We live in paradoxical times. On the one hand, many financial institutions are ramping up their sustainability work while at the same time maintaining - or even increasing - investments in the fossil fuel sector. Some even use their sustainability claims to divert attention from less praiseworthy actions.
The Corporación Interamericana de Financiamiento de Infraestructura (CIFI) is a middle-market infrastructure financial institution based in Panama and a partner of the Global Climate Partnership Fund (GCPF), a climate fund managed by responsAbility. Both organizations wanted to factor climate change into their investment strategy, but they were not clear on how to do it. So they started looking around for a sustainability firm to help them through this jungle of acronyms and ambitions.
Carla Chizmar from CIFI and Marie-Anna Bénard from responsAbility knew that a more sustainable investment strategy was not only the right thing to do to seek new opportunities, but also a way to mitigate risks. After all, CIFI has built its own success financing renewable energy projects in Latin America. As Head of ESG, Carla knew the opportunities that a green economy can generate. She was also aware of the risks to CIFI's reputation and business, as well as to Planet Earth of not acting rapidly.
Marie-Anna Bénard, who led the Technical Assistance funded by the GCPF's Technical Assistance Facility, was looking for experts to set the emissions baseline for a series of projects with middle-market financial institutions in emerging countries, to prove that climate action can happen everywhere in the world.
Carla Chizmar (Head of ESG at CIFI) and Marie-Anna Benard (Project Manager, Technical Assistance at responsAbility), along with a dedicated team of Carbon Impact and Energy Specialists at responsAbility, are working towards setting into motion one of the most ambitious climate change mitigation plans for a Latin American financial institution.
When South Pole was asked to support these goals, the roadmap to setting a 1.5ºC alignment target for a Latin American financial institution was far from clear. South Pole experts interviewed CIFI's management, who were excited about the possibilities but also asked:
Answering such questions is far from easy. In overcoming the challenges, South Pole benefited from the close collaboration of responsAbility's in-house team of Carbon Impact and Energy Specialists, which were an integral part of the project team. These questions would be answered during a year-long process, with three main steps:
South Pole started by accounting for CIFI's corporate and financed GHG emissions, showing that a financial institution's emissions are overwhelmingly concentrated in the investments that it holds - over 99%, in the case of CIFI. The methodology used was the internationally recognized Partnership for Carbon Accounting Financials (PCAF), endorsed by the GHG protocol, the leading GHG accounting framework. Over 50% of CIFI's assets' footprint was measured using physical data from its clients, one of the most reliable ways to calculate emissions. In addition, and to follow best practice, the emissions from the value chain of oil and gas assets were accounted for.
There are numerous risks in not acting on climate change: Increasing carbon prices, climate litigation costs, locking in high emissions investments in the long term and many other factors mean there is a strong case for climate action.
The assessment presented the opportunities of transitioning to a low carbon economy earlier rather than later, through products like green lending. In 2019, CIFI was one of the first Central American financial institutions to issue a green bond, seizing the moment.
CIFI's current and projected GHG trajectory was benchmarked against a set of alignment trajectories using the Sectoral Decarbonization Approach and the Science-Based Target for Financial institutions, showing solid results. While CIFI has not decided yet which scenario fits its growth plans, it has already made up its mind on revising its exclusion list (i.e. projects or companies it will not support). It is also considering how to reduce its exposure to oil and gas progressively, which currently represent less than 5% of its investments.
South Pole recognizes these efforts and is excited to continue to support CIFI in exploring how to become a true climate leader. Contact Andres and Charlie for follow-up mandates on decarbonization.