Corporate Loans: 67% of remaining portfolio target requirement

Hi there,

I am linking another question I posted on the 67% for ease of reference: 67% of base year corporate lending - including SME? - #2 by Eoin

Can I please check the following?

  • All banks will have exposure to Financial Institutions in their Corporate Loans portfolio and in some cases, this will be material. Does the 67% threshold include loans to FIs? If it does, this would mean that a bank needs to set additional targets that cover lending to FIs.
  • If an FIs target is required, what is the expectation on the approach? The SDA seems unrealistic considering the data challenge and the fact that portfolio emissions are not meant to be aggregated. Would you suggest a Portfolio Coverage or Temperature Rating approach? If the SDA were to be used, would the requirement be to set targets on portfolio FIs’ Scope 1 and 2 or on Scope 3?
  • Can I please ask what the reduction requirement is for the Portfolio Coverage approach? Happy to find it in the guidance if you can refer me to the right page as I have not been able to locate the criteria.

As a separate question, using the 67% approach excluding SMEs, may lead to a lot of additional sector targets needed. Can a bank set fewer targets, including SMEs (and thus increasing coverage), in lieu of setting more targets excluding SMEs?

Many thanks,

Ana

Hi Ana,
Yes the 67% threshold does include other FIs. This basically means that these FIs will have to be covered with a portfolio coverage or temperature rating target i.e the FI should engage the other FI to set an ambitious science-based target. The SDA method cannot be used to cover all FIs activities, hence they would have to follow a PC or TR method.

In terms of the reduction requirement for PC, this is simply the minimum temperature alignment of the respective scopes, WB2C for S1+2 and at least 2C alignment for scope 3 (lending and investment activities).

Regarding the SME inclusion, banks can include these and most likely use a portfolio coverage approach (as they will not have SDA pathways available for the sectors in which most SMEs operate). In principle, a bank could set one portfolio coverage target on nearly all corporate lending activities, including to many high impact sectors e.g. steel, cement, transport.

Hi Eion,

Thank you for your response. How is the % FIs with SBTs compared to baseline in the next 5 years determined in the Portfolio Coverage method?

Many thanks,

Ana

Hi Ana, The annual % portfolio coverage metric is calculated each year and is largely independent of the % in the baseline i.e. the changes in portfolio coverage may also be due to portfolio reallocation and new companies entering the portfolio. Therefore the method does not require to track specific companies in the base year and compare them to companies in the reporting year.