Climate action is one of FinDev Canada’s three development impact goals and plays a key role in the realization of our mandate. We recognize that climate change is a global systemic issue that disproportionately affects developing countries, especially women and other vulnerable populations. Climate action must be scaled to achieve the objectives of the Paris Agreement and limit global warming to 1.5°C above preindustrial levels.
Climate change strategy
FinDev Canada launched its Climate Change Strategy in 2021, which articulates how our Climate Change Policy is implemented across our activities. Our strategy is structured around three strategic considerations. First, as a gender lens investor, we promote both gender and climate action throughout our investment process, including sourcing, due diligence, decision-making and post-investment support. Second, we will continue building a low-carbon portfolio in line with the objectives of the Paris Agreement of reaching net-zero emissions. Third, we are committed to enabling climate adaptation and resilience as our target regions are amongst the most vulnerable to climate change.
We are operationalizing our climate change strategy through four priorities for action, which encompass portfolio-level and institutional-level initiatives:
Net-negative financed GHG emissions
FinDev Canada has built a portfolio with net-negative greenhouse gas emissions for both annual GHG emissions from our 2020 portfolio and cumulative GHG emissions since inception in 2018. In other words, since FinDev Canada’s inception, our investments and loans have contributed to more carbon removal from the atmosphere than generated GHG emissions. The three main factors supporting this are:
Our net-negative portfolio includes emissions from the real economy only, namely generated greenhouse gases and carbon removal. We also measure the avoided emissions of our investments in renewable energy projects, which represent emissions that would have occurred without the implementation of the projects. Although avoided emissions represent a quantifiable positive contribution to decarbonization, they are calculated and reported separately from the net-negative framework, in line with international best practices.
FinDev Canada measures the generated, sequestered and avoided GHG emissions of every new investment and monitors these emissions at least annually during the investment period. The financed, generated and sequestered emissions [i] for the year ended December 31, 2020, based on our attribution as at the same date, were assured to a limited level by an independent 3rd party.
Generated emissions include scope 1 and scope 2 GHG emissions associated with our loans and investments and are calculated using:
- The PCAF Global GHG Accounting and Reporting Standard for the Financial Industry (business loans and unlisted equity asset class) for loan and equity investments in private companies, which represent 75% of financed generated emissions in 2020
- Internally developed criteria in line with the PCAF Standard as detailed here for indirect investments in funds and financial intermediaries, which represent 25% of financed generated emissions in 2020
These emissions are attributed to FinDev Canada based on our proportion of financing and cover 100% of our loans and investments. In terms of GHG data, 60% of emissions were reported by our investees in 2020 and 40% were estimated using the Joint Impact Model [ii], for a combined PCAF weighted data quality score of 2.9 out of 5.
Net-zero operational GHG emissions
Beyond our net-negative portfolio, our commitment to carbon-neutral operations extends to FinDev Canada’s scope 1 and 2 GHG emissions, as well as scope 3 GHG emissions from business travel. Together with scope 3 GHG emissions from investments, these activities represent the most significant emission sources over which FinDev Canada has control over. FinDev Canada has purchased certified carbon credits to offset all of its historical operational emissions since inception in 2018.
i. All sequestered emissions attributed to FinDev Canada as at December 31, 2020, originate from one investment (the African Forestry Fund II). This amount has been calculated based on FinDev Canada’s attribution of the sequestered emissions, as reported by the Africa Forestry Fund II and as described in our internally developed criteria. FinDev Canada acknowledges the uncertainty and variability in the calculation and reporting of sequestered emissions from forestry.
ii. The Joint Impact Model tool used to estimate GHG emissions is subject to scientific uncertainty, which arises because of incomplete scientific knowledge about the measurement of GHGs. FinDev Canada acknowledges the inherent risks and limitations in relying on such a tool for quantifying the generated emissions of its loans and investments.
What is net-negative?
Net-negative means that the balance of greenhouse gas emissions is negative, or that more GHG emissions are removed from the atmosphere than are emitted. For a financial institution like FinDev Canada, where the main source of GHG emissions originates from our investment activities, net-negative means that our investments and loans have contributed to more carbon removal from the atmosphere than generated GHG emissions.
How does net-negative compare to net-zero commitments by 2050 made by most organizations?
Most organizations have a historical net-positive balance of greenhouse gas emissions, meaning that they contribute to the generation of more GHG emissions than they remove. As such, their goal is to reduce emissions to reach net-zero. As a young DFI launched in 2018, FinDev Canada’s GHG emissions baseline is lower and the attributed sequestered emissions from our forestry investments are higher than the combined generated emissions from all our investments and loans.
What are generated emissions?
Generated emissions correspond to greenhouse gases emitted to the atmosphere, which contribute to global warming. They include the GHG mandated under the Kyoto Protocol: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphurhexafluoride (SF6.)
How are generated emissions measured?
Scope 1 and 2 generated emissions associated with our loans and investments are calculated using the PCAF Global GHG Accounting and Reporting Standard for the Financial Industry and internally developed criteria in line with the PCAF Standard for investment types currently not covered in the PCAF Standard, namely indirect investments in funds and financial intermediaries.
What is PCAF?
The Partnership for Carbon Accounting Financials (PCAF) is a global partnership of financial institutions that work together to develop and implement a harmonized approach to assess and disclose the GHG emissions associated with their loans and investments. PCAF’s Global GHG Accounting and Reporting Standard for the Financial Industry is becoming the global reference for measuring financed GHG emissions, and was endorsed by the GHG Protocol and the TCFD. The PCAF standard enables financial institutions to report on emissions transparently and on a comparable basis, which is critical to scale sustainable finance.
What are sequestered emissions?
Sequestered emissions refer to atmospheric CO2 emissions that are removed from the atmosphere, thereby removing their harmful global warming effect. For example, afforestation and reforestation contribute to sequestered emissions.
What are avoided emissions?
Avoided emissions are GHG emissions that would have occurred without the implementation of a renewable energy or energy efficiency project. Although they represent a quantifiable positive contribution to decarbonization, they are calculated and reported separately from the net-zero framework.
How are carbon offsets treated?
Following the principles of absolute carbon accounting, carbon offsets are not recognized in the net-zero calculation, neither to offset generated emissions from portfolio companies or reduce total sequestered emissions from forestry investments. Data on carbon offsets is being collected and will be disclosed separately.