SBTi Finance Road-testing Webinar: Mortgages with ASN Bank - June 24, 2019 - Science Based Targets

SBTi Finance
Road-testing Webinar:
Mortgages with ASN Bank

June 24, 2019

Today’s Speakers

 Nate Aden Kaboo Leung Freek Geurts

 Senior Fellow Senior Consultant Advisor on Climate Impact
 World Resources Institute Navigant ASN Bank

Agenda

 Topic Time

 Road testing project updates 10 min
 SDA overview and update from Navigant 10 min
 Sharing from ASN Bank 30 min
 Questions and discussion 20 min
 Wrap-up 5 min

Q&A
This webinar is being
recorded and the recording
will be shared publicly.
To ask questions, please type them
into the Q&A box or raise your hand
to speak.

SBT/FI framework development process

 Summer September Fall 2020
 Feedback Workshop & Criteria & Guidance Launch Framework
Method Road-Testing Webinar

 Asset Class Method Description
 Real Estate Sector Decarbonization Targets are set for non-residential buildings’ emissions intensity
 Approach (SDA) and total GHG emissions.

 Mortgages SDA Targets are set for residential buildings’ emissions
 intensity and total GHG emissions.
 Electricity Generation SDA Targets are set for electricity generation project’s emissions
 Project Finance intensity and total GHG emissions.

 Corporate Instruments SDA Targets are set at sector level within the portfolio, for which
 (equity, bonds, loans) specific sectoral decarbonization approaches are available.
 PACTA Portfolios are assessed at individual business activity level for
 select activities.
 SBT Portfolio Coverage Financial institutions engage a minimum of 30% of their
 investees (in monetary or GHG emissions terms) to have their
 own science-based targets.

Road testing project updates

 Launch webinar Road testing period Workshops to discuss feedback
 April 25 May – end of July September

 We also sent out a simpler survey for members of the
 stakeholder group to provide general feedback. Road
 testers: please fill out the correct survey
 (https://www.surveygizmo.com/s3/4809311/Science
 -Based-Targets-for-Financial-Institutions-
 Assessment-report) to provide in-depth feedback.

 Survey deadline extended to July 31st in response to
 road testers’ feedback.

 Last week we hosted a webinar with Standard
 Chartered about their experience with SDA and
 PACTA methods in developing countries. A recording
 of the webinar is available on the project website:
 https://sciencebasedtargets.org/financial-
 institutions/.

Next steps: Workshop at Climate Week NYC in September

 Launch webinar Road testing period Workshops to discuss feedback
 April 25 April – end of July September

 • Road testing feedback summary
 workshop during New York Climate
 Week this September 24-30.
 • Stay tuned for the invite!

No-cost default data option

 • We thank ISS ESG, who generously
 offered to provide off-the-shelf
 If you need data support, please
 datapoints to interested road testers free
 direcly contact:
 of charge. Certain limitations might be
 Joseph Ben Salem applied.
 ISS • Data can only be used internally, for a
 +44 (0) 203 192 5755 limited time and for road testing only.
 joseph.bensalem@issgovernance.com Users need to sign a respective
 agreement.
 • Free data comes “as is” - advice or
 bespoke research can be added on a ‘for
 pay’ basis.
 • Other data providers can provide data
 and assistance for a fee.

Key team contacts for questions

 • For questions related to the SBT Portfolio • For questions related to the technology based
 Coverage method for corporate instrument, approaches, please contact Florence
 the road testing process, and the Science Palandri, Analyst, 2° Investing Initiative,
 Based Targets initiative, please contact Nate florence@2degrees-investing.org, +44 77 08
 Aden, Senior Fellow, World Resources 32 90 90
 Institute, nate.aden@wri.org or Chendan • 2° Investing Initiative also provides free,
 Yan, Research Analyst, World Resources online, fully automated equity and bond
 portfolio analysis
 Institute, chendan.yan@wri.org.
 (www.transitionmonitor.com)
 • The team provides a desktop software
 • For questions related to the other emissions
 version for assessing loan books and PE.
 based approaches, please contact Giel The software and related support service
 Linthorst, Director, Navigant are provided free of charge.
 giel.linthorst@navigant.com or Kaboo • The underlying data covering about 52,000
 Leung. Senior Consultant, Navigant, legal entities (issuers and their
 kaboo.leung@navigant.com subsidiaries) is provided as part as the
 analysis of the portfolio

After road testing - criteria discussion and consultation
 While the road test focuses on target setting methods for portfolio alignment,
 we will address the role of action targets and divestment when we prepare the target
 validation criteria document for consultation.
 We are here

 Real Estate
 Commit to Portfolio Mortgage
 Asset Class Set SBTs at
 SBTi at Alignment
 Materiality Asset Class Electricity Generation Project Finance
 Institutional Hotspot
 Assessment Level
 Level Assessment Corporate Equity and Debt

 To be refined after Investee engagement (ACT initiative,
 road testing CA100+, SBTi)

 Take Action Sustainable real asset (GRESB)

 Sector standards

SDA OVERVIEW & UPDATES
 JUNE 24, 2019

 KABOO LEUNG,
 SENIOR CONSULTANT

 KABOO.LEUNG@NAVIGANT.COM

11 / ©2019 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED

SECTORAL DECARBONIZATION APPROACH (SDA) OVERVIEW

A financial institution can align its portfolio with the Paris Agreement and set an emissions reduction target using
the Sectoral Decarbonization Approach (SDA) for:
 • Mortgage Example from the mortgage methodology document

 40
 • Real estate
 35
 Portfolio intensity target

 Emission intensity (kgCO2 / m2)
 • Power Generation Project Finance
 30
 Residential building
 • Corporate instrument
 25 pathway

 20
 SDA requires the emissions intensity 15
 (kgCO2 / m2 or kgCO2 / kWh) of portfolios
 10
 to converge to global emission intensity
 pathway for the sector by 2050. 5

 0
 2015 2025 2035 2045

12 / ©2019 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED

UPDATES ON METHODOLOGY DOCUMENTS

Based on the feedback from various road testers, the methodology documents are revised for mortgage, real estate
and project finance. Updates including a minor correction in the target setting formula:

 2030, − 2050, 2017, / 2017, 
 = 2017, − 2050, × × + 2050, 
 ሺ 2017, − 2050, ൯ ሺ 2030, / 2030, ൯

 The minor correction in target setting formula

 The latest methodology documents are uploaded onto Google Drive:
 https://drive.google.com/drive/folders/1RLvZ4QNbGadlvR_jrOuzwRjdUtiHfK2n

13 / ©2019 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED

SUMMARY OF FEEDBACK RECEIVED

We have received questions from road testers on the following key areas:
• Data availability
 ➢Lack of asset-level energy, emissions or activity (e.g. m2)data
 ➢Regional-specific data
 ➢Pathway data

• Clarifications on method document
 ➢Target calculation formulas
 ➢Attribution rule

• Definitions & boundary
 ➢Definition of key terms (e.g. floor area, investment value, service buildings, etc.)
 ➢Inclusion of Scope 1 and 2 emissions of buildings, excluding fugitive emissions

14 / ©2019 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED

PLATFORM CARBON ACCOUNTING FINANCIALS (PCAF)

• A transparent and free platform for financial institutions to measure their carbon footprint across asset classes
• Expanding to a global scale in the next 3 years, including global core team, governance for standards and technical assistance

 http://carbonaccountingfinancials.com/

15 / ©2019 NAVIGANT CONSULTING, INC. ALL RIGHTS RESERVED

SBTi road test results for mortgages
June 24th 2019

 Freek Geurts

 Advisor on climate impact
 freek.geurts@asnbank.nl

Agenda

▪ ASN Banks and de Volksbank

▪ Steering on climate impact at de Volksbank

▪ PCAF carbon accounting methodology for mortgages

▪ Roadtest results

Mortgages Savings Payments

€47 bn €37 bn 1.49 m
 current accounts
 customers

market share 7% market share 11% market share 8%

ASN Bank’s mission

For almost 60 years, our mission as a bank has
been to foster environmental and social
sustainability. We use the money that our
customers entrust to us to promote sustainable
development. We thus help to create a world
that is safe and healthy for people to live in,
and where the environment is respected, both
in the present and in the future.

Sustainability policy = investment policy
Our sustainability is centered around the Brundtland
definition of sustainability. We’ve set longterm targets
on our three main pillars of our sustainability policy:

Climate
All of ASN Bank’s loans and investments are to
be net climate positive by 2030 “Sustainable development is development
 that meets the needs of the present
Biodiversity without compromising the ability of future
ASN Bank’s loans and investments are to have a net generations to meet their own needs.”
positive impact on biodiversity by 2030

Human rights
By 2030 the garment sector will have implemented all
necessary processes to enable a living wage for
workers in its supply chain.

All our methodologies, policies and papers are open source and accessible through https://www.asnbank.nl/over-asn-bank/organisatie/about-asn-bank.html

Measuring climate impact
2007: ASN Bank publishes carbon footprint of one of its
equity funds ASN Duurzaam Aandelenfonds.

2011: ASN Bank investigates possibility of making the
sustainability policy SMART.

2013: ASN Bank sets a goal on the emissions of its whole
balance sheet.
 >99%
2013: First carbon accounting methodology developed for
ASN Bank’s whole balance sheet.

2015: De Volksbank adopts ASN Bank’s sustainability policy
and sets a climate goal for its whole balance sheet.

2016: ASN Bank initiates PCAF, a bottom-up initiative to
develop an open source carbon accounting standard for
financial institutions.

2018: ASN Bank ‘updates’ its goal to becoming climate
positive by focussing on carbon dioxide removal.

Carbon accounting

 1. ‘follow the money’: what activities do
 you finance?

 2. What is the climate impact, both
 positive and negative, of these
 activities?

 3. How much of this climate impact should
 you attribute for?

For more information about PCAF: http://carbonaccountingfinancials.com/

Reducing de Volksbank’s financed emissions
 de Volksbank’s emissions (YE2018)
Sustainable housing is the focal point of our climate
ambition. 70
 € CO2 1,400

 Billion euro
• ~85% of assets and emissions

 ktonne CO2 emissions
• Creating customer value
 60 1,200
• Comfortable and energy efficient living

Governance: 50 1,000
 Assets out of scope
• Progress of de Volksbanks’ climate neutrality is *
 governed by the Climate Committee chaired by the 40 800 Other loans and
 CFO of de Volksbank. advances
 Loans to regional
• Internal KPIs on the average energy label and absolute authorities
 Government bonds
 emissions for mortgages 30 600
• Progress monitored on a quarterly basis. External Mortgages
 reporting occurs biannually in (half-)year results. Renewable energy
 20 400
• Limited assurance on results in half-year and year projects
 Climate bonds
 report.
 10 200

De Volksbank: 85% of Volksbanks’ financed
emissions are related to mortgages. To what extend 0 -
and in what pace should we help our customers to
 *out of scope: derivatives, cash and cash equivalents.
‘decarbonize’ their own homes?

SBT Project background & objectives

• Science Based Targets (SBT) define pathways for emissions and emission intensities per economic sector.

• A company can define their individual pathway by using their sectoral pathway and converging from their current
 situation to that pathway.

• Financial institutions have a big impact on other economic sectors with their investments. To make all sectors move
 towards their associated pathways, financial flows have to be allocated accordingly.

• For financial institutions with large mortgage portfolios it can be useful to utilize the building sector pathway to
 analyse if their mortgage portfolio is in line with SBT.

• The objective of this test is to see if SBT for mortgage portfolio’s is a useful tool for the Volksbank.

SBT on mortgages methodology
• In line with SBT methodology, IEA ETP pathways are used to define the EU pathway for building areas, absolute and
 relative carbon emissions.
• The following data was necessary for analysis of de Volksbank mortgage portfolio:

 Activity (floor area) CO2 emissions Growth forecasts

• Future activity was estimated by extrapolating growth forecasts towards 2050.
• The building sector pathway was determined by using the IEA ETP 2017 data for Europe with data between 2016 and
 2050.
• The absolute portfolio target was determined by the following:

 = , × , 
 EIT: Emission intensity target, A: Activity (floor area), t: target year

• As another reference point, a pathway based on the Dutch Climate Agreement (DCA) has been included.
• This DCA pathway is based on the Nationale Energieverkenning (National Energy Exploration, NEV) in combination
 with Climate Agreement targets on emission reduction in the building sector.
• The DCA pathway can only be constructed up until 2030, due to the data sources not reaching up to 2050. It is
 assumed the DCA pathway converges to the B2DS.

Emissions from mortgages using PCAF methodology
 Mortgages per energy label*
 40%
 CO2 emissions per
 1200
 30% energy label

 kt CO2 emissions
 20%
 1000
 10% G

 0% 800 F
 A B C D E F G
 Definitive energy label Indicative energy label Extrapolation E
 600
 Emissions per house per energy label** D
5000
 C
4000 400
3000
2000 200
1000
 0
 A B C D E F G 0
 Emissions from electricity consumption Emissions from gas consumption

* Energy labels express the energy performance of dwellings and are provided by the Dutch Enterprise Agency (RVO)
** Average gas- and electricity consumption derived from WoON2012; www.rijksoverheid.nl/documenten/rapporten/2013/04/11/cijfers-over-wonen-en-bouwen-2013
and converted to emissions using factors from www.CO2emissiefactoren.nl

Surface area from Dutch cadastre
• Volksbank portfolio primarily contains mortgages of
 Dutch properties.

• The Dutch Cadastre collects and registers
 administrative and spatial data on properties.

• Surface areas from all properties can be retrieved
 from the Dutch Cadastre and linked to mortgage
 portfolios

Preliminary results for emission intensity target

 Emission intensity [kgCO2/m2]
 Intensity targets [kg CO2/m2]
35 Portfolio intensity forecast
 2018 2020 2025 2030 2050
 Dutch Climate Agreement
 30.4 28.9 21.3 13.4 2.6
30 EU B2DS Residential building
 World B2DS Residential buildings

25 Intensity targets [% compared to 2018]
 2018 2020 2025 2030 2050
20 - -5% -30% -56% -91%

15 Absolute targets [kton CO2]
 2018 2020 2025 2030 2050
10 1,139 1,092 838 548 123

 5
 Absolute targets [% compared to 2018]
 2018 2020 2025 2030 2050
 0
 2015 2020 2025 2030 2050 - -4% -26% -52% -89%

Target setting with energy labels not sufficient
Current energy labels Relative emissions per m2 (D=100)
 Gas emissions Electricity emissions
35%
30% 110% 110% 111%
 100%
25% 89% 29% 27% 27%
 78% 27%
20% 73%
 27%
 26%
15% 26%

10% 73% 81% 83% 84%
 62%
5% 47% 52%

0%
 A B C D E F G A B C D E F G

Energy labels as targets Possible drivers for improved intensity targets
 • Emission difference per m2 between label D and label A is • Decarbonization of electricity should be taken into account
 only 27%, even with halving of the electricity emission • Electrification of heat generation could be important driver for
 factor, it only reaches 40%. achieving intensity targets
 • Emission intensity reduction target following pathway is - • Further generation of renewable energy on a per house level,
 30% in 2025. e.g. solar panels.
 • Thus, using energy labels following the current approach as • Likely more information of the portfolio is needed on presence
 targets will not suffice beyond 2025. of decarbonization measures (e.g. solar panels, heat pumps)

SBT results translated to de Volksbank
• The emission intensity and absolute emission Absolute emissions 2018 vs 2030
 targets give us guidance on the extend to which 1,400
 we need to focus on energy efficiency measures

 kton CO2
 at our customers.
 1,200

• Gas consumption for heat generation is a major 1,000
 source of emissions and could be a focal point of Other loans and
 advances *
 our sustainable housing proposition
 800 Loans to regional
 authorities
• More specific data needed than average 600 Government bonds
 emissions per energy label to steer on emission
 targets. Mortgages
 400

• Unknown how other asset classes of de 200
 Volksbank will decarbonize in the future.
 -
 2018 2030 2050

Improving with specific energy consumption data
Actual electricity and gas consumption data is
available:

• PCAF mortgage working group has engaged
 with Statistics Netherlands (CBS) to publish
 average and aggregate consumption and
 emissions data for their mortgage portfolios.

• Dutch Grid operators offer services to link
 specific portfolios with their databases to
 average actual consumption data.

To be continued…

Freek Geurts
Advisor on climate impact

freek.geurts@asnbank.nl
 www.asnbank.nl

Q&A
 To ask questions, please type them into
the Q&A box or raise your hand to speak.

www.sciencebasedtargets.org info@sciencebasedtargets.org