25.11.2022 ・ CLIMATE IMPACT ANALYSIS FOR BANKS

Measuring Paris-Alignment Across Asset Classes GLS Bank

Reference

Dr. Laura MervelskemperCo-Leiterin "Wirkungstransparenz und Nachhaltigkeit"

Climate fund below 2°C

In 2019, GLS Bank started a climate impact analysis of its climate fund using the XDC Model. Some of the main challenges were:

  • The coverage of different asset classes,
  • data availability and
  • a customized sector classification.

Through intensive collaboration between GLS Bank, Wuppertal Institute and right°, the various challenges were addressed, and the climate impact analysis of the fund was successfully completed.

The result: the fund is demonstrably <2°C-compatible. The bank can communicate the Paris Alignment of the fund to customers and stakeholders.

 

Consistent Communication

After successfully piloting a Temperature Alignment approach in portfolio management, GLS Bank also extended the XDC analysis to include:

  • its credit portfolio,
  • customer portfolios, and
  • the bank itself.

This methodologically consistent application of Temperature Alignment to all asset classes and areas is the key to consolidated customer communication and transparent reporting.

 

"Capital flows play a central role in relation to the climate crisis. XDC can help align them to 1.5°C."
GLS Bank cargo bike. Photo: Patrick Held

 

 

Strategic Partnership

Within the framework of a strategic partnership, right° and GLS Bank are working on the continuous improvement of the methodological basis of the XDC analysis. The main topics are:

  • full integration of Temperature Alignment into the portfolio management process,
  • expanding the applicability of the methodology,
  • scientific integrity,
  • methodological transparency.

Experts from all divisions are involved on both sides – from climate science to investment research and communication.

In addition, right° and GLS Bank, together with other partners, launched a pilot project in 2020 to analyse the Temperature Alignment of real estate.

 

Looking Ahead: Risk Management

Beyond transparent and consistent reporting, the key objective is to be able to redirect capital towards 1.5°C on a larger scale: The integration of climate impact criteria into credit risk assessment and lending processes.

GLS Bank is now tackling the integration of XDC analyses as part of the lending process – determined to act as a pioneer, sending the message “It can be done!”

More references from the Finance sector

22.03.2023

How to minimise the climate impact of equity and bond portfolios