as an International Standard.

Recipients of this draft are invited to submit, with their comments, notification of any relevant patent rights of which they are aware and to provide supporting documentation.

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Contents

Introduction 7

1 Scope 10

2 Normative references 10

3 Terms and definitions 10

4 Principles 16

4.1 General 16

4.2 Description of principles 16

4.2.1 Relevance 16

4.2.2 Consistency 16

4.2.3 Completeness 16

4.2.4 Conservativeness 16

4.2.5 Long term orientation 16

4.2.6 Transparency 17

4.2.7 Verifiability 17

4.2.8 Accuracy 17

4.2.9 Synergy 17

4.2.10 Coherence 17

4.2.11 Ability to influence 17

4.2.12 Effectiveness 17

4.2.13 Evidence-based 17

4.2.14 Goal-oriented 17

4.2.15 Additionality-based 17

5 Overall objectives of the financier 18

6 Framework for disclosing a financier’s climate risks and opportunities 18

6. 1 General 18

6.2 Financier’s business, strategy and financial planning over the short, medium, and long term 18

6.3 Investees’ climate risks and opportunities 19

6.4 Financiers’ governance of climate-risks and opportunities 19

6.5 Targets related to climate risks and opportunities 20

6.6 Identification of climate risks and opportunities over the short, medium, and long term 20

6.7 Managing climate risks 20

6.8 Metrics and methodologies used over the short, medium, and long term 21

7 Framework for assessing the impact of a financier’s climate action on climate goals 22

7.1 General 22

7.2 Climate strategy and policy 22

7.3. Climate action planning and documentation 23

7.3.1 General 23

7.3.2 Defining attributes of the climate action taken 23

7.3.3 Defining the climate action 24

7.3.4 Expected outputs of the climate action 25

7.3.5 Expected outcomes of the climate action 26

7.3.6 Expected impact of the climate action 27

8 Monitoring of the climate action and respective outputs, outcomes and impact 28

9 Assessment of the impact of the financier’s climate action 29

10 Reporting on the financier’s climate action(s) 30

10.1 General 30

10.2 Required information 30

10.2.1 Financier’s general information 30

10.2.2 Climate strategy 31

10.2.3 Climate action 31

10.2.4 Climate action output 32

10.2.5 Climate action outcome 32

10.2.6 Climate impact of the investee 32

10.2.7 Actual impact of the financier’s climate action 33

10.3 Recommended information 33

10.3.1 Defining the climate action 33

10.3.2 Expected climate action output 33

10.3.3 Expected climate action outcome 34

10.3.4 Expected impact of the investee’s actions on the achievement of the climate goals 34

10.4 Optional information 34

10.4.1 Definition of the climate actions 34

10.4.2 Output, outcome and impact of the climate actions 34

11 Assessing and reporting the GHG emissions associated with the actions of the financier without climate objectives 35

12 Document retention and record keeping 35

13 Verification and validation 35

Annex A (informative) Flow chart of ISO 14097 Clauses 5 to 11 37

Annex B (informative) Indicative list of actions – financier 39

Annex C (informative) Guidance on the selection of scenarios 42

C.1 Introduction 42

C.2 Ambition 42

C.3 Speed 42

C.4 Boundaries 42

C.5 Granularity 42

C.6 Parameters 43

C.7 Time-horizon 43

C.8 Assumptions 43

Annex D (informative) Guidance on outcome and emissions trajectory quantification 44

D.1 Quantifying the baseline emission trajectory 44

D.2 Quantifying the science-based outcome and emissions trajectory 44

D.3 Quantifying the investee’s trajectory with climate action 46

D.4 Quantifying the investee’s impact 46

D.5 Visual representation 46

Annex E (informative) Example of opportunities, positive impact and sectoral activities associated with climate action 47

E.1 Examples of opportunities and positive impact resulting from climate action 47

E.2 Sectoral activities 47

Bibliography 50

Foreword

ISO (the International Organization for Standardization) is a worldwide federation of national standards bodies (ISO member bodies). The work of preparing International Standards is normally carried out through ISO technical committees. Each member body interested in a subject for which a technical committee has been established has the right to be represented on that committee. International organizations, governmental and non-governmental, in liaison with ISO, also take part in the work. ISO collaborates closely with the International Electrotechnical Commission (IEC) on all matters of electrotechnical standardization.

The procedures used to develop this document and those intended for its further maintenance are described in the ISO/IEC Directives, Part 1. In particular the different approval criteria needed for the different types of ISO documents should be noted. This document was drafted in accordance with the editorial rules of the ISO/IEC Directives, Part 2 (see www.iso.org/directives).

Attention is drawn to the possibility that some of the elements of this document may be the subject of patent rights. ISO shall not be held responsible for identifying any or all such patent rights. Details of any patent rights identified during the development of the document will be in the Introduction and/or on the ISO list of patent declarations received (see www.iso.org/patents).

Any trade name used in this document is information given for the convenience of users and does not constitute an endorsement.

For an explanation on the voluntary nature of standards, the meaning of ISO specific terms and expressions related to conformity assessment, as well as information about ISO's adherence to the World Trade Organization (WTO) principles in the Technical Barriers to Trade (TBT) see the following URL: www.iso.org/iso/foreword.html.

This document was prepared by Technical Committee ISO/TC 207 Environmental management, Subcommittee SC 7 Greenhouse gas management and related activities.

Introduction

The impactoffinanciers’actions on the achievement of climate goals

Every financing or investment decisionhas an impact, whether positive or negative, on the climate and/or can in turn be affected by climate change.This dual impact is considered as a“double materiality”, i.e. how climate change affects the value of a company and how a company’s activities have an impact on the climateby reducing Greenhouse Gas (GHG) emissions in the real economy, reducing vulnerability to the impacts of climate change and increasing resilience.

To achieve the goals of the Paris Agreement of 2015 and to maintain stability in the financial system, the world needs to transition to a low carbon and climate-resilient economy. To support this transition, there is a need to undertake a vast reallocation of capital from high-carbon to low-carbon assets, assets with negative emissions and assets that are resilient in the short, medium and long-term.

Financiers have a key role to play in this transformation because their day-to-day decisions can influence the behaviour of ‘investees’ (e.g. companies, clients, borrowers) in the real economy.Such an influence caninclude capital and research and development expenditure plans, the decision to retire (or not) high-carbon assets, or other aspects of corporate strategies. Similarly, financiers can influence the investment decisions of their clientsdue to their potentially broad-ranging roles as creditors, financial advisors or asset managers. The day-to-day decisions of financiers can have both positive and negative consequences on the achievement of climate goals.

Currently,the majority of financiers manage their assets without anexplicit objective or specific strategy related to climate change. These financiers’ decisions and related actionsmayaffect investees that have an impact on the climate and canbe exposed to climate-related risks. Any resulting effect, which could be thoughtof as unintentional, may have positive or negativeconsequencesboth for the climate and for the assets of thefinanciers. This standard refers to these financiers as “financiers without climate objectives”.

In contrast, some financiers explicitly aim to support climate goalseither by setting explicit objectives or by creating specific strategies related to climate change. This standard refers to these financiers as “financiers with climate objectives”. These financiersinfluence investees through ‘climate actions’ that will lead to a reduction in GHGs or an increase in resilience such as, but not limited to:

— The use of voting rights associated with share ownership;

— The use ofinfluencing power as creditors;

— Setting conditionality associated with lending or security issuance;

— Making preferential financing available for targeted activities that face a financing gap; and

— Conducting policy advocacy.

The finance sector’s active role in supporting the global concerted efforts to achieve international climate goals has been acknowledged in the Paris Agreement (Article 2.1c.) and by the following organizations and initiatives, to name a few:

— The United Nations (United Nations Environmental Programme Inquiry, Non-state Actors Zone for Climate Action platform hosted by UN Climate Change);

— The Organisation for Economic Cooperation and Development (OECD):

— The G20 (Green Finance Study Group);

— The European Commission through the Action Plan on Financing Sustainable Growth (2018); the Guidelines on Reporting Climate-related Information (2019), the Non-Financial Reporting Directive (2014) and the Non-Binding Guidelines on Non-Financial Reporting (2017);

— Various financial supervisors and central banks across the world who joined forces in the Network for Greening the Financial System (NGFS);

— The UN Principles for Responsible Banking;

— The UN-convened Net-Zero Asset Owner Alliance.

In this context, ISO 14097 provides principles, requirements and guidance to define, monitor, assess and report on financial institutions’actionsrelated to climate change and their respective contribution to the achievement of the climate goals. The framework can be applied by financiers who undertake deliberate climate actions as well as by financiers without climate objectives or strategies.

Forfinanciers with climate objectives, the framework is built around the following Theory Of Change (TOC) approach, illustrated in Figure 1.

Figure 1 — Theory of Change approach

The TOC process depends upon defining all of the necessary and sufficient conditions required to bring about a given long-term outcome and impact. The TOC explains the intended path the climate action will take to achieve the [expected] impact. This is done by describing the causal linkages between the Objective established by the financier, the Climate Action the financier plans to take to achieve the objective, the Output(s) of the action and finally the Outcome that will lead to the Impact.

For financiers without climate objectives,the framework describes how to disclose on the GHG emissions changes of investees in their financial portfolio and the decisions and actions taken that canrelate to the investees who are responsible for an increase or decrease in emissions.

ISO 14097 is not intended to serve as a standard for certification due to its focus on actions and outcomes. Clause 14 of this document recommends verification and validation as the preferred approaches for conformity assessment.

The financial implications of climate change for the finance sector

For the finance sector, both the transition to a low carbon emission and climate-resilient economy and the negative impact arising from environmental upheavals can bring changes in asset prices that result in risks and opportunities. In 2016, the G20’s Financial Stability Board (FSB) initiated a private sector-led group -the Task Force on Climate-Related Financial Disclosures (TCFD)-that explored these climaterelated risks and opportunities and developed a set of high-level recommendations regarding their disclosure of the assessment and management of climate-related risks and opportunities.

These climate-related risks and opportunities for the finance sector have also been acknowledged by many financial regulators and supervisory authorities across the world, including the European Commission, the G20 and the NGFS.

Following the release of the TCFD recommendations in 2017, a number of methodological, reporting and disclosure frameworks have been and are in the process of being produced by various organisations to facilitate stakeholders to measure and report on climate-related risks and opportunities.

In this context, ISO 14097 contributes to the implementation of the TCFD recommendations, by providing guidance on the disclosure of the identification, assessment, and management of climate-related risks and opportunities and related climate actions.

Framework including principles and requirements for assessing and reporting investments and financing activities related to climate change

This document specifies a general framework, including principles, requirements and guidance for assessing and reporting investments and financing activities related to climate change. The assessment of these interactions includes the following items:

— The risks to owners of financial assets (e.g. private equities, listed stocks, bonds, loans) arising from the achievement of climate goals, implementation of climate policies and physical impacts of climate change;

— The compatibility (or lack thereof)of investment and financing decisions taken by the financier with low carbon transition pathways, adaptation pathways, and climate goals;

— The impacts of actions through the financier’s investment and lending decisions towards the achievement of climate goals in the real economy: mitigation (GHG emissions) and adaptation (resilience).

To support thefinancier's assessment of the impacts of investment and lending decisions, this document provides guidance for thefinancier on how to:

— determine benchmarks for low carbon transition and adaptation pathways of investees;

— set targets and determine metrics to be used for tracking progress related to low carbon transition pathways of investees;

— document the causality or linkage between their climate action, its outputs, outcomes and impact.

This document is applicable to financiers, i.e. investors and lenders. It guides their reporting activities to the following third parties: shareholders, clients, policy makers, financial supervisory authorities and non-governmentalorganisations.

There are no normative references in this document.

For the purposes of this document, the following terms and definitions apply:

ISO and IEC maintain terminological databases for use in standardization at the following addresses:

— ISO Online browsing platform: available at https://www.iso.org/obp

— IEC Electropedia: available at http://www.electropedia.org/

3.1

climate goals

international long-term goals based on mitigation and adaptation priorities

Note 1 to entry: International climate goals are defined under the Paris Agreement.

Note 2 to entry: The Paris Agreement defines the following mitigation and adaptation goals: (a) 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, recognizing that this would significantly reduce the risks and impacts of climate change; (b) 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 which does not threaten food production; (c) Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.

[SOURCE: Paris Agreement, Article 2.1, UNFCCC, December 2015]

3.2

climate change

change in climate that persists for an extended period, typically decades or longer

[SOURCE: Adapted from IPCC, 2014: Climate Change 2014: Impacts, adaptation, and vulnerability. Part B: Regional aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change]

3.3

climate change mitigation

human intervention to reduce emission sources or enhance the sinks of greenhouse gases (GHGs)

[SOURCE: ISO 14080:2018, 3.1.2.1]

3.4

climate change adaptation

adaptation to climate change

process of adjustment to actual or expected climate and its effects

EXAMPLE : Changes to human infrastructure and/or some natural systems to reduce the impacts of increased/decreased rainfall, higher temperatures, scarce water or more frequent storms.

Note 1 to entry: In human systems, adaptation seeks to moderate or avoid harm to human livelihoods or exploit beneficial economic opportunities.

Note 2 to entry: In some natural systems, human intervention may facilitate them to adapt to expected climate and its effects.

[SOURCE:ISO 14090:2019, 3.1]

3.5

resilience

adaptive capacity of an organization in a complex and changing environment

Note 1 to entry: The Intergovernmental Panel on Climate Change (IPCC) defines resilience as “the ability of a system and its component parts to anticipate, absorb, accommodate, or recover from the effects of a hazardous event in a timely and efficient manner, including through ensuring the preservation, restoration, or improvement of its essential basic structures and functions".

[SOURCE: ISO Guide 73:2009]

3.6

adaptive capacity

ability of systems, institutions, humans, and other organisms to adjust to potential damage, to take advantage of opportunities, or to respond to consequences

[SOURCE: IPCC, 2014: Climate Change 2014: Impacts, Adaptation, and Vulnerability. Part B: Regional Aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change]

3.7

financier

investor(3.8) and lender (3.10)

3.8

investor

individual or organisation holding equity or debt categorized as financial assets, including but not limited to asset owners (e.g. pension funds, insurance companies), asset managers and banks

EXAMPLE A fund holding an equity share is one of the investors of the company that issued the share.

3.9

investment

allocation of resources to achieve defined objectives and other benefits

Note 1 to entry: Investments relate to three different types: i. Capital expenditures made by firms or households in the real economy to build factories, building and infrastructure; ii. Investments in real assets (e.g. factory, mine, building); iii. Investments in financial assets (e.g. equity share, a bond, a securitized loan, a share in a mutual fund).

3.10

lender

individual or organisation that loans money to a borrower to finance consumption or investment, on the expectation of repayment on contractual terms, usually within a stated period and with interest

3.11

investee

organisation which finances its activities via equity or debt investments, the latter categorized as liabilities

EXAMPLE A company issuing a bond is the investee of the bond investor.

3.12

client

individual or non-professional stakeholder(retail investor) of a financier that subscribe to its financial products (e.g. investment/insurance products, savings accounts, etc.) or institutional investor that uses the financier’s services

3.13

financialexposure

quantitative indicator measuring the weight of an investee, or a category of investees, or a category of economic activity conducted by investees on the balance sheet of a financier

EXAMPLE The exposure of an investor to automotive manufacturing can be expressed in different units, e.g. amount of equity held in this sector, or sales from this activity, or the annual production of vehicles.

3.14

opportunity

situation from which an organisation can derive benefit

Note 1 to entry: In this standard, the focus is on opportunities that arise from climate change i.e. the positive impacts on an organisation related to climate change.

Note 2 to entry: Opportunities for an organisation can be a result of taking action to adapt to the physical impacts of climate change and to mitigate climate change (e.g. efforts to improve resource efficiency and cost savings, the adoption and utilisation of low-emission energy sources, the development of new products and services, and building resilience along the supply chain).

Note 3 to entry: Opportunities for an organisation can arise from climate change and from the impacts of climate change (e.g. new markets, new or improved supply chains).

Note 4 to entry: Opportunities for an organization can arise from expanding, evolving or emerging markets and from contributions to the organization's sustainability. Opportunities can include: new products, services, customers and markets; reputational benefits; supply chain security; improved resilience; improved processes; and innovation. Opportunities can be identified across value chains and their respective enabling environments.

Note 5 to entry: Climate-related opportunities will vary depending on the region, market, and industry in which an organization operates.

3.15

share in total financing

quantitative indicator measuring the weight of a financier or category of financiers, in the total amount of financing received by an investee

Note 1 to entry: Share in total financing may relate to the share in the total debt or total liabilities accounted on the balance sheet of the investee, or the share in the annual flow of financing received.

EXAMPLE Bank A represents 80% of the outstanding debt of a company, but only 30% of the debt raised by the company in the past 6 months.

3.16

climate action

initiativeof the financier to achieve climate goals based on mitigation and adaptation priorities

Note 1 to entry: Climate action intends to (a) reduce or prevent emissions of greenhouse gases or enhance removals; and (b) reduce vulnerability, maintain and increase the resilience from, and increase the adaptive capacity of human and ecological systems to adverse climate change impacts.

Note 2 to entry: The initiative refers to a decision made by the financier or a group of financiers to exercise their influence in a way that aims at achieving climate goals. It could be a specific investment/lending decision, or a permanent change in the investment/lending strategy, policy and processes of the financier(s) or actions that aim at mobilizing other financiers to weigh-in and use their influence.

Note 3 to entry: The achievement is characterised by changes in the real economy that are aligned with climate goals.

EXAMPLE SUse of shareholder voting rights to support a climate-related resolution, changes in the climate-related conditions associated with the provision of a loan (see Annex B for more examples).

Note 4 to entry: Climate action(s) can be collective or individual.

Note 5 to entry: A climate action can consist of multiple activities (e.g. sending letters to investees, having bilateral meetings, exercising shareholder rights) substantiating a general action (e.g. shareholder engagement)

[SOURCE: ISO 14080:2018, 3.1.1.1, modified].

3.17

contribution

overalleffect of the financier’s actions on the achievement of climate goals

Note 1 to entry: Climate contribution accounts for the effect caused by both:i. climate passivedecisions;ii.deliberateclimate actionsdriven by an objective that supports the achievement ofclimate goals.

Note 2 to entry: For climate change mitigation, it is usually expressed in GHG emission units. For climate change adaptation, it may be expressed in terms of financial metrics. For example, the reduction of the costs incurred by climate related natural disasters.

Note 3 to entry: Contribution can be positive, negative or neutral.

3.18

output of a climate action

change arising from the financier’s climate action

Note 1 to entry: The output can be quantitative or qualitative.

Note 2 to entry: Examples of output can be: i. the available equity for an emerging clean technology is dramatically increased; ii. A shareholder resolution on climate-related issues is passed at the Annual General Meeting (AGM); or a legal process on climate-related issues has been started.

3.19

outcome of a climate action

actualmeasurable change observed in the activities of the investee, as a result of the output of a climate action

Note 1 to entry: The outcome is measured as an effect of the financier’s influence in the activities of the investee.

3.20

climate action impact

consequence of the outcome which measures the extent to which the climate action contributes to the climate goals

Note 1 to entry: For mitigation, the impact of climate actions is usually measured in physical units such as tons of GHG emission reductions.

Note 2 to entry: The impact of a climate actionmay lead to a decrease in the financier’s exposure to climate-related financial risks and opportunities.

3.21

target for a financier

measurable outcomeand impact the financier intends to achieve with its climate action(s)

Note 1 to entry: A mitigation target for a financier is considered science-based when it aims for a change in the investee’s behaviour, contributing to reducing GHG emissions in the real economy at a scale and pace that is commensurate with climate goals.

Note 2 to entry: To achieve the target, the financier can carry out one or several climate actions.

Note 3 to entry: A target can be set at portfolio level and cascaded into individual climate actions. It can be set for an individual climate action or a series of climate actions.

3.22

investeetarget

measurable outcome and impact of investee activities

3.23

external factor

factor affecting the output, the outcomes and the impact but that is beyond the scope of influence of the climate actions and/or activities of the financier

EXAMPLE The removal of a coal-based power plant from the investment plan of the investee as a consequence of a new public policy prohibiting operation of coal-based power plants. Other external factors can be non-governmental organization pressure, changes in technology prices, subsidies, natural disasters, locked out strikes.

3.24

science-based mitigation target

target adopted by investees to reduce GHG emissions in line with the scientifically defined level of decarbonizationrequired by climate change mitigation goals

3.25

trajectory

investeesexpected future outcomeand GHG emissions pathway against which changes in emissions or outcome are measured

Note 1 to entry: There are different types of trajectories: i. the business as usual trajectory which is the expected future outcome and related GHG trajectory of the investee before climate action takes place; ii. the targeted trajectory which is the expected outcome and related GHG trajectory resulting from climate action; and iii. the science-based trajectory which is an expected future outcome and related GHG trajectory in line with the scientifically defined level of decarbonization required by climate change mitigation goals.

Note 2 to entry: The business as usual trajectory can be considered as the baseline trajectory for comparison and monitoring purposes.

3.26

transition risk

risk related to the transition to a lower-carbon economy

Note 1 to entry: The transition risk is related to policy, legal, technology, and market changes to address mitigation and adaptation requirements related to climate change.

Note 2 to entry: Transition risk results in varying levels of impact on the financial performance and reputation of the financier.

3.27

physical risk

risk resulting from event-driven (acute) or longer-term shifts (chronic) in climate patterns associated with climate change

Note 1 to entry: Physical risks may have financial implications for organizations, such as direct impact to assets and indirect impacts on supply chains owing to changes in water availability, sourcing, and quality; food security; and for organizations’ premises and operations, supply chain, transport needs and employee safety owing to extreme temperature changes.

Note 2 to entry: Acute physical risks refer to those that are event-driven, including increased severity of extreme weather events, such as cyclones, hurricanes, or floods.

Note 3 to entry: Chronic physical risks refer to longer-term shifts in climate patterns (e.g., sustained higher temperatures) that may cause sea-level rise or chronic heat waves.

3.28

validation

processforevaluatingthereasonablenessoftheassumptions,limitationsandmethodsthatsupporta statement about the outcome of futureactivities

[SOURCE: ISO 14064-3:2019, 3.6.3]

3.29

verification

process for evaluating a statement of historical data and information to determine if the statementis materially correct and conforms tocriteria

[SOURCE: ISO 14064-3:2019, 3.6.2]

It is fundamental for the financier to follow the principles described in 4.2 when defining, conducting, documenting, assessing and reporting on climate actions and the portfolio target(s) it is supporting, to ensure that information and claims relating to financier’ climate actions’ impacts and targets setare a true and fair representation.

Ensure activities, data, information, scenarios and methodologies used are appropriate for assessing and disclosingimpact of the financier's climate action, their related portfolio targets, and their exposure to climate-related risks and opportunities.

Apply, use and/or disclose assumptions, methodologies, current and historical data, and scenarios in a way that enables comparable results over time and meaningful monitoring of the financier’s climate action outputs, outcomes and impacts, the portfolio targets their climate action is supporting, and the reporting on climate-related risks and opportunities.

Include all relevant climate actions that contribute (positively or negatively) to the achievement of climate goals and/or the mitigation of climate-related risks.

Ensure, when the use of assumptions is required, to measure or define the output, outcome and impact of a climate action, that such assumptions do not overestimate positive impact and do not underestimate negative impact.

Enable the understanding of the financier’s contribution to the climate goals while simultaneously understanding its implications in the short- and medium-term.

Enable the understanding and awareness of financier'sclimate-related risks and opportunities in the long-term while simultaneously providing insights for short- and medium-term decision making.

Make available all relevant and complete information for verification purposes and, when required and/or requested, to complement the public reporting.

Ensure that all relevant information (e.g. assumptions, methods, current and historical data, and scenarios, etc.) is verified or verifiable.

Ensure that all information reported and documented, including assumptions, methodologies, current and historical data, and scenarios has a reduced bias and uncertainties in order to limit misleading communication.

Ensurethat adaptation actions contribute to mitigation and that mitigation actions contribute to adaptation. Avoid actions that undermine other climate objectives.

Ensure that the output of both individual and collective climate actions support the objective(s) and target(s).

Ensure influence is leveraged whenimplementing climate actions that aim to change the behaviour or decisions of investeesor other relevant stakeholders.

Ensure that decisions taken by investees are influenced by the financier’s climate action and result in a measurable net positive climate impact on the real economy.

Ensure that any claim of influence ofclimate actions is substantiated through collected evidence.

Ensure that the climate actions undertaken by the financier are following a management system (e.g. climate action plan) that is guided by an objective (e.g. to have a positive contribution to the achievement of the climate goals) and targets (e.g. reducing the carbon intensity of the capex investment plans of investees in an investment portfolio) and which is regularly assessed for its effectiveness, shortcomings identified and the approach improved in-line with the latest research available.

Ensure that the impact claimed by the financier is additional to what would have happened without its climate action. A financier cannot automatically take credit for the investee’s climate actions (i.e. changes in GHG emissions in the real economy) if the financier’s climate action was not one of the main or only driver for the GHG emissions change.

A financier has financial and other objectives underpinning its business activities. In relation to climate change, the financiermay have different motivationsfor integrating climate-related issues in itsinvestment and lending processes. Objectives may include, but are not limited to:

a) understanding and managingclimatechange risks and leveraging opportunities; and/or

b) contributing to the achievement of climate goals through the influence theyhave on investees.

This document provides the following requirements and related guidance for the processes implemented to achieve these objectives. The financier shall apply the relevant clauses, according to itsobjectivesas follows:

— to manage climate changerisks and leverage opportunities, Clause 6providesrequirements on identification, assessment and disclosure of climate risks and opportunities;

— to understand its contribution to the achievement of climate goals, Clauses 7 to 10 provide a framework to identify, monitor and assess the impact of climate action and estimate the GHG emissions associated with investment; as well as for financing activities related to investees for which no climate action is carried out.

NOTE see Annex A for a flow chart on the different clauses of this document.

A financier’s business decisions may be driven only by financially-related objectives (or at least no climate objectives); however, these financier’s decisions may also have an impact on the climate and, consequently, the achievement of its climate goals, as well as exposing its business to climate-related risks. In this instance, this financier shall follow Clause 11 to understand the GHG emissions changes and trends associated to the investees in its portfolio and Clause 6 to disclose on climate-related risk.

The financier should have a general framework to ensure that the material risks and opportunities of investees are identified.

In order to identify, assess, and manage a financier's climate risks and opportunities, the following areas shall be covered:

— Investees’ climate risks and opportunities

— Internal rating of climate risks and opportunities

— Targets related to climate risks and opportunities

The financier should disclose how climate change risks and opportunities influence its business and strategy over the short, medium, and long term in the following areas:

— Investment and lending policy

— Products and services

— Core business

— Investment chain

— Value chain

— Adaptation activities

— Mitigation activities

— Capital allocation.

Investors, and in particular, asset managers should disclose:

— how climate change risks and opportunities are factored into relevant investment strategies for various asset classes over the short, medium, and long term;

— how climate risks and opportunities are factoredinto relevant products;

— how investment strategy or products can be affected by the transition to a low carbon economy over the short, medium, and long term.

Asset owners should disclose how climate change risks and opportunities are included in the mandate of their asset managers.

The financier shall take into account the impact/risks to climate change of investees and the impact of climate change on the investee to determine which investees are material.

The financier should disclose:

— how its investees has recognized its exposure to the transition and physical risks over the short, medium, and long term and whether the investee has specified these risks;

— how they engage with investees to improve the quality of relevant information related to climate risk and opportunity and data availability as applicable;

— the investee’s information on climate risks and opportunities and how the quality has been assessed.

The financier should disclose:

— how climate change risks are related to their portfolio, and/or products and/or capital allocation and/or underwriting activities;

— how the board and management address transition and physical risks and opportunities. This includes:

• setting strategic objectives

• the processes and frequency by which the board is informed;

• whether the board should take into account the decisions and direction related to climate risks and opportunities when reviewing and guiding (a) strategy, (b) risk management policies, (c) setting the financier’s performance objectives, (d) overseeing major capital expenditures, (e) acquisitions, (f) progress towards targets, (g) monitoring climate change risks and opportunities and (h) investments.

— the resilience of the strategies to climate risks over the short, medium, and long term by performing sensitivity tests with different scenarios including with the 1,5°C scenario, 2°C or lower scenario and, where relevant, increased physical climate-risks scenarios of more than 3°C.

The financier should disclose:

— its portfolio and investee targets related to climate risks and opportunities, and

— demonstrate whether the target is consistent with the climate goals;

— state whether the target is based on science;

— qualitative and quantitative indicators such as (a) GHG emission over the short, the medium and the long term, (b) financial goals (c) financial loss tolerance (d) time frame over which the targets apply (e) base year from which progress is measured (f) key performance indicators used to assess progress against targets;

— the actions taken to achieve the target;

— the changes in strategy that are supporting the achievement of the targets.

The financier should disclose:

— the types of risks considered, concentrations of risk exposure, and expected opportunities;

— the sectors, business models and entire value chain identified (both international and national), related to their investees, most at risk over the short, medium and long term;

— the sectors, business model and entire value chain identified (both international and national), related to theirinvestees, with opportunities over the short, medium and long term;

— the climate risks and opportunities identified associated to the portfolio over the short, medium and long term;

— the process carried out to identify the climate risks and opportunities of its portfolio and its investees.

NOTE Annex E provides examples for opportunities.

The financier shall disclose how it operationally and strategically manages climate risks including how itmakes decisions to (a) mitigate, (b) transfer, (c) accept, or (d) control climate change risks.

The disclosure should include:

— physical risks over the short, medium and long term;

— transition risks over the short, medium and long term;

— liability risks over the short, medium and long term;

— in cases in which the financier fails to manage a risk type it should provide a comprehensive justification why this risk category is not addressed by the financier;

— the provisions for the risks of litigation;

— how climate risks and opportunities of the investees are assessed in the short, medium and long term;

— how climate risks and opportunities of the portfolios are assessed in the short, medium and long term;

— how climate change risks are going to be managed over the short, medium and long terms including the management tools and instruments;

— how the management of climate change risks is integrated into the financier’s overall risk management processes and/or policies;

— whether engagement is included as part of climate risk policy;

— how engagement will affect the climate change risks exposure.

Insurers shall disclose:

— the processes of risk management on re-/insurance portfolios by (a) geography, (b) business division, and (c) product segments and

— the range of climate related events considered;

— how the potential impacts of climate-related risks influence the selection of client, cedent, or broker;

— whether climate-related products or competencies are under development, such as (g) insurance of green infrastructure, (h) specialized climate-related risk advisory services, and (i) climate-related client engagement over the short, medium, and long term.

Investors, in particular asset managers,should disclosehow they manage climate risks for each product or investment strategy.

The financier shall disclose the metrics and methodologies used to assess and manage climate risks. The disclosure covers the following information:

— methodologies used and explanations for why these methodologies are selected;

— the coverage percentage of coverage of its portfolio(s), products or underwriting activities;

— the timeframe of the data and of the analysis;

— risk terminology used or references to existing risk classification;

— the results of the scenario analysis including with a well below 2°C goal;

— description including the assumptions of the scenarios as well as the underlying time horizon used to inform the financier’s strategy and financial planning over the short, medium, and long term;

— whether the metric is a result of stress test, including a description of the stress test used;

— state that the methodology integrates existing and emerging regulations introduced to meet the well below 2°C goal;

— a description of the monitoring process including metrics over the medium and longer terms;

— a description of the industries and geographies covered by the methodology and, if applicable, an explanation of why relevant industries and geographies identified in 6.6 were not included;

— the asset classes covered by the methodology, including a justification of why material asset classes were not assessed;

— whether the use of metric has changed over time;

— whether the results of a metric have changed over time;

— whether the metrics uses available data, estimated data or both.

Insurers should disclose their aggregated risk exposure to weather related catastrophes.

Investors should disclose metrics used to assess climate change risks in each fund, product or investment strategy.

Clause 7provides a general methodological framework for assessing the impact of a financier’s climate action(s)on the achievement of climate goals. A non-exhaustive list of climate actions is presented in Annex B.

The financier shall establish and document a strategy and a policydemonstrating its commitment to:

a) ensuring consistency of financial flows with climate goals

b) measuring the extent to which its climate action(s) contribute(s) to achieving the climate goals

The financier shall describe and document the plan to achieve its strategic objectives. The plan shall describethe means that will be mobilizedto achieve the objectives.It shall include:

a) how strategic objectives are translated into portfolio target(s).

b) how portfolio targets are translatedinto specific investee target(s).

c) whether or not the targets set in a.) andb.) are science-based.

d) theclimate actions that will be used to meet the portfolio target(s) and the investee target(s).

e) themethod(s) in-place to establish the causal relationship or linkage between the climate action(s), the means mobilized, and its strategic objectives and targets. This method shall:

• address how the expected outputs and outcomes will be considered in the process of substantiating the actual impact of the climate action (see Annex A).

• include the processes to collect data, the type of data needed, data and information sources, and the frequency of the monitoring of the climate actions.

NOTE A method can be established for multiple climate actions.

This section provides guidance on how thefinancierdocuments and describes:

• ex-ante how its climate action (‘the action’) is expected to influence the decision-making of an investee (‘the output’), and affect the activities of the investee (the ‘outcome’), in order to contribute to mitigation, adaptation, or both (‘the impact’).

• the expected causal relationship among (7.3.2), (7.3.3), (7.3.4) and (7.3.5) and the conditions and external factors considered at each stage that result in the achievement of the next stage (e.g. outputs leading to outcomes). In case direct causality cannot be established and explanation of the linkage betweenthe stages is required.

The financier shall have in place a plan to continuously review, and whenever feasible improve and increase, the ambition of the output, outcome and impact. This review shall be based on the latest research.

The financier shall define the attributes of the climate action to be undertaken:

a) The portfolio target which the climate action is supporting and how the action could contribute to achieving the target of the financier

b) The asset class(es) concerned

c) The tenure(s) of the financial asset

d) The target investee or category of investees

e) The decisions to be made by the investee(s) that the financier wants to influence including, but not limited to:

— Capital expenditure plans;

— Research and development expenditure plans;

— Early retirement of high-carbon assets;

— Product design/production plans;

— Operational procedures;

— Supply chain management;

— Selection and deployment of products and services;

— Compliance with relevant standards

— Others; or

— Multiple.

f) The financier’s lever(s) of influence on the investee(s) mobilized including, but not limited to:

— Ability to submit a resolution and vote as board member;

— Ability to submit a resolution and vote as shareholder;

— Soft power as shareholder (engagement, including escalation techniques, and private, multi-investor dialogue or annual general meeting speech);

— Soft power as bond investor (engagement);

— Ability to exert significant influence over the strategy and management of an investee as a private equity shareholder (e.g. leveraged buyout, venture capital, distressed funding);

— Ability to set debt covenants as a lender. These may be restrictive or affirmative in nature and apply to debt instruments (e.g. loans, bonds);

— Allocation of capital to financial instruments with certain characteristics (e.g. green bonds financing new renewable energy projects);

— Ability to make use of legal channels;

— Others;

— Multiple.

Thefinancier shall document and describe:

a.) the potential climate actions it can implement with the target investee and/or with other investees;

b.) the action planned.The description of the planned climate action should include the means mobilised, the timing of activities, the milestones, the resources mobilised or to be mobilised, and the approach by which the financier collaborates with relevant third parties.

c.) the reason(s) why it selected such action over other possible actions.

d.) how the climate action relates to its investment and/or financing mandate, strategy, targets, policies and processes in order to demonstrate the clear link with the financier’s objective and decisions taken.

e.) whether the action is intended to be a one-time initiative or a systematic practice.

f.) if the climate action is individual or collective. For a collective action, the financier shall explain its role.

g.) whether the success of the action depends on the undertaking of similar or supporting actions by other financiers, and to what degree.

h.) its exposure to the targeted investee for the asset classes in which it is implementing the climate action. The financier should explain how this exposure fluctuates over time or is likely to fluctuate during the course of the climate action. If the climate action is collective, the financier should specify the other financiers’ exposure to the targeted investees involved in this particular climate action.

i.) the levers of influence available and the level of influence that it exercises over the targeted investee(s) in the normal course of business, including its share in total financing of the investee and, if applicable, its voting power. It should document how its level of influence is likely to evolve during the course of the climate action.

NOTE the voting power measures the specific influence a financier has in the governance of an investee through the amount and type of equity it holds or represents.

j.) thelever(s) of influence that will be used for the climate action. It may quantify the ‘weight’ of its influence factor(s) in the decision-making process of the investee.

k.) the external factors that could lead to a change in the investees’ behaviour.

The financier may specify the main external driver(s) that led to the decision to undertake the climate action including but not limited to:

— Peer pressure;

— Requests from the government and/or supervisors;

— Pressure from stakeholders such as communities, residents, indigenous people, activist groups;

— Request from shareholders and/or debt investors;

— Expectations from clients, customers and beneficiaries;

— Opportunities; and

— Threats

The financiershall document, and describe and, where possible, quantify the expected output, (as defined in 3.18), including:

a.) why the expected output of the climate action is a relevant factor for it to influence the decision-making of the investee(s) regarding its expected outcome. The financier should document the analysis with evidence and specify all sources of data used (external and internal)

b.) the conditions and external factors that are necessary to deliver the expected output. In this process, the financier should specify the assumptions made regarding these external factors and the rationale, supporting evidences and sources. The financier shall specify if these external factors are being used to induce behavioural change on the investee.

c.) The timeline for the output of the climate action to materialize

NOTE As non-exhaustive examples, the output can take the form of but not be limited to:

• A climate-related resolution that is adopted by an investee;

• An increase of equity for a resilient low-carbon technology due to the decision of a group of private equity investors mobilizing capital; or

• Definition of loans conditions and scope of clients “covered’;

The financiershall document and describe the investee’s decisions,its action(s) and expected output(s)intended to influence to achieve the expected outcome.

In documenting and describing the expected outcome of the climate action the financier shall:

• quantify, and when not possible, describe the outcomes or resulting changes (as defined in 3.19) in the activities of the investee that are expected. The quantification shall be forward-looking to the extentpossible, and it can include several points in time. If the expected outcome cannot be quantified the financier shall explain why.

• specify the scope of the expected outcome(s), namely the technologies, geographies, operating sites, and/or products concerned. To improve the accuracy of the estimation of the expected outcome, itshall be characterized by technology type (e.g. on-shore wind, gas, coal), when applicable and available.

• provide a timeline for the outcome of the climate action to materialize (e.g. the expected outcome is anticipated to be achieved in a specific year or throughout a series of years). To more accurately determine the progress of a particular outcome, the financier should define relevant intermediate steps that may affect the expected outcome.

• identify and consider the external factors affecting the achievement of the expected outcome(s) of the climate action.

In doing so, the financier should:

▪ specify the assumptions made regarding these external factors providing the rationale.

▪ collect and provide supporting evidence and data/information sources used.

The financier may:

▪ describe how the timeline and the expected outcomes may be affected if its assumptions turn out to be incorrect.

▪ carry out a sensitivity analysis for the key assumptions.

NOTE As defined in 3.21, the outcomes of the climate action may relate to multiple categories including: changes in capital expenditure plans, research and development expenditure plans, early retirement of high-carbon assets, product design/production plans, operational procedures and/or supply chain management. The outcome may include multiple technologies (e.g. renewable power, gas power, oil power).

The financiershall present the expected outcome(s) in the context of climate goals.

— For outcome(s) related to climate change mitigation, the financier shall document and describe:

a) how the expected outcome supports the target of the financier and is intended to help its achievement;

b) quantify how the expected outcome aligns (or not) and with a science-based mitigation target applied to the investee that is consistent with the climate goals

NOTE In the absence of a science-based mitigation target, the financier may adopt an indicative target and explain why it is consistent with the climate goals.

c) quantify the gap between the business as usual trajectory of the investee’s outcome(s), the expected trajectory of the outcome (i.e. provided the expected outcome materialises) and the science-based trajectory of the outcome (i.e. following b.)).

In doing b) and c) the financier shall document:

1) the methodological framework used for scenario analysis;

2) the scenario selected (see Annex C for guidance on scenario selection);

3) key assumptions made;

4) the GHG emission factors applied (if applicable); and

5) data sources (e.g. annual reports, asset level databases, announcements) used to define the business as usual and expected outcome trajectory of the subject activities performed by the investee’s organisation.

The business as usual trajectory shall be considered as a baseline trajectory which will be used to compare changes resulting from the implementation of the climate action. This baseline can, however, be updated in cases in which the financier observes changes of the outcome that occurred due to external factors (see related requirement in Clause 7).

NOTE refer to Annex D for guidance on how to estimate the trajectory ofthe science-based mitigation target as well as the business asusual trajectory.

— For outcome(s) related to climate change adaptation, the financier shall document and describe:

d) how the expected outcome supports the targets set;

e) how the expected outcome aligns (or not) with the climate change adaptation pathway (setting targets in the short, medium and long-term) applied to the investee; in the absence of a science-based adaptation pathway, the financier may adopt indicative targets consistent with the climate goals and explain why they are consistent.

f) thebusiness as usual and expected levels of climate resilience development in the short, medium and long-term. It shall document the methodological framework used, key assumptions made, and data sources used.

In cases in which the expected outcome concerns multiple periods of time, the financier shall apply a) to f) accordingly.

For mitigation actions, the expected impact of the climate action is defined as the difference between the expected GHG emissions trajectory of the investee as a result of the expected outcome and the baseline emissions trajectory.

The baseline emissions trajectory shall be estimated by translating the business as usual trajectory of the investee’s behaviour or activities(i.e. outcome) to GHG emissions before the climate action starts to take place

NOTE For example, this means that expected changes in capacity addition plans for power producers (expected outcomes) should be translated into changes in GHG emissions associated with the total expected production capacity of the investee.

The financier shall provide a timeline for the impact of the climate action to materialize.

In cases in which the outcome is associated to multipletechnologies, thefinancier shall include all the technologies in the GHG emissions calculation.

NOTE In cases in which the investee’s outcome relates to zero-carbon technologies, the financier does not need to estimate the expected impactas it will be 0 and therefore there will be no visibility on the related impact of the climate action.

To demonstrate the progress required to meet the climate goals, the financier shall compare the expected GHG emission trajectory of the investee with the expected science based GHG emissions trajectory (if applicable);

The financiershall document any changes implemented to the criteria specified in 7.3.5.b) and any additional assumption used to estimate the trajectory of the investee under a science-based mitigation target and the baseline emissions trajectory.

Where the expected impact is considered as material but cannot be quantified, for example in some cases of research and development expenditures on breakthrough zero-carbon technologies (for mitigation) or climate-resilient infrastructure (for adaptation), the climate action outcome together with a description of the expected impact can suffice provided the reason(s) for not quantifying the expected impact is explained.

In the case of adaptation actions, the financier shall estimate and describe the expected levels of climate resilience development in the short, medium and long term compared to resilience if no action was taken.

The financier shall describe how the expected impact is intended to help the achievement of its targets and strategic objectives.

NOTE See Annex D for guidance on how to estimate the baseline emissions trajectory and the expected science-based emissions trajectory.

NOTE Existing GHG quantification standards in the ISO 14000 family of standards (e.g. ISO 14064-1, ISO 14064-2 and ISO 14067) currently do not address the forward-looking trajectory calculations that are required for the implementation of this standard.

The financiershall develop an internal monitoring plan. The monitoring plan shall specify:

a) The process and instruments(s) used to monitor differences between the initialactivities, expected output, outcome, and impact and the actual activities, expected output, outcome, and impact of the climate action;

b) The nature and source of information being monitored, and related indicators (e.g. investee announcements, reporting);

c) The periodicity of the monitoring exercise. The financier shall conduct the monitoring exercise at least once a year; and

d) The staff involved in the monitoring process (i.e. who is responsible for collecting and analysing the information);

When documenting the monitoring results and assessing progress the financiershall includeupdatedvalues of the expected output, outcome and impact and any changes in the timing for the materialization of the expected output, outcomes and impact.

The documentation of the expected output, outcome shall include:

e) A description of the internal organisational and/or operational factors of the financier leading to the change;

f) A description of the internal organisational and/or operational factors of the investee leading to the change;

g) A description of the external factors (i.e. within the control of neither the financier nor the investee) leading to the change;

h) Changes in the investee’s initial outcome(s) and related trajectory (i.e. as observed in 7.3.5.c) resulting from the influence of the external factors not related to the climate action;

i) Changes in assumptions made and/or new assumptions introduced to determine the new expected output and outcome; and

For mitigation actions, the documentation of the expected impact shall include:

j) Any changes in the baseline emissions trajectory and the reasons why it has changed.

The quantification of the expected impact should therefore considerthe difference between the GHG emissions of the investee that are influenced by the climate action and the baseline GHG emissions of the investee estimated in j).

As specified in 7.3.4, the financier whose expected outcome concerns exclusively zero carbon technologies, should measure changes and track progress in terms of outcome and not in terms of GHG emissions.

Once the actual output and outcome are observed, the financier shall assess the progress made and include in its documentation:

k) A comparison between the initial expected and the actual output and outcome (as established in 7.3.4 and 7.3.5);

l) A comparison between the revised outcome and actual outcome (established in point i)above).

For climate change adaptation, the documentation of the expected impact shall include:

m) Any changes in the climate change adaptation pathway and the reasons why it has changed.

The impact of the financier’s climate action is understood as the GHG emissions reduction or theincreasing resilience in the short, medium and long-term resulting from the influence the financier had on the investee, or both. The documentation of impact shall therefore include at least two types of information:

i. A quantification of GHG emissions reduction in absolute and percentage(see c. below); or

ii. A description of the increase in resilience in the short, medium and long-term; and

iii. A description of the causal relation or linkage between the climate action, the actual output, actual outcome and actual impact.

For outcomes that relate only to zero-carbon technologies, the quantification of changesshall stay at outcome level (see7.3.6).

The financier should request that investees evaluate the impact of its decisions or activities on the achievement of the climate goals. The information used shall be consistent with the indicator used to measure the outcome.

Where the information cannot be provided by the investee, the financier shall use other sources of information to estimate that impact. The financier shall in this case document the process to estimate the impact,and the sources used.

To assess the impact of the financier’s climate actions, the financier shall:

— For climate change mitigation

a) Quantify the GHG emissions associated tothe actual outcome;

b) Compare a) with:

i. The GHG emissions trajectory according to the science-based mitigation target applied to the investee in 7.3.5 (if applicable);

ii. The baseline emissions trajectory of the investee; and

For b)i., the financier shall document any changes implemented to the criteria specified in 7.3.5.b) and any additional assumption used to estimate the trajectories of the investee.

c) Estimate the difference between the actual GHG emissions trajectory of the investee and the baseline emissions trajectory. This difference shall consider the period of the climate action and include any future periods that the outcome may continue to lead to emissions reductions.

— For climate change adaptation, the financier shall establish how the outcome has led to the investee’s climate resilience development in the short, medium and long-term.

For both climate change mitigation and adaptation, where possible, the financier shall establish and document the causal relation between the climate action, the actual output, actual outcome and actual impact. The financier shall list all the relevant factors that demonstrate such causality. If such causality cannot be demonstrated, the financier shall describe the linkage between climate action, actual output, actual outcome and actual impact and provide the reasons which prevent it from proving causality.

Where the actual impact cannot be quantified, the financier shall substantiate the outcome with a description of the actual impact including the reason(s) for not quantifying the actual impact.

The financier shall describe how the actual impact helped the achievement of its climate targets and strategic objectives.

The financier shall report on its climate action(s) by publishing a standalone report or integrating it into other reports such as its annual financial filings, annual reports, corporate sustainability report or other periodical reports or filings. The report shall meet the minimum requirements specified in 10.2. The financier can choose how to present the information (e.g. by action, by type of action, by investee or type of investee, etc).

Where the climate action(s) is part of a financial product sold to clients, a summary of information required in 10.2 shall be included into product documentation and annual reports sent to clients.

The financier may also report on the items in sections 10.3 and 10.4.

The financier shall describe in the reporting of its climate action(s):

a) type of financier (e.g. bank, pension fund, asset manager, insurance company);

b) whether the financier represents a group of organizations or a single organisation;

c) whether the financier carries out the climate action with a clear mandate from its client(s);

d) whether the financier carries out the climate action(s) at group, division, business unit, department or product level;

e) whether the financier carries out the climate action(s)of relevance for its climate impact at global, regional, national or local level;

f) the department, division, business unit or team leading the action(s)of relevance for its climate impact (if applicable); and

g) the departments, divisions, business units and/or teams supporting the identification, monitoring, assessment and reporting associated with the action(s)of relevance for its climate impact (if applicable).

a) The climate strategy of the financier;

b) Action plan to achieve its strategic objectives;

c) Portfolio target(s) and investee target(s) associated with the strategic objectives and indicate whether the targetsare science-based or not

d) Theclimate actions selected to meet the portfolio and the investee target(s), indicating changes with respect to the previous reporting and reasons for the changes; and

e) The approach to monitor climate actions.

a) The entity or group which has carried out the climate action;

b) The asset class(es) concerned;

c) The tenure of the holding or financial asset;

d) An indication of the period of time over which the climate action has been carried out;

e) An indication of the type and number of activities carried out with the investee that substantiate the climate action;

f) An indication of the action being an individual or collective action, or a combination of both;

g) The targeted investee or category of investees;

h) An indication of how the financier’s action has progressed over time considering new knowledge on the rate of climate change and the evolution of the impacts;

i) An indication of how the climate action relates to the financier’s investment and/or financing mandate, strategy, policies and/or processes;

j) Where applicable, the portfolio target(s) the climate action is supporting, indicating whether the target is science-based or not;

k) The exposure to the investee at the time when the climate action was initiated and concluded; and

l) An indication of whether the climate action is a one-time initiative or a systematic change in the financier’s practices.

a) The levers of influence used;

b) The level of influence on the investee at the time the climate action was initiated and concluded;

c) The actual output of the climate action and an indication of it being a relevant factor to influence the decision-making of the investee regarding its outcome; and

d) The external factors that materialized and helped deliver the output.

a) The expected outcome at the time when the climate action was initiated and its trajectory throughout the period in which the climate action was carried out and, when available, in future periods of time;

b) An indication of whether or not the expected outcome occurred and the date it was achieved;

c) The actual outcomeand the corresponding trajectory throughout that period of time and, when available, in future periods;

d) The baseline trajectory of the outcome;

e) An indication of how the actual outcome supports the portfolio level, investee target(s) and/or strategic objectives of the financier;

f) The gap between (a) and (c) with an explanation of the deviations observed, in particular if the actual outcome is higher than the one that was expected;

g) A description of the changes in the activities of the investee that have led to (c), including the decisions made by the investee under the influence of the financier as well as the decisions made under the influence of the external factors considered in 7.3;

h) In the case of mitigation, the difference between the actual trajectory of the investees outcome(s) and the trajectory under the science-based mitigation target, the indicative target or the scenario analysis that considers the climate goals;

i) In the case of mitigation, an indication on whether the methodological framework for scenario analysis was developed in-house or by a third party, the scenario selected, the key assumptions made in the scenario, and indication that the scenario was peer reviewed;

j) The external factors necessary that materialized and that helped deliver the actual outcome;

k) In the case of adaptation, the climate change adaptation pathway selected and the key assumptions made when developing it.

a) The GHG emissions reduction or increase associated with the actual outcome and the expected outcome;

b) The GHG emissions trajectory according to the science-based mitigation target applied under 7.3.5. If the science-based mitigation target adopted under 7.3.5 has changed, the financier should report the science-based mitigation target adopted and explain the reasons for the change;

c) The actual GHG emissions trajectory;

d) The baseline emissions trajectory;

e) Any changes introduced to the methodological framework for the scenario analysis reported under 10.2.5.i);

f) the change in resilience in the short, medium and long-term associated with the actual outcome and the expected outcome; and

g) any changes in the climate change adaptation pathway reported under 10.2.5.

a) A description of the causal relationship or linkage between the financier’s climate action, the actual output, outcome and impact. If causality cannot be established, an indication of the factors not allowing its determination;

b) An indication of how the actual impact supports its target(s) and strategic objectives; and

c) An assessment of the effectiveness of the climate actions mobilised, acknowledgement of the shortcomings and the strategy to improve over time, the approach itself and the collection of evidence supporting its relevance for impact.

The financier should describe in the reporting of its climate action:

a) The reason(s) why the financier targeted the specific climate action and not other possible actions;

b) The timing of activities and milestones;

c) For collective actions, the list of the participants;

d) The role that other participants had on the climate action;

e) The fluctuation of the exposure during the period the climate action was implemented;

f) For collective actions, the exposure to the targeted investee of the other financiers involved in the action; and

g) The reason why the financier targeted certain investees and not others.

a) All other levers of influence available to the financier and not used in the climate action, including an explanation of why they were not used;

b) The relevance of the expected output to influence the activities of the investee;

c) The expected output;

d) The external factors necessary to deliver the expected output; and

e) The main assumptions associated with the external factors considered and related sources.

a) The decisions or activities of the investee the financier intends to influence;

b) Timeline for the materialization of the expected outcome;

c) The external factors that are needed for the expected outcome to materialize; and

d) The main assumptions and respective sources used to determine the external factors.

a) The GHG emissions trajectory of the investee according to the science-based mitigation target or indicative target applied, related to the expected outcome;

b) The impact of the investees on the development of climate resilience in the short, medium and long-term. To demonstrate how the outcome improves climate resilience and its development towards resilience, the financier should document:

— the methodological framework used for assessing investees current resilience;

— the climate change adaptation strategies and pathways;

— the key assumptions made, and information sources used; and

— financial flows contributing to resiliencein the short, medium and long-term.

The financier may provide additional information as follows:

a) The type of climate actions that the financier could have carried out with the investee;

b) The amount and type of resources mobilised, and, if applicable, to be mobilised to implement the climate action;

c) The main external driver(s) that led to the making of the decision to undertake the action; and

d) If applicable, any changes in the activities initially definedin 7.4.2 and the implications they may have on the output.

a) Changes in the level of influence of the financier during the action;

b) Changes in the expected output, outcome and impact during the action, including an explanation of the factors leading to such changes, the assumptions used and the consequences it may have had on the outcome of the climate action; and

c) Description of any corrective measures deployed in the monitoring phase to ensure that the expected output, outcome and impact could materialize.

The day-to-day actions of the financier without climate objectives and related actions may directly or indirectlysupport the activities, announcements or perspectives of investee’sregarding climate or broader environmental and social issues. Thisfinancier has the potential to carry out climate action either because itwantsto contribute to the Paris Agreement goals or because it wants to mitigate itsexposure to climate-related risks. It is therefore relevant for itto understand which investees in itsportfolio are significantly increasing or reducing GHG emissions and the actions taken that relate to those.

A financierwithout climate objectivesshall estimate and disclose the GHG emissions reductions or increase of the investees in the financier's portfolio on a yearly basis covering a 1-year timeframe that is consistent with the reporting cycle of the organization.The financier shall report emissions changes in absolute terms (e.g. tonnes of CO₂ or tonnes of CO₂ equivalent) and in percentage terms. The disclosure of the emissions shall include the scope of emissions considered, the timeframe and portfolios considered, the universe covered (in percentage) and, if applicable, the reasons why there is no fullemissions and portfoliocoverage.

The financier shall list the investees with most significant increases or decreases in GHG emissions, including the percentage and absolute change in emissions, the reason for the change, and anyaction taken in relation to that investee. These actions can relate to capital allocation, changes in mandates, proxy voting on governance topics, among other.

The financier shall clearly state that the figures provided do not indicate any measure of impact it has had in the real economy. If the financier states otherwise, it needs to provide evidence that backs up its statement.

The financier shall report any intention it has to carry out climate actions or integrate climate change considerations in the future.

A financier without climate objectives should request investees in its portfolio to provide GHG emissions estimates, including key information on how they were estimated (e.g. scope considered, key assumptions, etc.). Where the information is not provided by the investee, the financier can use other sources of information to estimate the GHG emissions as long as the process to estimate them and the sources used are documented.

The financier shall develop, establish and maintain procedures for document retention and record keeping.

The financier shall retain and maintain all documentation supporting the determination, monitoring, assessment and reporting of the climate action for verification needs. The documentation, whether in paper, electronic or other format, shall be handled in accordance with the financier’s information management procedures for document retention and record keeping.

The financier may follow the principles and guidance provided in ISO 15489-1.

The financier should seek assurance on the accuracy of its disclosures by performing or obtaining verification and validation services. Internally performed verification and validation should comprise an element of the financier’s quality assurance/quality control procedures.

A program of verification and validation should ensure the accuracy of historical information and forecast or projected information.

Information appropriate for verification includes, but is not limited to:

a) assessment of the impact of the financier’s climate action (9);

b) disclosures made in accordance with Clauses 6, 10, 11 and 12.

Information that is forecast or projected should be validated.

NOTE Further information about verification and validation may be found in ISO 14064-3:2019, Specification with guidance for the verification and validation of greenhouse gas statements.

1. 
   (informative)
   
   Flow chart of ISO 14097 Clauses 5 to 11

Figure 2 illustrates the relationship between the clauses 5 to 11 of ISO 14097

Key

The oval is used to represent the start and end of a process

The rectangle represents any step in the process

The arrow represents the flowcharting path

The diamond indicated a decision

Figure 2— Flow chart of ISO 14097, Clauses 5 to 11

NOTE boxes for which no section is specified, relate to steps in the process that are not addressed by ISO 14097. Some of these steps are addressed by market initiatives

1. 
   (informative)
   
   Indicative list of actions – financier

Table B.1 — Indicative list of actions

1. 
   (informative)
   
   Guidance on the selection of scenarios
   1. Introduction

In the selection of a scenario, the financier should consider the following factors:

— Ambition

— Speed

— Boundaries

— Granularity

— Time horizon

— Parameters

— Assumptions

• 1. Ambition

The financier should consider a scenario that is consistent withthe climate goals. Where applicable and possible, the financier should use a scenario consistent with the most ambitious of the climate goals (e.g. in the case of the Paris Agreement, this should be at least a well below 2°C scenario).

• 1. Speed

The scenario speed relates to the ‘disruptiveness’ or non-linearity of the transition. When available, the organization should consider using scenarios with more sudden or abrupt impacts as these are likely to create more significant risks.

The organization should clearly identify and communicate on the speed of the scenario selected in order to understand if the timeframe used in the analysis captures the most abrupt impacts.

• 1. Boundaries

The organization should select a scenario whichgeographic boundaries are consistent with the geographical scope of the investee targeted by the climate action.

Three different geographical scopes for scenarios can be considered: i. global level; ii. regional level: and iii. country level.

The selection of the scope should be consistent with the following:

i. Scenarios at the global level should be selected when the activity or outcome is part of a global market (e.g. productionof vehicles)

ii. Scenarios at the regional or country level should be selected when the activity or outcome is of the local market (e.g. electricity capacity generation)

The scenario selected should have full coverage of the activities of the investees. If it is not the case, the financier should understand and communicate on the implications of the missing scope.

• 1. Granularity

The financier should use a scenario at the highest geographical, sectoral and technology level of differentiation available so as to clearly determine the outcome trajectory of the investee targeted by the climate action.

Country level scenarios (e.g. Mexico, China etc.) are preferred to regional level scenarios (e.g. Latin America and the Caribbean, Europe). Scenarios that provide information at technology level (e.g. production of Electric Vehicles, Internal Combustion Engine and/or Hybrid) are preferred to scenarios that provide information at economic activity level (e.g. production of vehicles).

• 1. Parameters

Scenarios should include parameters in line with the relevant transition factors identified. The scenario should include at least two of the following types of parameters:

a) Macroeconomic trends (e.g. GDP growth, discount rates, potential economic shocks);

b) Policy costs and incentives (e.g. feed-in tariff, carbon tax, etc.);

c) Production & technology (e.g. oil production, power generation, electric vehicle sales);

The organization should understand and communicate the narrative that is driving changes across time on the parameters included in the scenario.

• 1. Time-horizon

The financier should select a scenario with a time horizon spanning the length of time over which the climate action is meant to last.

• 1. Assumptions

The organization should select scenarios whereunderlying assumptions are in line with its beliefs and where levels of confidence are known. These assumptions are embedded in the scenario parameters and include changes in technology deployment (e.g. nuclear, electric vehicle (EV)) including technology with negative emissions (e.g. carbon capture and storage (CCS)), enactment of policies, price of commodities and technology, the scenario speed, the probability of occurrence of the modelled ambition (e.g. 2°C).

The assumptions of the scenarios should be documented, and the key assumptions disclosed.

1. 
   (informative)
   
   Guidance on outcome and emissions trajectory quantification
   1. Quantifying the baseline emission trajectory

The financier should compute a relative, intensity based, baseline emissions (i.e. BEI) and an absolute baseline emissions trajectory (i.e. BEA) from of the investee’s outcome (e.g. investment or production plans) as follows:

or

Where the current outcome of the investee (i.e. before climate action), i distinguishes the different assets that are considered under the outcome, andtis each year that the assetsare set to operate (t = 0,1,2, …, T). T therefore represents the lifetime of each asset. is the emission factor associated with each asset.

If the emission factor is not known by the financier, it should consider a sectoral emissions factor that captures the characteristics (e.g. country of manufacturing, type of technology) of the outcome in question to the extent it is possible.

If the financier does not have information at asset-level, it should use aggregated outcome figures and the most relevant emission factor that can be associated with that outcome.

To determine T the financier can use literature review, announcements from the investee or other relevant sources. The source should be disclosed.

Financier’s considering companies for which outcome can be at technology level including ‘zero’ carbon technologies, should consider all technologies in the quantification of the baseline emissions trajectory.

• 1. Quantifying the science-based outcome and emissions trajectory

In view of the fact that on the whole, the mitigation actions which are taken could be inadequate to achieve a sufficient level of decarbonization for achieving the climate change mitigation goals, it is important to compare the expected and actual outcome and related GHG trajectories of investees under consideration with at least one trajectory that is aligned with the scientifically estimated level of decarbonization required by climate change mitigation goals, i.e. with a science-based outcome and emissions trajectory.

• • 1. Science-based outcome trajectory for sectors in which mitigation scenarios projecting a technology shift from high-carbon to low-carbon exist

The financier should compute the science-based outcome trajectory considering the following cases:

— For sectors in which mitigation scenarios projecting a technology shift from high-carbon to low-carbon exists, a distinction between the high-carbon and low-carbon technologies is considered.

For high-carbon technologies the outcome trajectory is calculated as follows:

Whereis the currentoutcomeoftheinvestee, is the science-based rate of change of high carbon technologies, is the projected production of the scenario at year and isthe scenario production at the end of the previous interval.

This equation considers that the rate of change of high-carbon technologies is simply the rate by which the mitigation scenario prescribes that the regional production volume of the technology should decrease as a percentage of the original value..

For low-carbon technologies the outcome trajectory is calculated as follows:

Where is thecurrentoutcomeoftheinvestee, is the science-based rate of change of low carbon technologies, is the total current sector production (i.e. production of all technologies j).

• • 1. Science-based outcome trajectory for sectors in which mitigation scenarios projecting a technology shift from high-carbon to low-carbon do not exist

This equation considers that for low-carbon technologies, the required additional production is a function of the initial share of the low-carbon technology within the sector, at regional scale.

— For sectors in which mitigation scenarios projecting a technology shift from high-carbon to low-carbon do not exist, the financier should use a convergence approach in which the emissions intensity of companies converges to same emissions intensity as the scenario.

Whereis the science-based rate,is the current emissions intensity of the outcome and is the emissions intensity projected by the scenario.

• • 1. Science-based emissions trajectory

The absolute science-based emission trajectory of the investee (see below an illustration of this trajectory) can be therefore computed as follows:

Where defines each point of the trajectory for those sectors in which a shift from high-carbon to low-carbon technologies is projected in the scenarios and defines each point of the trajectory in which no shift is projected yet.

• 1. Quantifying the investee’s trajectory with climate action

To quantify the trajectory with climate action, the financial institution should use the following formula (see below an illustration of this trajectory):

Where represents the output stemming from the assets that were added or removed once the climate action was carried out. Please note that does not make a distinction on whether the assets are new, where shut down, sold or replaced. The financier should specify this in the documentation and disclosure.

• 1. Quantifying the investee’s impact

The investee’s impact is the difference between the summation of BEA and CA.

• 1. Visual representation

1. 
   (informative)
   
   Example of opportunities, positive impact and sectoral activities associated with climate action

Climate action can create benefits and return to investees and financiers andassists at managing climate risks and opportunities.

• 1. Examples of opportunities and positive impact resulting from climate action

a) Invest in low carbon and climate resilience development in the short, medium and long-term.

The financier invests in low carbon and resilience development in the short, medium and long-term to reduce GHG emissions and to reinforce adaptive capacity for protecting population against climate risks on buildings and infrastructure.

b) Invest in transition pathway

The financier invests in low carbon and adaptive capacity aligned with adaptive and mitigation pathways. The action can reduce transition risk exposure to fossil energy use and increaseadaptive capacity to transformthe economy into a low carbon one.

c) Invest in low carbon and resilient products and services.

The financier invests in products and services with a low carbon intensity and climate resiliencedevelopment in the short, medium and long-term.

d) Invest in changes in energy sources, waste reduction and reuse for resource efficiency toward a circular economy

The financier invests in renewable energy and in some new energy sources such as hydrogen based on renewable energy, as well as geothermal sources where it’s relevant and some new processes to reduce GHG emissions. The financier invests in a low carbon economy to optimize the use of resources (raw materials or energy saving). The use of high performing equipment in the context of smart networks give the opportunity to reduce GHG emissions and to contribute to climate change adaptation.

e) Invest in development of new innovative technology and its transfer

The financier structures a fund to facilitate new innovative technology and its transfer, and behaviour change to contribute to the climate goals that supports adaptive and mitigation pathways.

• 1. Sectoral activities

The financier can take into account the following sectoral activities in its climate action:

a) Energy

— Develop innovative technology for generation, transmission and storage;

— Development, introduction and diffusion of energy-saving services

— Invest in research and development of technology related to carbon dioxide capture, utilization and storage and use of electricity, gas and heat;

— Use technology related to carbon dioxide capture, utilization and storage;

— Introduction, maintenance, and facilitation of the use of renewable energy;

— Development and dissemination of power system stabilization control technologies that contribute to expansion of renewable energy use;

— Invest in new facilities for high energy efficiency generation;

— Maintenance of introduced facilities to retain high energy efficiencies;

— Introduction and dissemination of technologies for strengthening resilience of energy supply systems to natural disasters and extreme weather events;

— Risk diversification of the energy mix, by investing in low carbon fuels.

— National policies in the country of investment

— Development and diffusion of high-efficiency energy utilization technology

b) Automotive

— Develop innovative technology for the use of low carbon vehicles;

— Improve performance of fuel efficiency for new car’s driving;

— Increase GHG reduction per vehicle over the production process;

— Increase off-peak charging of batteries by using excess electricity for electric vehicles and fuel cell vehicles;

— Develop sustainable procurement requirements and guidance for suppliers;

— Introduce Digital Monitoring, Reporting and Verification (MRV) and Block chain to manage GHG reduction and resilience over the supply chain.

c) Iron and Steel

— Improve efficiency in the manufacturing process (energy intensity);

— Develop technology for dramatically reducing GHG emissions in the manufacturing phase (e.g. development of hydrogen reduction iron manufacturing technologies);

— Develop and commercialize products which contribute to lighter weight or longer life of final products as well as higher energy efficiency;

— Increase GHG reduction through closed-loop recycling of products (unique characteristics of steel);

— Establish recycling systems for used products and co-products generated from manufacturing processes as well as utilizing waste plastics, which contributes indirectly to reducing GHG emissions;

— Transfer excellent energy‐efficiency technologies to developing countries.

d) Chemicals

— Improve energy intensity and reducing total GHG emissions (e.g. energy-saving through conversion of production systems, utilization of waste heat, and fuel transition for private power generation);

— Develop processes to reduce GHG emissions by supply chain management (e.g. establishment of green procurement policy);

— Develop emerging technologies that contribute to reduce GHG emissions in the manufacturing phase (e.g. membrane separation processes, conversion of CO2 to raw materials (Carbone Capture and Utilisation (CCU)), use of biomass as raw materials, use of natural gas, use of methane hydrate as resource);

— Develop environmentally conscious products which contribute to GHG reduction through the value chain.

e) Electrical and Electronic

— Improve manufacturing process efficiency (energy intensity);

— Improve energy efficiencies during the use phase of products;

— Develop products and services that contribute to reducing GHG emissions;

— Develop Internet of Things (IoT) solution leading to reduction in GHG emissions (e.g. energy management).

f) Airplane manufacturing

— Develop innovative technologies over the production process;

— Develop innovative products and their use for airplane manufacturing to contribute to climate resilience development in the short, medium and long-term toward a circular economy;

— Develop sustainable procurement requirements for suppliers.

g) Aviation

— Develop investment plansfor introducing high fuel efficiency new aircraft;

— Use fuel cells before take-off and after landing at taxiing activities;

— Reduce the use of auxiliary power unit by supporting ground power units;

— Develop innovative auxiliary power unit by supporting fuel cells;

— Improve operating efficiency for air route, service route, flight operation;

— Improve cleaning maintenance of engine and aircraft;

— Improve light weighting of payload;

— Improve on-time departure and arrival rate;

— Invest in the development of biofuels;

— Improve wastewater management, reduction of final treatment rate for industrial waste.

Bibliography

[1] ISO 14064‑1:2018, Greenhouse gases — Part 1: Specification with guidance at the organization level for quantification and reporting of greenhouse gas emissions and removals

[2] ISO 14064‑2, Greenhouse gases — Part 2: Specification with guidance at the project level for quantification, monitoring and reporting of greenhouse gas emission reductions or removal enhancements

[3] ISO 14064‑3, Greenhouse gases — Part 3: Specification with guidance for the verification and validation of greenhouse gas statements

[4] ISO 14080:2018, Greenhouse gas management and related activities — Framework and principles for methodologies on climate actions

[5] ISO 14090, Adaptation to climate change — Principles, requirements and guidelines

[6] ISO14091^[1]Adaptation to climate change - Vulnerability, impacts and risk assessment

[7] ISO/TS 14092, 2019Adaptation to climate change - Requirements and guidance on adaptation planning for local governments and communities

[8] ISO 14030, 1^[2]Environmental performance evaluation -- Green debt instruments -- Part 1: Process for green bonds

[9] ISO 14030, 2^[3]Environmental performance evaluation -- Green debt instruments -- Part 2: Process for green loans

[10] ISO 14030, 3^[4]Environmental performance evaluation -- Green debt instruments -- Part 3: Taxonomy

[11] ISO 14030, 4^[5]Environmental performance evaluation -- Green debt instruments -- Part 4: Verification

[12] ISO 14067, Greenhouse gases — Carbon footprint of products — Requirements and guidelines for quantification

[13] ISO 15489‑1, Information and documentation — Records management — Part 1: Concepts and principles

[14] ISO 14404, — Calculation method of carbon dioxide emission intensity from iron and steel production

[15] ISO 20915, Life cycle inventory calculation methodology for steel products

[16] ISO Guide 73:2009, Risk management — Vocabulary

[17] Paris Agreement, December 2015

[18] MDB-IDFC Common Principles for Climate Mitigation Finance Tracking. https://www.ifc.org/wps/wcm/connect/65d37952-434e-40c1-a9df-c7bdd8ffcd39/MDB-IDFC+Common-principles-for-climate-mitigation-finance-tracking.pdf?MOD=AJPERES

[19] TCFD recommendationshttps://www.fsb-tcfd.org/publications/final-recommendations-report/

[20] Guidance for Utilizing Climate-related Information to Promote Green Investment (Green Investment Guidance) https://tcfd-consortium.jp/pdf/news/19100801/green_investment_guidance-e.pdf

[21] IPCC. Clim. Change. 2014, ••• p. 2014 [Impacts, adaptation, and vulnerability. Part B: Regional aspects. Contribution of Working Group II to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change]

1. Under preparation. Stage at the time of publication: ISO/DIS 14091:2020 ↑

2. Under preparation. Stage at the time of publication: ISO/DIS 14030-1:2020 ↑

3. Under preparation. Stage at the time of publication: ISO/CD 14030-2:2020 ↑

4. Under preparation. Stage at the time of publication: ISO/DIS 14030-3:2020 ↑

5. Under preparation. Stage at the time of publication: ISO/DIS 14030-4:2020 ↑