Foreword by the Green Finance Alliance

In recent years, emissions-based metrics have allowed an increasing number of financial institutions to set decarbonisation targets and monitor progress. However, as experience has grown, a more nuanced understanding of the limitations of existing metrics has emerged, particularly regarding their potentially limited connection to real-economy decarbonisation efforts. The Indicators for Portfolio-related Emission Performance (I-PEPs) provide a resource-efficient metric that reduces the influence of market value fluctuations of listed equities, which often distort decarbonisation signals. The Green Finance Alliance considers I-PEPs a relevant option for organisations seeking a simple, performance-based approach that focuses on year-on-year changes in emissions performance rather than absolute emission levels at a single point in time.

Introduction

Launched in 2022 by the Austrian federal ministry for climate action, the Green Finance Alliance (GFA) is a criteria-based initiative designed to integrate climate objectives into the core business of financial institutions. Members commit to achieving greenhouse gas neutrality no later than 2050. The GFA framework utilises a pathway-based approach to the continuous reduction of emissions attributable to portfolios and core activities. This is operationalised through the Climate Navigation Cockpit (CNC), which is structured around three steering modules: Portfolio Decarbonisation, Expansion of Green Activities, and Impact Engagement. I-PEPs constitute the purpose-built key performance indicators (KPIs) intended to guide and assess the decarbonisation of investment, lending, and insurance underwriting portfolios within this framework.

Presentation of the indicators

I-PEPs are presented as a “new generation” of KPIs for financial institutions, including banks, insurance companies, asset managers, and pension funds. They are designed to enable the steering of core business decarbonisation through a set of finer-grained indicators computed for individual activities and relatively homogeneous sub-portfolios within each business line. This allows for detailed tracking across equities, corporate bonds, sovereign bonds, mortgages, commercial real estate, and project finance.

Scope and role

As the central KPI set underpinning the Portfolio Decarbonisation module, I-PEPs are ex-post indicators measuring year-on-year changes in asset performance. Beyond retrospective measurement, they generate steering signals for the ex-ante evaluation of new business and the assessment of related transition plans, as new assets shape future measured performance. Portfolios are broken down into specific categories, such as corporate lending or electricity production project finance, which may be further subdivided into sectoral portfolios for greenhouse gas-intensive sectors.

Construction

I-PEPs are generally computed by measuring the year-on-year relative change in the relevant emissions metric for each portfolio position and then aggregating these measures using a weighting scheme. The standard formula aggregates asset weights multiplied by the relative change in emissions metrics, which can be absolute emissions or emissions intensity depending on the specific methodology variant. A modified approach is applied specifically to project and real-estate portfolios to account for their unique data limitations and investment cycles.

Weighting schemes

Weightings are determined jointly by data availability and the degree of influence the institution can exert on the climate alignment ambitions of the assets. If absolute emissions data are unavailable, weights are determined solely by relative portfolio values. Where data is sufficient, the approach depends on the degree of influence. The “emissions-based approach” (EA) is used when influence is substantial; the “portfolio-centric approach” (PA) is used when influence is limited or “rather not possible”; and the “balanced approach” (BA) applies a simple average of the EA and PA when influence is considered partial. For investment and lending, volumes are measured by outstanding amounts at the end of the reporting year, while underwriting uses annual gross written premiums.

Emissions performance calculation

Metrics vary based on data availability and sector characteristics. Absolute emissions are the default for corporate portfolios. However, physical emission intensities are used for sub-portfolios in greenhouse gas-intensive sectors, including construction, real estate, electricity production, steel, cement, and transport. Recommended units include kgCO2e/m2 for real estate and tCO2e/MWh for electricity production. For project and real-estate portfolios, the methodology tracks changes in portfolio-level weighted average emission intensity rather than asset-level changes, assuming decarbonisation is driven primarily by portfolio composition changes such as loan repayments and new financing.

Indicator variants and aggregation

The standard defines multiple variants, such as CPEP for equities and bonds, SPEP for sovereign bonds, LPEP for corporate lending, and UPEP for insurance. For investment and lending portfolios, the GFA provides for the aggregation of these sub-portfolio I-PEPs into higher-level summary metrics. These variants, based on absolute emissions (APEPabs) and physical intensities (APEPint), are aggregated on a portfolio-volume basis using the portfolio-centric approach, regardless of the weighting applied at the sub-portfolio level.

Target setting

Target setting is anchored at the level of specific I-PEPs variants. Institutions select sectorally relevant pathways consistent with net-zero 2050 ambitions, typically anchored in climate scenarios or international targets. Steering targets are defined over short-to-medium horizons of three to fifteen years. For absolute emissions, cumulative reductions are translated into a constant annual compression rate using a geometric average. For physical intensities, a convergence approach is applied if the portfolio over-represents leaders or laggards relative to the pathway, implying faster decarbonisation for laggard portfolios.