PACTA Methodology

Definition

PACTA Methodology denotes any of the Paris Agreement Capital Transition Assessment set of principles, tools, processes and management roles.

The PACTA approach relies on an assessment of physical assets linked to financial instruments and the alignment of such assets with climate scenarios.

The physical assets’ production or capacity figures are aggregated along the ownership tree based on the following scheme:

• assets’ production figures are allocated to the companies that own them and are based on the ‘equity share approach’, i.e. a company is attributed the same share of the asset’s production as the share of the asset owned.
• Regarding subsidiaries, their production figures are allocated in full to the Group that owns most of the subsidiary, unless matched at subsidiary level.

Indicators

An indicator P for some company i may represent production, capacity, CO2 efficiency or other economic indicator that will in general vary with time: $P^i_t$.

Any given Business Sector is split by the technology j used to generate the indicator

$P^i_t = \sum_j P^{ij}_t$

The i-th company's share $\rho$ of a technology j is

$\rho^{ij}_t = \frac{P^{ij}_t}{\sum_j P^{ij}_t}$

The portfolio's technology share $\gamma$ is the loan-weighted average of each client company's technology share

$\gamma^{j}_t = \sum_i \rho^{ij}_t \frac{A^{i}_t}{\sum_i A^{i}_t}$

where $A^i_t$ is the loan amount given to company and the summation is over companies within a sector.

Economic activity (physical assets) to a financial activity (financial instruments). This stage can be referred to as the allocation rule. The ‘portfolio-weighted approach’, allocates economic assets based on the weight of the financial asset in the portfolio. Two broad allocation options are possible depending on the unit in which the economic activity is expressed:

• When working with indicators expressed in volumes (e.g. power generation capacity or oil production), the allocation rule requires finding out the share of that activity that is being financed by the instrument. For example, if a bank grants €1 million to a company that has 10 MW of installed power capacity, what proportion of the 10MW can be attributed to the bank?
• When working with indicators expressed as ratios (e.g. technology mix or emission intensity), there is no need to find a share of that activity that is being financed by the instrument. For example, a company’s power production has an average emission intensity of 500gCO2e/kWh. Whether a bank granted a €1, €10 or €100 million loan to this company, the emission intensity of the company remains the same and this value can be attributed to the financial instrument.

See Also

• Paris Agreement Capital Transition Assessment
• Partnership for Carbon Accounting Financials