ACT is a voluntary initiative of the UNFCCC secretariat Global Climate Agenda supporting corporate climate accountability. It develops sectoral methodologies as an accountability framework to support companies with delivering low carbon transition strategies and actions aligned with the Paris Agreement mitigation goal. An ACT assessment provides companies with a feedback report outlining best practice and opportunities for improvement and a rating to track progress. ADEME, the French Agency for Ecological Transition, and CDP, co-founded the initiative in 2015 at COP21. More about the co-founders here. ACT is a registered trademark in the EU and UK.

Launched at COP21, ACT responds to the need for:

• A forward looking approach to decarbonisation, beyond carbon accounting, to assess how the private sector’s climate actions contribute to “hold the increase in the global average temperature to well below 2°C above pre-industrial levels” (Paris Agreement art.2).
• A framework to assess the relevance and trustworthiness of private sector public GHG emissions mitigation commitments

Ultimately, the objective of the ACT initiative is to drive climate action by companies and to help them align their strategies with low-carbon pathways. ACT builds on the Paris Agreement mitigation goal , and subsequent IPCC carbon budgets, and global mitigation scenario by using IEA sectoral and regional/national scenarios as decarbonisation pathways. Any other relevant decarbonisation pathways can be used in the ACT tools for specific assessments. It assesses the gap between these low-carbon trajectories (or any trajectories that are of relevance from the assessment perspective) and the company’s trajectory. ACT assessments identify company’s strategy misalignments and provide recommendations, therefore closing the gap between corporate commitments and actions required to deliver a well-below 2°C economy.

With the ACT initiative, ADEME provides expertise with sectorial decarbonisation and transition challenges and international climate standards development, tools and training. It is also a major funder of the initiative. CDP brings technical expertise and experience in environmental disclosure, benchmarking and climate change mitigation actions to the ACT initiative. It also engages its global network of companies and other stakeholders for them to share best practice and contribute to the developments of the initiative.

ACT sectoral methodologies are open source and freely available documents describing the rules and scope to assess a company low carbon strategy against relevant sectoral decarbonisation pathways. The methodologies are used to produce ACT assessments. Companies can use ACT sectoral methodologies to:

• Identify climate transition risks and opportunities including “well-below 2°C aligned” business models
• Define an ambitious yet realistic low-carbon strategy
• Set relevant indicators and actions across company strategic operations

ACT assessments are conducted using dedicated tools that allows to record companies data and calculate ACT indicators and final score. The rules and scope to assess a company are described in the ACT sectoral methodologies. Companies can use ACT assessments to:

• Identify gaps to the company operational readiness to transition to a low-carbon world
• Improve the credibility of low-carbon strategy and commitment
• Engage with stakeholders including investors about the company

We consider the ACT pilot project phase as the time period between the launch at COP 21 in 2015 and the end of 2018. It aimed at:

• Identifying the key questions that need an answer to understand how companies contribute to the decarbonisation required to achieve the Paris mitigation goals
• Defining the process to develop sector specific methodologies to assess companies low carbon transition strategies against relevant sectoral decarbonisation pathways
• Developing and testing with companies three sectoral methodologies targeting three sectors with very different challenges when it comes to decarbonisation
• Testing methodologies with SMEs and mid cap companies using the French low carbon strategy (budget and pathways)
• Refreshing the draft methodologies (retail, electric utilities and automotive) and tools

The ACT Framework, the ACT Guidelines and the ACT electric utilities, automotive and retail methodologies result from the pilot project.

ADEME, EIB and EIT Climate KIC co-funded the ACT pilot project. The chart below outline their funding shares: ADEME, CDP and Association Bilan Carbone made significant in-kind contributions as outlined in the chart below.

During the pilot project, an advisory group was formed of representatives of commercial and non-profit organizations and agencies working in the field of climate reporting. The advisory group was invited to comment on and review the methodologies via webconference and online at each stage of development. Beyond ACT cofounders, partners included ClimateCHECK, 2° Investing Initiative and European Investment Bank. Additionally, 21 companies volunteered to get an ACT assessment of their low carbon strategies with the existing historic ACT sectoral methodologies (auto, retail, electric utilities). Twelve completed their assessment. The ACT pilot report present the aggregated scores at sector level and key learnings.

Currently the ACT board includes the cofounders – ADEME and CDP – who lead on the ACT initiative strategy. The ACT secretariat is made up of dedicated staff from ADEME and CDP and external resources funded by EIT Climate KIC. The secretariat implements the initiative strategy set out by the board including steering Technical Working Groups and local councils. Interested in joining the ACT governance? Contact us at info@actinitiative.org

Forward-looking approach is applied to relevant indicators within the ACT methodologies, including targets but also in the assessment of the transition plan: material investment, R&D, sold product performance, engagement with clients, providers and policy makers, business model. For example, the alignment of scope 1+2 emissions reduction targets indicator assess the gap between the company’s own emissions reduction target and its decarbonisation pathways. This is the commitment gap and it assesses the gap between what the company is planning to do and what it should do according to its benchmark pathway. Another example with lock-in emissions indicators, as part of the sold products performance module, assesses the future GHG emissions which will occur due to the lifetime of products sold or current exploitation plants.

The coverage of emissions varies by sector. As the ACT Framework (page 8) explains: “the reporting boundaries of each ACT methodology for a given sector shall be determined by the sector’s most significant emissions sources, according to the principle of relevance. These significant emissions sources can be located all along the value chain of the organisation. This means that both direct and indirect (value chain) emissions shall be included where relevant.”

When they exist, ACT will rely on IEA scenarios acknowledging their bias and limitations but also recognising their advantages of being globally recognised. When they are no sectoral scenarios, ACT develops its own based on best practices and most recent available resources. ACT is scenario agnostic and considers all relevant existing scenarios.For example, as part of the ACT-DDP project in Brazil and Mexico, ACT will use national scenarios developed by the Deep Decarbonisation Pathways Initiative following a bottom-up approach.

Carbon offset via financing of certified carbon projects consists in the purchase of a "reduction unit" representing a quantity of tones of GHG avoided or removed by a project or program of activities. It is in addition to the reduction in/sequestration of the organization's direct and indirect emissions. These projects can be projects for the reduction in, avoidance or sequestration of emissions. To ensure the robustness, reality, additional nature, transparency, permanence and unique character of the credits and verification by independent third parties of the emissions reduced or sequestered, the organization must routinely make use of certified offsetting projects, in the framework of standards guaranteeing these principles, whether national or international. According to international standards such as ISO 14064-1, ISO 14067, European Product Environmental Footprint and Organization Environmental Footprint, WRI/WBCSD’s GHG Protocol, carbon offset shall not be included in GHG quantification study, but may be reported separately as “Additional Environmental Information”. Say it the other way around, carbon credit shall not be subtracted from the GHG inventory to minimize the amount of GHG emissions. Therefore, carbon offset is excluded from the calculation of quantitative ACT indicators related to targets, material investments and sold product performance. Nevertheless, in the narrative scoring of the ACT assessment, these credits may be considered as additional information that helps to better understand the decarbonization strategy of a company.

Avoided emissions may happened due to the use of company’s sold products or solutions. According to ISO TR 14069 (under revision) informative annex, an avoided emission is a GHG emission that has not occurred. It is defined by the difference between the level of GHG emissions induced by the reporting organization’s activity outside its organizational boundaries and the level of GHG emissions of a reference, counterfactual scenario that would have happened otherwise. In general, avoided emissions due to sold products are generated thanks to the involvement of several actors other than the reporting organization that sells the products (e.g : energy saving equipment, insulation products, recycled materials…). The amount of avoided emissions due to the use of such products is not considered by ACT methodologies to reduce the amount of the reporting company’s GHG absolute emissions or intensity. Nevertheless, such products are considered in the ACT’s sold product performance module but also in the business model module as levers of the reporting company to support its low carbon transition. Such products and solution are also considered in the narrative scoring.

The IPCC defines CDR as “anthropogenic activities removing CO2 from the atmosphere and durably storing it in geological, terrestrial, or ocean reservoirs, or ivn products.” When existing, direct CDR from GHG sinks owned or controlled by the organization are included in the ACT relevant quantitative indicators. ACT methodologies shall not take into account negative emissions in quantitative indicators if they do not occur in the value chain of the company. Negative emissions within value chain of the company can be taken into account in quantitative indicators if they result from the action of the company and they are due to:

• Bioenergy with carbon capture and storage (BECCS) with long-term storage
• Agriculture, forestry and land use changes

Consistency shall be kept with the chosen sectoral scenario: if this scenario does not take into account negative emissions, the quantitative indicators calculated using the scenario shall not take them into account neither. If relevant for the sector, ACT methodologies can take into account negative emissions occurring outside the value chain (see how ACT considers CDR) in the narrative scoring and / or in qualitative indicators, keeping in mind that deep decarbonisation of the sector is the top priority.

Rationale

In order to contribute to the carbon neutrality, it is relevant that companies work and make progress on mitigation and negative emissions such as carbon removal or avoided emissions. However, the general ACT philosophy aims at assessing the low-carbon transition of a company through emissions reductions directly achieved by the company’s actions in its value chain, i-e mainly mitigation.

The Assessing low-Carbon Transition (ACT) sectoral methodologies are developed in accordance with the ACT Framework and the ACT sector methodologies development guidance. All ACT methodologies are developed through a rigorous multi-stakeholder process, which includes a public consultation. ACT sectoral methodologies include rational, limitations, hypothesis regarding data quality, scenarios used, sector boundaries, conversion factors, etc.

To ensure the sector methodology accurately represents activities and challenges of the sector today in transitioning to a low-carbon economy a multi stakeholder working group, called Technical Working Group, is set up. The ACT Secretariat invites representatives from companies from the relevant sector, trade associations, experts in the business sector, specialist consultants in environmental/climate issues, NGOs, environmental associations and consumer organisations, government agencies, international organisations, investors and academics.

The methodology development phase lasts approximately six months. There are about five TWG meetings through the development phase. This typically includes four virtual meetings, and one face-to-face, full day workshop with the TWG. There are three consultation phases during the development of the methodology, to allow TWG members to provide feedback on methodology drafts. These include two TWG consultations and one public consultation open to all. TWG members help guide discussions and decisions on topics such as:

• Scope and Boundaries (Emissions sources and activities covered)
• Sectoral decarbonisation Benchmarks/scenarios and roadmaps
• Low-carbon Technologies
• Metrics and Indicators
• Module and Indicator Weightings

Each methodology is road-tested with a number of companies in the sector to identify how well the methodology works in practice and any areas that need amending or improving. All companies in the TWG are welcome to join the company roadtests and benefit from a free ACT assessment using the newly developed sector methodology. By doing so they receive an ACT assessment report and rating that remain confidential (shared with the ACT Initiative) unless the company want to publish it.

During the ACT pilot phase the below methodologies and tools were developed:

•  Retail
• Electric Utility
• Automotive

In 2019-2020, ADEME funded the development of the building methodology and tools covering:

• Construction
• Property development
• Real estate

ACT cofounders have committed through cofunding support from EIT Climate KIC to develop and roadtest ACT sectoral methodologies for the following high carbon emitting industrial activities:

• Cement
• Petrol & gas
• Transport
• Agriculture
• Agro-food
• Iron & steel
• Aluminium
• Chemicals
• Pulp and paper
• Glass

A Generic methodology covers activities outwith the scope of these sectoral methodologies.

ACT initiative is also considering, following engagement with interested parties, developing a methodology for financial institutions and for ICT sectors. Contact us at info@actinitiative.org if you are interested.

To help businesses set targets compatible with 2°C (or beyond) climate change scenarios, the SDA was developed. The SDA is based on the principle of convergence of all companies in a sector towards a shared emissions target in 2050 (or beyond). While the SDA gives direction and a target to achieve, the ACT methodologies employ a holistic approach, taking into account all feasible quantitative and qualitative indicators that can provide insight regarding a company’s current and future ability to reduce its carbon emissions and maximise its contribution to the low-carbon transition. All information gathered is consolidated into a rating, which provides an overall metric of the low-carbon alignment. The wider goal is to provide companies with specific feedback on their low-carbon alignment in the short and long term. With regards to Science Based Targets, the ACT assessment does a deep dive into an assessment of the targets companies set and whether the company sets an SBT in order to reflect its commitment to decarbonisation and low-carbon transition. We also make use of the SBT's Sectoral Decarbonisation Approach (SDA) to compute the company's benchmark from the sectoral pathway. In summary, the Sectoral Decarbonization Approach (SDA) of SBT initiative is used in ACT methodologies when relevant to compute the company's benchmark out of the sectoral pathway.

ACT questionnaires, used to collect data for ACT assessments in the ACT tools, have their questions mapped against CDP climate change questionnaire including when there are variations. Depending on the sector, additional data points need to be reported by the company, mostly because the data breakdown is designed differently.

CDP’s ratings, based on CDP disclosures, show company scores across those CDP topics a company responds to. These topics cover climate change, water security, forests (timber, palm oil, cattle products, and soy). Scoring methodologies aim at assessing how companies manage these topics against best practice and the related risks and opportunities. ACT’s ratings, based on ACT sectoral methodologies, show company scores across three dimensions: transition alignment metrics measured with KPIs (performance score ranging from 0 to 20), holistic overview of the assessment (narrative score from E to A) and forecast of future changes (trend score as +, - or =). ACT methodologies assess how a company decarbonisation operations and strategy align with its individual decarbonisation pathway and the relevant sector’s low-carbon trajectory.

The ACT methodologies cover and primarily focus on transition risk exposure, rather than physical risk exposure, because the ACT methodologies aim to drive action by companies and encourage businesses to move to a well-below 2 degrees compatible pathway in terms of their climate strategy, business model, investments, operations and GHG emissions management. Transition risk is assessed through performance indicators such as those in the Management module, which assess the company’s oversight of climate change issues, low-carbon transition plan, and climate change scenario testing. The methodologies do also contain some performance indicators that assess data that can be relevant to physical risk exposure, such as a consideration of whether potential shocks or stressors have been assessed in company’s low-carbon transition plan. In summary, the ACT methodologies build on the ladder that an organization follows towards reducing GHG emissions: measurement, transparent reporting and making public commitments to mitigate climate change. These practices mark the specific steps a company goes through when setting out to reduce its climate impact. Also, ACT relies on data TCFD advocates should be in the public domain through corporate reporting.

ACT methodologies are not develop for performance aggregation at portfolio level as underlined indicators and activity data used to calculate those indicators do not always match financial indicators used at portfolio level. ACT assessments and ratings are best used for companies climate engagement and benchmark comparison between companies within the same sector in a portfolio as well as for investors to promote, track and understand companies decarbonisation strategy and GHG reduction. This from an ACT initiative perspective is currently the only methodology with empirical evidence for financial institutions willing to contribute to GHG reduction in real economy.

The WBA Climate and Energy Benchmark operationalise the ACT methodologies to create freely, publicly available rankings of companies, giving each company a peer group comparison on how the industry is performing and contributing to a low-carbon economy and the sustainable development goals. Detailed information on a company’s performance, including a breakdown of their scores per module of the performance assessment and a written explanation of the narrative and trend assessments is made available to various stakeholders. WBA is updating its benchmarks on an iterative basis, adding further sectors until 2023. The ACT assessments are used to create free, publicly available rankings in the World Benchmarking Alliance (WBA)’s benchmarks. WBA publish various benchmarks in high emitting sectors, including Automotive and Electric Utilities. More details about the WBA Climate nd Energy benchmarks can be found here.

Whenever possible, ACT uses the other initiatives as inputs, in order to be complementary. For example, in the ACT Transport Methodology, we use EU taxonomy to define what is a low carbon vehicle. From conception, ACT has learned from and aligned with a wider set of standards. The ACT Framework contains methodology implementation principles, which draw on GRI, IIRC, SASB, Arista 3.0, and the ISO 14064-1 and GHG Protocol principles. Many of the ACT indicators capture information required or recommended to be reported in the CDP, GRI, SASB and Taskforce on Climate-related Financial Disclosure (TCFD) frameworks. In particular, the Management module of the ACT methodologies, which contains indicators on the company’s oversight of climate change issues, climate change oversight capability, low-carbon transition plan, climate change management incentives, and climate change scenario testing shows convergence with the disclosures recommended by the TCFD.

ACT builds its analysis on verifiable data, so information can be checked and opposed. Depending on the relationship between the company and the assessor conducting the assessment data collection can include:

• Company disclosure: CSR reports, activity data, list of assets, CAPEX, etc.
• Third party database: Globaldata, Marklines, Rystad, ICCT, CDP, etc.
• Public data: EPA, EEA, MIIT, MLIP, Trade associations, etc.

Each indicator in the performance assessment of each methodology specifies the period for which data is assessed. The ACT methodologies assess the most reliable, latest available public and verifiable data, therefore for indicators requiring assessment of historical data, this data is taken from five years prior to the year for which such data is available, up to that year. Forward looking data include company data such as material investments (activity unit and CO2eq) and company assets portfolio which is used to compute company’s specific benchmark from sectoral benchmark and locked in emissions from current and planned material investments.

Data collected for the ACT assessment are gathered as input in ACT tools. The ACT tools are developed by the ACT initiative and enable data processing to calculate ACT indicators and ACT scores. ACT tools are designed to improve data completeness and reduce scoring optimisation. Indeed if data is missing, subsequent indicators can be equal to zero affecting the overall ACT rating.

There is no prescription regarding reporting years (and base years) in ACT sectoral methodologies. To be considered in ACT assessment a reporting year needs to include a full set of data points. Base years are not directly used in ACT assessment however they can be used to calculate a company target or its decarbonisation trajectory.

Thorough literature review which is documented in ACT sectoral methodologies is the basis for setting criteria to define low carbon R&D and business models. This is one of the reason why it is important to update regularly ACT methodologies which is under the ACT governance remit (contact us if you are interested in joining the ACT governance at info@actinitiative.org).