WEBVTT 00:01:00.000 --> 00:01:14.000 I'm more than happy to welcome you all to yet another deep dive webinar on two methodologies or actually one methodology and a consultation paper on sub-sovereign debt as well as inventory fluctuations. 00:01:14.000 --> 00:01:20.000 Yeah, we're very pleased to see all of the attendants in this, but also prior calls. 00:01:20.000 --> 00:01:30.000 And that we finally get this work that we've been meticulously working on the last one and a half year out of the shadows and into the limelight where you can comment on it. 00:01:30.000 --> 00:01:35.000 So as we move to the agenda. 00:01:35.000 --> 00:01:44.000 So I'm currently doing the opening remarks, introducing the different speakers, and then we'll be moving to the first to the sovereign depth methodology. 00:01:44.000 --> 00:02:03.000 Discussion. We'll have a Q&A afterwards, but please do move forward with already putting your questions in the Q&A function in this uh in the Zoom meeting so we can address them either on the spot or during the Q&A session. But at least we already can collect answers 00:02:03.000 --> 00:02:12.000 Afterwards, we will move forward to the inventory fluctuations guidance uh where we will also end with another Q&A session. 00:02:12.000 --> 00:02:21.000 So then some practical notes. The purpose of this session is really to deep dive into the methodologies that we are discussing today. 00:02:21.000 --> 00:02:34.000 Feedback you can share through the consultation survey so it's really about you understanding the methods a little bit better to allow you to provide feedback. 00:02:34.000 --> 00:02:41.000 But of course, if you have questions that you need addressing to allow you to provide that feedback, you can put them in the Q&A function. 00:02:41.000 --> 00:02:52.000 You are all in listen-only mode. However, again, we can receive your questions in written form and we can address them either by chat or live in the meeting. 00:02:52.000 --> 00:03:02.000 Depending on the level of detail of that question. If you have technical difficulties, just reach out to us in the chat and we will try to assist you as good as we can. 00:03:02.000 --> 00:03:08.000 This webinar is recorded also for those that couldn't make it at this specific time. 00:03:08.000 --> 00:03:12.000 And it will be available on the PCAF website following the event. 00:03:12.000 --> 00:03:18.000 And for any further questions or comments, you can always reach out to us through our email. 00:03:18.000 --> 00:03:29.000 So then the speaker. So we will start with Kumal and Janina, who will present to us the draft methodology for Sovereign. 00:03:29.000 --> 00:03:41.000 Depth and afterwards, I will do a quick introduction into the inventory fluctuation work where I will hand over to my PCAF colleagues, Arjun and Atarv to walk you through in more detail. 00:03:41.000 --> 00:03:48.000 So with that, we can start with sub-sovereign debt and I will give the floor to Kumo. 00:03:48.000 --> 00:03:53.000 Please go and take it away. 00:03:53.000 --> 00:04:09.000 Thank you, Gaspar. So hi, everyone. And we are delighted to present to you about Subs Over Indep. I'm sure you've already read the draft consultation document, which is out live for you to provide your inputs. 00:04:09.000 --> 00:04:31.000 While this subs over in-depth document which we have shared for consultation heavily relies on the existing existing PCAP document, PCAF theft document and sovereigns However, we believe that this document does provide deep dive and it expands on the existing methodology. 00:04:31.000 --> 00:04:55.000 And we believe that the reasons why we wanted to include sub-sovereigns is because we wanted to ensure that we expand in terms of data provision, which is provided. And we wanted to ensure while we know that, yes, there are certain limitations in terms of data availability. 00:04:55.000 --> 00:05:10.000 We do understand that, but we are also aware that it has improved over over the It has improved over the course course of theirs. Are you able to see my video, Casper or anyone from PCAP? Could you confirm? I just got a message. 00:05:10.000 --> 00:05:12.000 Yes, we can see you now. Yeah, yeah, we can see now. 00:05:12.000 --> 00:05:32.000 Okay. Okay, all right uh yes so um All right, so I'll continue and um Yes, so we also understand that subservient depth is an important asset class for financial institutions. This is the reason why we decided to come up with 00:05:32.000 --> 00:05:55.000 This consultation document of observance. And it is we believe that it is absolutely critical and essential that we understand that, like we've shared earlier that the methodology heavily relies on the sovereign depth standards However, the scope of subservient standard can be expanded further in the future. 00:05:55.000 --> 00:06:07.000 Currently, we are obviously covering scope one and scope two and we have provided data quality tables also in the consultation document. But there is definitely scope in future to expand. 00:06:07.000 --> 00:06:15.000 With this, I would like to hand over to my colleague Janina for the next slide. 00:06:15.000 --> 00:06:28.000 Thank you, Kumar. So the first slide we want to really present in terms of content is, of course, what is the asset class definition. So what is the standard or the draft standard? 00:06:28.000 --> 00:06:52.000 Actually covering and then also what is it actually not covering in terms of In scope issuers, we have also very much, as Kumal already pointed out, we are very much aligned with the sovereign debt standard so What we included is sub-sovereign issuers defined as issuers which have jurisdiction 00:06:52.000 --> 00:07:12.000 Or influence over a certain territory within a country Which is, sorry, you cannot see me, right? Interesting. Oh, can you see me? Sorry, I cannot see myself. That's just the wondering but And so it's basically the jurisdiction or influence over a certain territory within a country 00:07:12.000 --> 00:07:29.000 Below the sovereign level. You have to keep in mind, and I believe most of you are aware of that, so the sub-sovereign asset class is really diverse. It's not as easy as other asset classes in terms of really having a homogeneous 00:07:29.000 --> 00:07:59.000 Quality, I would call it in terms of issues. So it's To our understanding from the working group discussions we took away that it is relatively straightforward to define what is in scope. So it's relatively clear to to to financial institutions in practice to identify, for example, a state of Pennsylvania, which is one of the in scope sub-sovereigns or a city 00:07:59.000 --> 00:08:07.000 Whatever. So this is quite clear. What is a bit more challenging is to really define what is out of scope. 00:08:07.000 --> 00:08:22.000 And I believe we as a working group, we followed kind of the the idea to explain what we actually want to exclude without giving maybe 100% precise definition. 00:08:22.000 --> 00:08:35.000 What we exclude is what we call kind of corporate like sub-sovereigns. So, I mean, you're aware that issuers or entities that provide services or facilities in the name of a government. 00:08:35.000 --> 00:08:46.000 And they are and they are quality wise more like a corporate. So they provide utility services, transportation services a state bank, whatever. 00:08:46.000 --> 00:09:05.000 We do not include them on the one hand side because there are other standards already covering these kind of issues. So state agencies are usually kind of covered by the like yeah like a corporate, so using their respective standard for these kind of issues 00:09:05.000 --> 00:09:26.000 And it's it's kind of There are some maybe gray issues where you're like, I don't really know how to currently classify them because maybe we're not right there yet to fully have the information we need to classify them correctly or have the information we need 00:09:26.000 --> 00:09:33.000 So we excluded all these kind of assets. Or issuers. 00:09:33.000 --> 00:09:46.000 That's on the asset class definition. So we are very clear in what we include. And it's a bit broader the description we provide in the draft standard of what we exclude. 00:09:46.000 --> 00:10:03.000 This is something, yeah, I think this is something an informed financial institution, someone who knows the portfolio well can really distinguish. And there is a certain degree of freedom, I would say which is probably also really helpful to apply the standard. 00:10:03.000 --> 00:10:26.000 That's in terms of asset class definition. Happy to take questions on that afterwards. And I would propose that we continue with the third slide on what is actually in scope in terms of emissions and other things that come i will now talk about. 00:10:26.000 --> 00:10:47.000 Thank you, Janina. So when we talk about what's in scope, I think we are very, very clear in terms of this definition within the standard. Scope one emissions are very clearly outlined and should be reported very clearly from the standard perspective. 00:10:47.000 --> 00:11:05.000 As part of the proposed scope that is defined in the existing standards which is proposed. Also scope two and scope three, we are saying that those should also be reported. However, we understand that when it comes to scope to reporting, while we say that it should be reported. 00:11:05.000 --> 00:11:19.000 We do understand that there could be limitations in terms of data. And when we talk about scope three or exported emissions, we also understand that the data may not be available for every subsort. 00:11:19.000 --> 00:11:32.000 So we have taken those kind of limitations into considerations and thus Scope one, scope two or scope three reporting has been defined accordingly within the standard. 00:11:32.000 --> 00:11:38.000 Also, one critical aspect of the existing standard is PPP adjusted GDP. 00:11:38.000 --> 00:11:51.000 So while we are recommending this approach, however, in our draft consultation questions, we have asked as well whether it is an acceptable proxy. 00:11:51.000 --> 00:12:13.000 Because we do understand that there could be certain concerns raised when it comes to PPP adjusted GDP. However, given the current, I would say limitations with subservance, this is the best approach that we could take as per our understanding. But we are open to inputs on this. 00:12:13.000 --> 00:12:17.000 If you know this could be taken or considered as a proxy. 00:12:17.000 --> 00:12:37.000 So I think the current standard very clearly defines in terms of what is in scope and like Janina mentioned, it also defines in terms of asset class what is included and what is not included. As a next step, we would also want to talk about the equations aspect of it when it comes to looking at financed emissions. 00:12:37.000 --> 00:12:44.000 And for that, I will hand over back to Janina. 00:12:44.000 --> 00:13:10.000 Okay, so in terms of equations. Everybody who knows sovereign debt standard should not be surprised. Of course, as Kamal pointed out, several times already, it's very much in line with what has been done for sovereign debt. So apparently there's like this attribution factor which is defined as the outstanding amount in the sub-sovereign divided by the PPP adjusted GDP of the sub-sovereign. 00:13:10.000 --> 00:13:34.000 And Kamal also pointed out, it's really a proxy PPP adjusted GDP. So it's, I mean, there are no PPP adjusted GDPs for regions or for cities for sure not, but even for regions, they could be just readily there readily that are readily available and can be applied so We propose this proxy. 00:13:34.000 --> 00:13:40.000 Because we still think it's better than, for example, just using GDP. 00:13:40.000 --> 00:14:01.000 Equalizers equalizes or it removes the exchange rate effect Which is also applicable, I believe, to regions in the same way as it is applicable to countries, even though it might not really reflect purchasing power differences across regions. But it's a proxy and we believe it's the 00:14:01.000 --> 00:14:21.000 Best proxy we have. I'm very much looking forward to the consultation. Maybe somebody has a has an even better approach or idea. But we propose to use PPP adjusted GDP derived from the country level PPP adjusted GDP, basically. 00:14:21.000 --> 00:14:26.000 So then the attribution factor flows directly into the financed emissions equation. 00:14:26.000 --> 00:14:55.000 Yeah so the attribution factor times the sub-sovereign emissions, as pointed out previously, this is currently in particular scope one emissions excluding land use land use chases forestry because land use so this this um data land use, land use change and forestry data is also not like really available. For certain areas it is actually. So if available and the quality is good of course it can be used but for now we just 00:14:55.000 --> 00:15:12.000 Yeah really like yeah ask for scope one excluding UWCF in the draft standard. And then the final submissions if you kind of yeah insert attribution factor times the subsolar emissions. You have the outstanding amount divided by PPP adjusted GDP times the sub-sovereign emissions. 00:15:12.000 --> 00:15:19.000 Fully in line with the sovereign debt. These are the equations we propose. 00:15:19.000 --> 00:15:33.000 In line with sovereign debt and inline debt and This is actually in terms of methodology the slides we wanted to present. 00:15:33.000 --> 00:15:38.000 Kamal, is there anything you want to add at this point? 00:15:38.000 --> 00:16:01.000 Thank you so much, Janina. I think we have covered pretty well. We've spoken about the scope what's included, what's not included. Also, we have touched upon financed emissions calculations. We have spoken about PPP adjusted GDP. So this in a nutshell summarizes the entire proposed standard, which is out there available in public as well. 00:16:01.000 --> 00:16:08.000 And if there are any further questions, we both would be more than happy to take those questions. 00:16:08.000 --> 00:16:09.000 Thank you. 00:16:09.000 --> 00:16:19.000 Yeah, so thank you, Janina, Kumar, for this very clear presentation So people, please do start providing questions if you have them. We have had two that are already answered. 00:16:19.000 --> 00:16:32.000 So one more practical one is whether we indeed we will upload the slides as well as the recording of this session on our public website So then here there's a question. 00:16:32.000 --> 00:16:49.000 In the Q&A, if we could please share the source of information where Sovereigns can be found so i i I guess this group has looked into that. It's not an easy question because we realize it's a bit of chicken and egg. 00:16:49.000 --> 00:17:06.000 Already with with sovereign emissions, but subsidence more so that data is not always readily available for all cities or sub-sovereigns. 00:17:06.000 --> 00:17:07.000 Yeah. Yeah. 00:17:07.000 --> 00:17:11.000 Though we don't necessarily want to wait with the method because then we are waiting for each other But Janina Kumar, do you have any tips on this for finding good data sources? 00:17:11.000 --> 00:17:12.000 Yes, sir. 00:17:12.000 --> 00:17:24.000 Yes. Yes, sure. I would like to add on that. So definitely, Casper, you've summarized it well, but I just wanted to add that the group, the working group has has looked into it. 00:17:24.000 --> 00:17:36.000 Looked into it in detail but when it comes to scope one GIG emissions in terms of sources, we would recommend you know to looking at sources which are located within the regional territory. 00:17:36.000 --> 00:17:51.000 Where within the jurisdiction and where there is direct influence. So this is to ensure that we cover the territory to which the particular sub-sovereign would be linked to. 00:17:51.000 --> 00:18:11.000 Maybe just very practical or concretely i would like to add. I mean, we looked into like very concretely in big sub sovereign markets in the us in Canada, in Australia and the European Union. They're really good data sources, which are also in the draft consultation. There are the links to these data sources. 00:18:11.000 --> 00:18:36.000 Either provided by EDCA for European Union countries and really they provide all scope one emissions for all regions on NATS 2 level even in Europe in a very consistent manna also like in terms of okay what countries deliver to you in a triple c is very much rejected for several countries that we kind of sum up 00:18:36.000 --> 00:18:51.000 And all the states or Pundles lenda or provinces or whatever to come out to see whether it's consistent. It's very much consistent. And for the us For Canada and Australia, it's really the government providing this information, this official information so um 00:18:51.000 --> 00:19:03.000 It's also, I guess, I mean, these are big sub-sovereign markets um maybe already find good data and we will continue really looking into different countries and try to find more. 00:19:03.000 --> 00:19:06.000 Good data sources. 00:19:06.000 --> 00:19:15.000 Thank you. And actually, yeah, so we also hope of course we're publishing this methodology that there will be more questions also from investors to the sub-sovereigns to start providing. 00:19:15.000 --> 00:19:16.000 Yep. 00:19:16.000 --> 00:19:34.000 That data so um then there is another question based on these data issues the question is if it's acceptable to aggregate at the province or state levels as good as gas emissions could be found more easily or exposure related to the municipality or the city. 00:19:34.000 --> 00:19:43.000 I'm not sure if you… can easily address this. I can also help if needed. 00:19:43.000 --> 00:20:05.000 You want to answer? So it's about, okay, do we actually think aggregation is acceptable as a proxy so that we don't, I don't know if we have data or like emission data within a territory that would just aggregate it and use it as a proxy for the whole territory. Was this the question? 00:20:05.000 --> 00:20:06.000 Yeah, I think that's the question. Maybe let me address the way that I see. Oh, go Mal, go. 00:20:06.000 --> 00:20:10.000 No. Yeah. 00:20:10.000 --> 00:20:16.000 Yeah. 00:20:16.000 --> 00:20:17.000 Audio music. 00:20:17.000 --> 00:20:27.000 So… Sorry, sorry. I was trying to speak earlier, but I think I had some issues in unmuting. Yeah, so… the way I'm understanding the question is if aggregation is allowed and uh To be honest, I think that would dilute 00:20:27.000 --> 00:20:40.000 The representation of data and we would recommend to avoid that we and we do acknowledge the fact in terms of data limitations. But however. 00:20:40.000 --> 00:20:47.000 We think that that would be a deviation from the standard itself. But Casper, over to you. Please feel free to add or 00:20:47.000 --> 00:20:57.000 So I think there's There's two ways to address this question. One is if you should aggregate your own data and then so that I think is not, as you say, appropriate. 00:20:57.000 --> 00:21:15.000 If there's no municipal emissions data and as a proxy you might use a provincial state level data instead, but still attribute it into your specific municipal loans for example that could be, it really is a case-by-case basis if this is a big city 00:21:15.000 --> 00:21:34.000 Otherwise relatively comparable state, it might be a good idea. But if it's a small city in a completely different type of state then probably it's not the best id so in the end you should be, if in absence of emissions data, you need to select a proxy that is most closely reflecting 00:21:34.000 --> 00:21:44.000 The actual mission profile of the city that you're then then looking at. So maybe a comparable city as a proxy might be better than using the state but that's really case by case. 00:21:44.000 --> 00:21:59.000 So then there is another question on if we could clarify why corporate like entities are out of scope and what are criteria to determine the difference with sovereign entity. So I think, but then I hand it over back to command Janina that that 00:21:59.000 --> 00:22:18.000 The reason why it's excluded is that sovereign here we really take the territorial approach and we look at the not at the company boundaries but to the territory And for corporate like entities, there are already methods out there that you could apply, which are basically the other SS Plus methodologies for corporate finance. 00:22:18.000 --> 00:22:33.000 So that's, I think, the main reason. And I see some nodding there so maybe You can just speak a bit about what you they have been considering as criteria to determine the difference between the two. 00:22:33.000 --> 00:22:34.000 Yeah, no, I agree. I agree. Go ahead. Go ahead, Janina. Please go ahead. 00:22:34.000 --> 00:23:04.000 No, absolutely. No, absolutely. I fully agree. So we believe there are certain sub-sovereign issues that have really operating like a corporation like they provide transportation services and there is for example corporate bundle illicit equity in corporate bond standard where we believe this is just the right standard to apply to these kind of issues. Or like state agencies, they are fully covered they act like a corporation 00:23:06.000 --> 00:23:15.000 As I said before, you need as a financial institution, you need to look into this asset class because it is much more diverse than other asset classes in terms of quality. 00:23:15.000 --> 00:23:18.000 Have to look into it. You have to look at the issues you have. 00:23:18.000 --> 00:23:25.000 And then I believe that you'll relatively quickly get an understanding of what is really a sovereign like and what is a corporate like. 00:23:25.000 --> 00:23:41.000 Issuer or sub-sovereign issuer. We also said okay there is there is a gray area for example like like when there is a loan or a bond that is financing a specific project. 00:23:41.000 --> 00:23:53.000 Like for in US municipal space, this is often the case and that's really tricky Which is, to my understanding, currently not really fully covered, but we would not include it here. 00:23:53.000 --> 00:24:01.000 I'm not sure whether it's really covered by one of the other standards because it's you really need information about what kind of project is financed. 00:24:01.000 --> 00:24:09.000 And this is very, very difficult to get currently and a really like yeah good database or whatever. 00:24:09.000 --> 00:24:15.000 We think this is also excluded for the time being just due to data limitations. 00:24:15.000 --> 00:24:16.000 Come at it. 00:24:16.000 --> 00:24:20.000 Then one final question. And then we need to move on, but other questions can just be sent over email. 00:24:20.000 --> 00:24:23.000 Yeah. 00:24:23.000 --> 00:24:29.000 So the question is, I see guidance on how to disaggregate emissions from higher administrative level to a lower one. 00:24:29.000 --> 00:24:43.000 But what is the advice on actually then also disaggregating gdp And which is especially important for municipal financing. Is there a preferred attribution or is there any recommendation on this? 00:24:43.000 --> 00:24:48.000 From you or from the group. 00:24:48.000 --> 00:25:17.000 I think we try to answer that even within uh the draft consultation document wherein and just now on uh during the presentation also we we did touch that briefly through ppp adjusted GDP approach But we've also raised this as a draft consultation question to understand whether it would be acceptable as a proxy because we do understand that 00:25:17.000 --> 00:25:33.000 The BPB adjusted GDP, it does reflect the real size of economies and output by subtracting the exchange rate effects, right? So we want to ensure that we are covering all the required aspects there. 00:25:33.000 --> 00:25:37.000 But Janina, please feel free to add from your side as well. 00:25:37.000 --> 00:25:55.000 And maybe just for my understanding like so gdp is usually maybe not on every single city level, but for regions, it's usually available so You can kind of go to this level for sure in every country. And then I think GDP is much more easy to 00:25:55.000 --> 00:26:05.000 To get than emissions so that was just my only point GDP, regional GDP is always usually available. 00:26:05.000 --> 00:26:11.000 Yeah, and then we hope that also in the consultation there are some good ideas. 00:26:11.000 --> 00:26:24.000 Okay, so that i think we… we can with this close nicely on time the session on sub-sovereignt. So thank you so much, Kamal janina for your great contributions for your hard work over the last one and a half years. 00:26:24.000 --> 00:26:28.000 I think we had really some really good questions as well. 00:26:28.000 --> 00:26:43.000 Good engagement so let's then move to another topic which is actually rather different which is about inventory fluctuation. So as I like to kick us off with a bit of an introduction. 00:26:43.000 --> 00:26:52.000 Where this work is actually coming from. So PCAF has actually uh is now has become the global standard for the financial sector. 00:26:52.000 --> 00:27:08.000 Since 2019 when we went from to more local standards in the Netherlands and in North America to to a global standard and in this period, we've seen a lot of uptake uh of the use of our standards. 00:27:08.000 --> 00:27:22.000 And also a big increase in transparency in the market, just market players that finally had a harmonized transparent methodology to report emissions on And that has led to a lot of disclosures. Just PCAF by itself has now more than 550 00:27:22.000 --> 00:27:33.000 Financial institutions that have joined us and that have already or will in the next three years also share there. 00:27:33.000 --> 00:27:43.000 Disclosures in line with PCAF, but there's many others also not in PCAF that using CDP has fully aligned their methodology with PCAF So that has all been working quite well. 00:27:43.000 --> 00:27:57.000 We also learned a lot in this period and we know that the metric of financed emissions in this case what we're talking about has a lot of benefits it's it shows impacts it can help identify hotspots. It can help track progress to 00:27:57.000 --> 00:28:04.000 Absolute targets or in the road to net zero. It also has, like any metric, some limitations. 00:28:04.000 --> 00:28:18.000 Which doesn't mean that the metric itself is invaluable, but it probably needs to be at least interpreted in the right way or maybe complement it with some other metrics specifically then for target setting and progress measurement. 00:28:18.000 --> 00:28:31.000 But we have listened to the market and the practitioners on some specific questions or concerns or feedback we've gotten on the fluctuations of finance emissions year on year. 00:28:31.000 --> 00:28:51.000 Which sometimes actually are very true and reflect real either changes in emissions of the underlying portfolio sometimes it's just changes in ownership or the share of ownership for example if equity markets go up, that means that a relatively larger share of emissions is attributed 00:28:51.000 --> 00:29:09.000 To shareholders, which actually could make sense because the influence or the share of total capital is actually higher And sometimes it's changes in the portfolio of a financial institution. So they might make investments or divestments. So those are all fluctuations that you actually want to see in an inventory. 00:29:09.000 --> 00:29:21.000 But there's also some other fluctuations that maybe are less wanted or at least can model the water a bit if you if you would look at the number in its pure form, just the absolute emissions year over year. 00:29:21.000 --> 00:29:37.000 And these, yeah, we are not blind to this feedback so we have set up a working group to consider okay Do we even want to address this at all? And if so, how could we do that and And what adaptions to the standard might be 00:29:37.000 --> 00:29:51.000 Helpful in this respect. We could either correct for this or neutralize some of these impacts we can also just break it down further and provide specific clarifications or difference analysis on where these changes are coming from. 00:29:51.000 --> 00:30:03.000 So this working group has worked again hard in the last one and a half years to do some research based on actual data has also come up with some proposed alternative solutions to address this. 00:30:03.000 --> 00:30:20.000 And now this is then again back to you as experts in the market to review and provide your feedback on so that this working group can then consider this feedback and think what is then the best way to to address this in the future update of the PCAF standards. 00:30:20.000 --> 00:30:26.000 So with that introduction, I would love to hand over to Arjun, who is my colleague from the Secretariat. 00:30:26.000 --> 00:30:41.000 Who's been together with his colleague Athar that will speak later has supported and facilitated the working group with 15 financial institutions from our signatory base an input from many others. 00:30:41.000 --> 00:30:50.000 Done some research on this topic and then has developed this draft consultation paper. So Arjun, over to you. 00:30:50.000 --> 00:31:02.000 Thank you for that introduction, Casper. So today in this webinar, we'll just be walking through the discussion paper that is the output of the work that we've done with the working group. 00:31:02.000 --> 00:31:16.000 So… Artab and I will be taking you through this. We are both from the pickup secretariat and we facilitated this working group on inventory fluctuations. So we're speaking on behalf of the working group. 00:31:16.000 --> 00:31:35.000 So the primary purpose of this working group was to provide clarity on this topic and provide recommendations on potential adaptations of existing methodology. So in that sense, it differs quite significantly from other working groups that you may have attended 00:31:35.000 --> 00:31:41.000 Presentations on presentations on in the last few days. 00:31:41.000 --> 00:31:53.000 At the start of our work, we did a materiality assessment to really understand what causes for fluctuations we wanted to investigate and then also how we wanted to investigate them. 00:31:53.000 --> 00:32:13.000 And this is then summarized in this discussion paper. So just to quickly lay out what we're going to talk about today and what's also included in the discussion paper. So we'll start with of theoretical understanding of what can cause fluctuations and 00:32:13.000 --> 00:32:29.000 When we're talking about fluctuations, this is the name of the working group. It's really what we're talking about is year-on-year changes in finance emissions. And as Casper mentioned, these can be wanted changes, but also unwanted changes. So that's what we're talking about when we're talking about when 00:32:29.000 --> 00:32:37.000 When we use the term fluctuations. A literature study is also included in the discussion paper. 00:32:37.000 --> 00:32:45.000 Then we did an analysis of alternative metrics that could be used in the denominator of the attribution factor. 00:32:45.000 --> 00:33:12.000 That could replace EBIC. We also looked at dampening mechanisms that could reduce volatility, dampening mechanisms specifically for that denominator and the attribution factor We also looked at other parts of the equation and volatility that might arise from misalignment of the different variables in the equation. I'll explain this in a little bit more detail later. 00:33:12.000 --> 00:33:19.000 And then finally, emission factors can also cause big significant year and year changes. 00:33:19.000 --> 00:33:25.000 And we try to provide more clarity on what the causes are for that as well. 00:33:25.000 --> 00:33:36.000 And then as a last section, as I mentioned before, there are suggested additions and a big part of this is the use of attribution analysis, which we'll also talk about briefly today. 00:33:36.000 --> 00:33:42.000 So if we go to the next slide. 00:33:42.000 --> 00:33:52.000 I'll start with this theoretical understanding of what can cause year and year changes in finance emissions metric. 00:33:52.000 --> 00:34:01.000 So as you all probably are aware. Generally speaking across the different asset classes to finance emissions. 00:34:01.000 --> 00:34:12.000 Formula consists of three main parts So in the denominator or in the attribution factor rather, we have two parts, the numerator, which is the outstanding amount or the exposure. 00:34:12.000 --> 00:34:22.000 That the financial institution has to different investees and then also the denominator, which is the company value of those investors. 00:34:22.000 --> 00:34:29.000 And then the other part is the emissions of those companies. 00:34:29.000 --> 00:34:34.000 So each of those can cause a change in the overall metric. 00:34:34.000 --> 00:34:57.000 And within each, there are wanted and unwanted changes. Outstanding amounts for the first part we didn't investigate too much further because this is quite well understood. And in most, mostly these are actually wanted changes. So for example, changes in portfolio composition is something that you would like to measure in a finance emissions metric. 00:34:57.000 --> 00:35:16.000 However, with company value and emissions there. While there are certain wanted changes, such as, for example, a growth in a company that might impact the attribution of those emissions to your financial institution. There are also unwanted changes such as caused by market volatility. 00:35:16.000 --> 00:35:34.000 And with emissions similarly, while you do want to measure uh changes in emissions caused by company growth or caused by decarbonization. You also want to think about things that are unwanted, such as changes caused by changing data sources or changing emission factors. 00:35:34.000 --> 00:35:40.000 And this is particularly important for the lower data quality scores in the PGAF methodologies. 00:35:40.000 --> 00:35:59.000 Which are still quite widely used. And then the fourth part, as mentioned before, is that points about alignment of these different variables. So these three elements who often come from different sources, but may also refer to different years or different 00:35:59.000 --> 00:36:07.000 Scoops. And so when you combine them, you can also create another source for volatility. 00:36:07.000 --> 00:36:25.000 In the overall metric. And so this is something that is quite complex, but we wanted to again provide some more clarity on what could cause this and and which things may or may not be wanted in the overall metric. 00:36:25.000 --> 00:36:40.000 So if we go to the next slide. I want to briefly talk about how we worked as a working group and what And what we did to arrive to the results presented in the discussion paper. 00:36:40.000 --> 00:36:48.000 So there were two main parts. On the one hand, we did a qualitative analysis and on the other hand, the quantitative one. 00:36:48.000 --> 00:36:56.000 So with the qualitative, this really consisted of uh extensive literature review of research papers on this topic. 00:36:56.000 --> 00:37:03.000 As well as disclosure reports and other publications from financial institutions in the markets. 00:37:03.000 --> 00:37:10.000 We used the framework that was presented in one of the research papers, which is also referenced in the discussion paper. 00:37:10.000 --> 00:37:22.000 To understand This was particularly useful for understanding different metrics for the denominator and the attribution factor and also for those dampening approaches. 00:37:22.000 --> 00:37:42.000 So in addition to the quantitative results, we also wanted to understand stuff like, is it actually practical to use a different metric or How is this aligned with other standards other than PCAF, et cetera? So that framework shown on the left-hand side of the slide. 00:37:42.000 --> 00:37:55.000 Then there was also a real push for quantitative analysis to be part of this working group's work and here we leveraged our partnership with S&P, the data provider. 00:37:55.000 --> 00:38:03.000 Where we were able to use the KappaQ data for emissions and for financial data. 00:38:03.000 --> 00:38:17.000 So we decided to create a test portfolio which consists of companies from the MSCI Acqui Index. So we chose that one because it has good global coverage. It has a variety of sectors included. 00:38:17.000 --> 00:38:30.000 And then also different company sizes, admittedly more on the large and mid-sized companies than on the low side because the data is also the data availability is also usually better for larger and mid companies. 00:38:30.000 --> 00:38:39.000 But this data set was then used for various analyses that are also presented in the paper. 00:38:39.000 --> 00:38:46.000 So particularly for the comparison between different metrics and also for comparisons of the dampening approaches. 00:38:46.000 --> 00:38:58.000 Here we were then able to calculate total emissions for this portfolio, for this test portfolio and change the denominator because we had data for these different metrics. 00:38:58.000 --> 00:39:19.000 And then we also were able to do analyses on the impact of misalignment of the financial and environmental data. So often you have an issue with data lags for emissions data. So we were able to provides quantitative impacts of data lags. 00:39:19.000 --> 00:39:37.000 And then also the impact of changing emission data. And here we compared S&P data with emission factors from the PCAF database and what happens if you move from one data source to the other and how significant these impacts are. 00:39:37.000 --> 00:39:46.000 So I'll now pass over to Atarv to present some of the results. 00:39:46.000 --> 00:40:00.000 From from these analyses. And then all that ends the the presentation with a brief discussion of the attribution analysis and then also the questions asked in the consultation. 00:40:00.000 --> 00:40:12.000 Thank you, Arjun. So as Arjun mentioned earlier. The first analysis that we did was on looking at alternative metrics. 00:40:12.000 --> 00:40:23.000 Evik being the current benchmark that we use, the status quo And the four metrics that we considered beyond eBIC were total book value of debt and equity, total assets. 00:40:23.000 --> 00:40:33.000 Ebitda, and then total sales or revenue. On the graph over here, you can see that the period we were looking at was between 2018 to 2022. 00:40:33.000 --> 00:40:43.000 And you'll see more than one line for EVIC, and we'll get into this later because these are the dampening approaches that be also then investigated for evict. 00:40:43.000 --> 00:40:57.000 But one line to focus on particularly within this is that constant EV decline represents how emissions themselves are changing over the years for the entire portfolio. 00:40:57.000 --> 00:41:13.000 Because when Evacus kept constant the only way that the financial uh the finance emissions line is changing is because of changing emissions. So that's the benchmark for how emissions themselves are changing And we were trying to see which of our 00:41:13.000 --> 00:41:24.000 Alternate metrics aligns best with the missions themselves. To then be a good representative for the finance emissions formula. 00:41:24.000 --> 00:41:31.000 And what you can see here is that volatility is inherent to all metrics. 00:41:31.000 --> 00:41:38.000 It's not like one metric is particularly better than another. All of them are volatile year on year. 00:41:38.000 --> 00:41:49.000 And even if the short-term volatility differs the long-term volatility has a downward trend across the board much like the emissions themselves have. 00:41:49.000 --> 00:42:02.000 Which you can see in the constant EV decline. What's also seen here is that The other alternative metrics that we've chosen here don't necessarily have much of an edge over EVIC itself. 00:42:02.000 --> 00:42:08.000 And when I say EVIC here, I'm referring to EVIC at price dates, which is the orange line that you see. 00:42:08.000 --> 00:42:18.000 Or any of the other clients. So this is a very helpful analysis to show us that EVIC perhaps is 00:42:18.000 --> 00:42:28.000 It is perhaps the best choice available here. In that the other choices are no different. 00:42:28.000 --> 00:42:47.000 If you move on to the next slide then. Once we had established this, we started looking at different ways to examine volatility within EVIC and see if there's anything that can be done to perhaps dampen this year on your volatility, the short-term volatility 00:42:47.000 --> 00:43:08.000 And for that, we chose three different methods. For the dampening. One was annual averages so quarterly values of EVIC, which were averaged annually. The second option was three-year rolling averages where we took average of the quarterly EVIC values of the last three years. 00:43:08.000 --> 00:43:24.000 And then the final one was Constant Evik. And again, much like the last much like the last slide these were then compared based on year-on-year changes in the finance emissions. 00:43:24.000 --> 00:43:36.000 What you can see here is that you can see here The three-year rolling average of EVIC has the potential to dampen volatility in that it smoothens these short-term fluctuations. 00:43:36.000 --> 00:43:55.000 Because we're averaging over three years. In some ways, the three-year rolling average levels out any short-term volatility. And that's why it's most closely aligned with… the constant EVIC line, which again is representative of emission. So if you look at the dotted blue line, the three are average. 00:43:55.000 --> 00:44:02.000 It's most in line with how emissions themselves are moving forward. However. 00:44:02.000 --> 00:44:09.000 With three-year rolling averages come practical considerations With regards to implementation. 00:44:09.000 --> 00:44:14.000 And these are discussed at length in the paper and we urge you to look into those. 00:44:14.000 --> 00:44:21.000 But that was the result of the dampening approaches. If you move on to the next slide. 00:44:21.000 --> 00:44:43.000 The next… issue that we investigated was the misalignment of variables. And this misalignment, as Arjun mentioned, is We were focused on temporal misalignment which is data lags And what we did was we created three scenarios. 00:44:43.000 --> 00:44:55.000 One was no lag so that which means that the year of the financial data and the environmental data Which is the emission factors were taken from the same year. 00:44:55.000 --> 00:45:00.000 Then another scenario where there was a one year lag and then a third where there was a two-year lag. 00:45:00.000 --> 00:45:14.000 And what you can see here is we looked at the total finance emissions but also specific industries, which are the most highest emitting within our portfolio. 00:45:14.000 --> 00:45:20.000 Because these would then have the largest impact on the larger portfolio as well. 00:45:20.000 --> 00:45:28.000 It's clear that the impact of misalignment can be quite significant, particularly significant in scope three, which is the graph on the bottom here. 00:45:28.000 --> 00:45:33.000 And the top graph is scope one and two. In scope three. 00:45:33.000 --> 00:45:38.000 This is particularly significant because particularly there is a high variability in emissions data. 00:45:38.000 --> 00:45:44.000 Because of low data quality and also constantly changing methods. 00:45:44.000 --> 00:45:54.000 And to counter this misalignment or mitigated at least, there are different options that have been considered and discussed in our paper. 00:45:54.000 --> 00:45:58.000 And while no guidance is provided on which option is preferred. 00:45:58.000 --> 00:46:14.000 Because there are advantages and disadvantages for each. What we do suggest as a working group is that whichever option is selected should be disclosed in the interest of transparency and better understanding. 00:46:14.000 --> 00:46:19.000 And you can find more details on what these options are and what their pros and cons are in the paper. 00:46:19.000 --> 00:46:28.000 Move on to that last slide on our analysis. We look at the change in emission factors. 00:46:28.000 --> 00:46:38.000 Now… This is referring to how different data sources themselves can lead to changes in finance emissions. 00:46:38.000 --> 00:47:01.000 And what we did was we examined We conducted our calculations for finance emissions using three different data sets. So one was snp which all the other previous analysis you've just seen has been on And then we also use the XIB based revenue-based emission factors and exil based assets based emissions factors. 00:47:01.000 --> 00:47:22.000 And much like the previous slide, we also looked at the four highest emitting industries besides total finance emissions to show you how these differences can be pertinent. And it's very clear that changes in mission factors do have a material impact on total finance emissions. 00:47:22.000 --> 00:47:30.000 And this is particularly true for asset-based uh emission factors, but it's true across the board anyway. 00:47:30.000 --> 00:47:37.000 And to counteract this, additional disclosure requirements are recommended. To address these. 00:47:37.000 --> 00:47:51.000 What's more is that… there needs to be more work done to understand the differences between reported and estimated data, because providing stable and accurate emission factors are essential for accurate reporting. 00:47:51.000 --> 00:47:55.000 Especially when we're looking at low data quality scores, which is the case here. 00:47:55.000 --> 00:48:14.000 And finally, the working group did suggest that part of our recommendation in this discussion paper should be to follow the guidance by the PCAV database on economic emission factor adjustments which you can read more of in our paper. 00:48:14.000 --> 00:48:18.000 I'll now pass it back to Arjun to discuss the attribution analysis. 00:48:18.000 --> 00:48:37.000 Yes, so the attribution analysis forms part of our recommendations or reporting recommendation section in the paper And so an attribution analysis is really a way to understand and visualize different drivers for year and year changes in finance emissions. 00:48:37.000 --> 00:48:44.000 And this is an approach that has been published by various other bodies, including the NZAOA. 00:48:44.000 --> 00:48:56.000 What we provide in the paper is just an illustrative example of how one could conduct an attribution analysis with the core components of the finance emissions metric. 00:48:56.000 --> 00:49:13.000 In line with the pickup methodology. And then this is also a core component of what we want to seek feedback on to understand whether this is something that should be part of the PGAF methodology. 00:49:13.000 --> 00:49:21.000 To recommend the use of an attribution analysis and what the challenges are in this and how prescriptive PCAF should be. 00:49:21.000 --> 00:49:39.000 In how an attribution analysis should be conducted. So then I'll just finish off with consultation questions and just a quick summary on what is included So there really are three components in these questions. The first one is on the 00:49:39.000 --> 00:49:56.000 Dampening approaches so the so other presented on the three-year rolling average and this is the one that we feel all of the dampening approach is the one that is the most suitable but We also acknowledge that there are a lot of challenges in application. 00:49:56.000 --> 00:50:05.000 So the question is how, if and how a dampening approach should be incorporated in the PGAF methodologies. 00:50:05.000 --> 00:50:24.000 Then the second part is on the alignment of data and variables. And here we have various questions on how the temporal misalignment should be treated. There's also a question on the inflation adjustment of emission factors this is There's a separate section in the 00:50:24.000 --> 00:50:29.000 In a document if you have any questions on that, also please feel free to ask that now. 00:50:29.000 --> 00:50:35.000 And then the final section is on the attribution analysis, which are just mentioned as well. 00:50:35.000 --> 00:50:47.000 So I think that's all we wanted to present on right now regarding the discussion paper, we have a few more minutes for Q&A. 00:50:47.000 --> 00:50:52.000 And I think we're already receiving some questions. I'll hand back over to Casper to moderate. 00:50:52.000 --> 00:50:58.000 Yes. So let me see. 00:50:58.000 --> 00:51:04.000 There was a question if there were similar testing done for insurance associated emissions. 00:51:04.000 --> 00:51:21.000 Horses plant in the future. So the quick answer here is no, not yet so we realized that that might have a whole different range of fluctuations. But for now it was already in the current standards a method on intensity. So this was more focused on absolute emissions for finance. 00:51:21.000 --> 00:51:32.000 So the quick answer is no, but if you think it's relevant, please do provide that feedback in the consultation and we can consider it for a next round. 00:51:32.000 --> 00:51:42.000 Then a question. But if in our analysis the numerator of the attribution factor was kept constant Arjun. 00:51:42.000 --> 00:51:52.000 Yes. So the answer to that is yes. We kept that constant to to to not have the impact of changing exposures or changing outstanding amounts. 00:51:52.000 --> 00:51:59.000 So we only wanted to measure changes in emissions and changes in company values. 00:51:59.000 --> 00:52:07.000 Clear so clear The comment that the graph on dampening approaches looks interesting. 00:52:07.000 --> 00:52:19.000 This person has done the same test on their side and there's a clear gains for moving away from EVIC. I wonder if that's something to do with the company pool that you had in your story versus our portfolio. 00:52:19.000 --> 00:52:34.000 If others conducted if others in the work group conducted a similar study for their portfolios. 00:52:34.000 --> 00:52:40.000 Any reflections on that from from you 00:52:40.000 --> 00:52:55.000 So I think on the dampening approaches, we're not necessarily saying to move away from EVIC, but rather to apply and uh an additional dampening mechanism while still using EVIC as the metric in the denominator. 00:52:55.000 --> 00:53:04.000 So just to provide that as clarity but then um 00:53:04.000 --> 00:53:21.000 Yeah, we have actually looked also at other metrics and they would have similar or different issues with them associated with them. So that's another reason why we would stick with that. But could potentially consider some some dampening ends or just further clarifications in that 00:53:21.000 --> 00:53:22.000 In terms of the question on whether this has something to do with the company pool. 00:53:22.000 --> 00:53:26.000 The analysis. Yeah. 00:53:26.000 --> 00:53:41.000 This is, of course, something that we would also, I think this is also mentioned in the questions. This is very much something that we would encourage everyone to investigate on their own portfolios. So, of course, we were somewhat limited in the data that we have 00:53:41.000 --> 00:53:45.000 We only have this one hypothetical case of just using this index. 00:53:45.000 --> 00:53:58.000 Which we believe has a good spread of So good variety of sexes and regions. However, it could be that the results are quite different for, let's say, a portfolio consisting of SMEs. 00:53:58.000 --> 00:54:09.000 So yes, definitely encourage you to investigate and provide us with feedback on what the results are for you. 00:54:09.000 --> 00:54:32.000 So then there's a question. I wouldn't write it down. Read it out loud, let's say completely which is has to deal with the difference between the dates that the date stamp on the EVIC data and the most recent emissions data so that might be from two different points in times and in the meanwhile 00:54:32.000 --> 00:54:43.000 Maybe EVIC might have changed due to market fluctuations is that something that has been discussed. 00:54:43.000 --> 00:54:46.000 In the working group. 00:54:46.000 --> 00:55:00.000 I can talk a little bit about this one. So firstly, I would say that PCAF recommends annual reporting so that you wouldn't have issues like this arising. 00:55:00.000 --> 00:55:17.000 But then we did also look at as one of the dampening approaches, looking at annual averages. So rather than just taking one timestamp you would take an average over, let's say, the quarterly results of the quarterly values of EVIC if you are able to get that data, of course. 00:55:17.000 --> 00:55:30.000 And this maiden dampen some of this volatility that is caused by using just one value of EVIC at a certain time. 00:55:30.000 --> 00:55:49.000 Yeah. And again, if market prices have fluctuated in the real world with 20% between two years or a certain part of the year Yeah, that is in fact that in fact based on the way that we attribute emissions over equity as well as debt 00:55:49.000 --> 00:56:02.000 That that is a real world impact. And then the question, if you want to clarify this to the reader or even correct for that it's a second question which which we yeah we ask your input on through the consultation 00:56:02.000 --> 00:56:24.000 Because we do provide some options that could do that. Uh… there is Well, there's a question of whether data from data providers is available for We have the database and we were discussing including some of the limited data set, not necessarily for this data provider, but for others 00:56:24.000 --> 00:56:35.000 But beyond that, there is no uh yeah this there's no free data from the detailed data that our data providers provide. 00:56:35.000 --> 00:56:37.000 Right, Arjun? Yeah. 00:56:37.000 --> 00:56:43.000 Exactly, yeah. 00:56:43.000 --> 00:57:01.000 Have, let's say there is a question about what alternative attribution did you find work better but this is actually better a question to the person asking questions. So maybe that's something you can you can address And then through the chats. 00:57:01.000 --> 00:57:20.000 Or the Q&A function and the questions how many attendees you had today and on the different webinars Oh, I'm not sure if we're tracking that. I'm also not really sure if that's relevant what we will do is at the end of the consultation, we'll provide insights on 00:57:20.000 --> 00:57:27.000 Feedback provided, the amounts of feedback, but also how we have addressed the key points of feedback. 00:57:27.000 --> 00:57:37.000 Once the new standards will be final and launched, we'll of course give transparency on how now how we incorporated some of the feedback that we have received. 00:57:37.000 --> 00:57:53.000 This is then I think brings us to the end. We're in the ride on time and there's also no more questions So maybe just to wrap this up we really really would like to get all of your feedback. Please do provide it through the survey. 00:57:53.000 --> 00:58:14.000 And if you're participating with several people within your organizations. You can actually find an offline version. The questions here, but also on our website So you can collect responses and then then submit it all together in one online submission that would make our life way more easy and efficient. 00:58:14.000 --> 00:58:21.000 The consultation page is available on our website, still open till the end of this month. 00:58:21.000 --> 00:58:26.000 So yeah, please share your thoughts and feedback so we can include them in the next steps. 00:58:26.000 --> 00:58:32.000 And further questions, you can still always address to info at carbonacoundingfinancials.com. 00:58:32.000 --> 00:58:40.000 So with that closing off this call and thank you so much for your interest in participation.