The guidance is quite unclear about how the weightings actually work for the portfolio coverage approach.
FI-C17.2 (quoted below) says that the target must use a weighting approach in the SBT Finance tool. I understand the options here (WATS, TETS, etc) but it’s unclear how these are actually calculated in the tool. Table E1. Portfolio Weighting Options shows how these weightings work for temperature rating but there’s no equivalent for PCA. My understanding would be that WATS PCA would mean committing to x% of companies by GHG emissions would have SBTi-approved targets by x year. E.g. if 10% companies had 30% of total emissions, it would be enough for all of these companies to have approved SBTi targets by the target year (assuming that 30% puts you on track to 100% by 2040 as per the guidance).
However, FI-C18 (also below) gives the example of targeting by “total financed emissions associated with investment and lending activities”. Please could you clarify the use of the term “financed emissions” here? Does this simply mean the total emissions of investee companies, or does it mean the emissions of investee companies attributable to the FI, as defined in PCAF? The former seems in line with the explanation of WATS I’ve given above, but the latter is more inline with ECOTS. Essentially, does the scale of the FI’s investment in the company matter, or does it simply matter that they have invested in the company?
FI-C17.2 – SBT Portfolio Coverage Targets: “Financial institutions shall commit to having a portion of their borrowers and/or investees set their own approved science-based targets such that the financial
institution is on a linear path to 100 percent portfolio coverage by 2040 (using a weighting approach in the SBT Finance Tool)”
FI-C18 – Disclosure of Target(s) Portfolio Coverage: At the time of target announcement and along with approved targets, financial institutions shall disclose the percentage of their total investment and lending activities covered by portfolio targets on the SBTi website, in a metric representative of the magnitude of FIs’ main business activities, which may involve any combination of commercial banking, investment banking, and asset management. Examples include total financed emissions associated with investment and lending activities (if quantified), total balance sheet, total investments, total lending book, and total assets under management