PROJECT DESCRIPTION
BACKGROUND
Small and medium-sized enterprises (SMEs) are the backbone of the European economy and have a significant climate impact. As of yet, climate considerations have scarcely been integrated into SME financing decisions. This is due to a lack of data and information on how SMEs can be affected by climate change and what actions they are taking to manage this.
OBJECTIVES
The LIFE CB-PASTAX project is designed to support implementation of the EU sustainable finance action plan and the Paris Agreement commitment related to Art. 2.1c ("aligning financial flows with climate goals").
Specifically, it seeks to:
- Support European banks in developing and implementing climate-related financial products targeting European SMEs;
- Improve the ability to identify and manage climate transition risk assessments for European banks across SME lending portfolios;
- Use the financial sector as a lever more broadly to drive the integration of climate issues across SMEs; and
- Drive the adoption of the EU taxonomy (a classification system establishing a list of environmentally sustainable economic activities) in reporting and management decisions across European SMEs and improve the quality and scale of climate disclosures by financial institutions.
LIFE CB-PASTAX will: (i) engage a wide range of stakeholders from both the SME and finance communities to develop a common understanding of the climate impact; (ii) develop a database with which banks can assess the position of an SME on climate in relation to its peers; (iii) develop a guide that banks can use to engage with SMEs on the topic of climate strategy and taxonomy exposures; and (iv) help banks structure sustainability improvement loans for SMEs. The project thereby supports:
- The European Green Deal (COM(2019)640), as it will enable and accelerate the role of SMEs and the financial sector in making Europe the first climate-neutral continent by 2050;
- The European Climate Pact, as it fosters behavioural change and cooperation between stakeholders (SMEs, banks and research institutes);
- The European Green Deal investment plan (COM(2020)21) and EU action plan on financing sustainable growth (COM(2018)97), as it (i) reorients capital flows and unlocks additional green financing, (ii) helps banks manage climate-related financial risks, and (iii) fosters long-termism in banks’ SME lending decisions; and
- The EU taxonomy (Regulation EU 2020/852) and the work of the Technical Expert Group on Sustainable Finance, as it will enable the incorporation of SME taxonomy exposures in bank lending decisions.
RESULTS
Expected results:
- A minimum of 10 European banks, each operating across at least 3 European markets, adopting the SME “Paris Agreement Strategy & Taxonomy Assessment” tool, with a total bank balance sheet size of $10 trillion;
- The integration of climate issues in 500 or more lending decisions by the end of the project and 3,000 decisions at least 3 years after the project, exposing a minimum of 3,000 SMEs to climate issues in their bank engagement;
- A climate database covering more than 100,000 SMEs with at least 5 indicators per SME;
- A minimum of 7 European banks using the database to report on the EU green taxonomy exposure by the end of the project;
- At least 50 loans explicitly referencing climate objectives based on the toolbox by the end of the project and more than 1,000 loans 3 years after the project;
- A minimum of 10,000 stakeholders across the finance, corporate and NGO sectors exposed to the project results, across at least 1,000 discrete organisations; and
- At least 20 European banks referencing or considering the project outputs indirectly in their practice, either by building on the project reports or other material.
The following types of behavioural change are envisioned:
- Environmental/climate performance tracking by SMEs for either individual assets or groups of assets or at entity level;
- Capacity building on sustainability issues, either through the scaling up of training or the specific recruitment of sustainability professionals (e.g. as climate/sustainability officers);
- Implementation of discrete and specific climate actions. The framework would identify a universe of climate actions/interventions that SMEs can take based on their asset base, sector, etc.; and
- Definition of decarbonisation targets for parts of or the entire business, following standards (e.g. the Science Based Targets initiative).
