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on the PCAV website for you to use after, noting that we have a lot of sessions happening on various time zones, so wanting to make those accessible to you after. So this session is being recorded and will be available for you.

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So we'll go to the next slide, and I will introduce our rock star panelists that we have the privilege of hearing from today. So first, we'll hear from Monica and Malaya as they present on the securitization and structured products, and then we'll hear from Kamal and Yunina on sub-sovereign debt.

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So, without further ado, Monica Milea, I will turn the floor over to you to go into securitization and structured products.

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Thanks, Shannon. Um, if you could go to the next slide, please.

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Um, so just to kick us off. Um, the structured finance, um, segment of the PCAF standard sits within part-time.

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Um, that's financed emissions. And within the standard, there's always been a decision tree to help you select.

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What is the right asset class to use? Um, in terms of undertaking any sort of analysis.

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So, with respect to… securitization and structured products.

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We are talking about… Um, debt… The proceeds are allocated to specific assets.

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The structure is securitized, or a structured product. And the collateral is real estate, corporate debt.

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or receivables. If the answer to any of those questions is no, then this is probably not the best.

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methodology to use for your assessments. And over the next few slides, we'll talk a little bit more about.

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What we define as securitization and structured products, and what the methodology is.

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Can we move on?

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So by way of definition. Um, what is covered in the new methodology?

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our securitizations and structured products with various types of underlying collateral.

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Um, any sort of collateral, can you use the methodology, the limitation really comes from being able to assess the collateral.

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And the way we've thought about this is we've looked at.

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PCAF methodologies for different types of assets. And if there is a methodology to assess the collateral in terms of financed emissions.

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then that is what is covered at this stage by the methodology, but the basic principles.

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Um, and the flow of work, it could be applied, um, to other types of collateral if you have, um, emissions information.

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securitization, um… is a process by which income-producing assets.

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are typically originated by an originator. This could be loans, this could be leases.

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Um, those loans and leases are then sold on to an entity or put into, um, a specific.

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vehicle, and that vehicle issues securities. to investors.

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Um, so, there are various parties involved in this process, starting with originators, um, that actually create.

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the financial assets, the loans and the leases. Um, there are ranges that help structure the transaction.

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And there are investors that hold the ultimate bond investments.

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financed emissions are relevant to both originators and. Investors.

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Um, the arrangers are generally covered under Part B of the PCAF standard.

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But the methodology does not yet cover… arrangers. So, the methodology we're presenting today relates to.

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to the origination of the loans and holding those on balance sheet.

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But then any sort of holdings, um… for the transaction.

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And they relate to investors that have invested in bonds.

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And just one that… just one quick clarification on the arrangers. We do have.

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Some information in the methodology where arrangers can sometimes act as investors.

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Where they retain securities on balance sheet. And so we'll get into some of the balance sheet breakdown, but in the case where you do have arrangers or investment banks that are acting as investors and holding securities on balance sheet.

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Those… those would need to be accounted for, um, as finance emissions as well, but we can get to that on the decision tree, but wanted to make that quick clarification. Thanks, Monica.

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Sure. While you're at it, you can continue with the next slide, actually.

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Uh, perfect. So, the next slide is what is covered, um, under the new guidance.

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And we really started to create the guidance based off of the existing PCAF methodologies in the standard.

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Um, so we were able to leverage the. Um, methodologies and some of the information on data availability.

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Um, for securitized products. So, as we were going through securitized products.

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We could see that the assets being securitized, um, were part of the existing PCAF methodology.

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And so, for a sector like RMBS, residential mortgage tracked securities, we were able to leverage the mortgage section in the PCAF standard. So, you see subchapter 5.5.

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Um, and we really just went down asset class by asset class. So, for commercial mortgage-backed securities, CMBS, we can leverage the commercial.

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Um, real estate subchapter. I also think it's worth pointing out that in CMBS, we do tend to see multifamily.

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Securitize as CMBS, but in PCAP, it is part of the, um, residential mortgage.

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guidance. Um, and so we just wanted to make that clarification. Um, we also include guidance on covered bonds when they are real estate.

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Act, so we leverage the existing methodology there. Um, for ABS, um, and other hard assets, it really just depends on the ABS subtype.

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So, for certain hard assets, that might be included in the mortgage, um, subchapters.

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Um, for CLOs, or collateralized loan obligations, we utilize the business loans.

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And unlisted equities, um, and then on occasion, the corporate bonds.

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Um, and so, also on this slide, I think it's important to call out.

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That there are securitized, um, subsectors. that are… we do not cover in this methodology.

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And so, those are going to be subsectors where there either is not enough data available.

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Um, or where we just don't have existing methodologies or coverage.

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To assume or account for emissions. Um, so this could be.

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hard assets, such as. aircraft, um, or covered bonds that are not real estate backed.

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some consumer ABS, so we might have student loans or credit card ABS, where we just don't get the data.

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Um, and so, until there is guidance around some of these sub, um.

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Sub-sectors and collateral types. We have agreed that it is appropriate to not account for admissions, but when we'll get into this later, we do want.

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To make sure that as you are reporting emissions, you are being very transparent in your reporting about what asset classes.

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You are able to calculate financed emissions for, and which you are not.

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I think we can move to the next slide.

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All right, um, so in terms of emissions. First thing tonight is that we are talking about.

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an investor investing. in a vehicle that holds assets.

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So if you think about Scope 1, 2, and 3.

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We're talking about Scope 3 of that. Vehicle, category 15, the investments of that vehicle.

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What's important is that for securitization, structured products. We're looking all the way through to the asset.

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So in terms of thinking about emissions. It's for that asset.

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the underlying asset that is securing the transaction. that we are talking about is Scope 1, Scope 2, Scope 3.

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So, let's say we've got a CMBS. Dio.

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Um, there is a CMBS structure. The vehicle has invested in commercial mortgage.

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Um, commercial marketers. The underlying is an office.

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What we are interested in is having that look through to the Scope 1 and 2 of the office building.

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And ideally, you'd want to cover Scope 3. But at the very least, you're covering Scope 1 and 2.

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Um, another example might be… this is a CLO deal.

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on the CLO transaction includes a number of loans to businesses.

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you're interested primarily in Scope 1 and 2 of the business that is being financed?

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Ideally want to include their Scope 3. So, Shell and should… Um, are about the expectations. Cope 1 and 2 shall be covered means that, um, there is a requirement should, um, that it's a recommendation, a strong recommendation in the sense that.

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We're trying to, um, improve emissions accounting. by including as much as possible around scopes. As with anything.

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the scopes covered should be, um, very transparently disclosed.

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So it is clear what missions have been included, um, in any calculations.

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Move on to the next slide.

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Um… I'll cover off this decision tree, um, as well, um… it's kind of a variation of the one we saw at the very beginning, but it's got a little bit more content.

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Um, so in the first… decision tree, it was determining whether or not you should be looking at the securitization of structured products.

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Um, methodology. So, assuming that the answer is yes, then you have to decide, um, whether or not you're looking at it from the point of view of an investor or an issuer.

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Um, however, that decision, whilst it is important for you as an entity.

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Um, for the methodology, it's somewhat of a moot point, regardless of whether.

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You're looking at it from an investor point of view, or an issuer point of view, whether it's on balance sheet, off balance sheet.

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Um, the next question is… whether or not there are methodologies and data through the collateral of the deal, and as we said earlier, we're looking at.

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realize that corporate, that, um, hard asset receivables. auto leases. And in all of these cases, the first question is, is it one of those types of debt? And if it is one of those types of debt, um, as…

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I just went through. We then looked through and said, okay, right, well, if it's residential mortgages, we're going to be using the mortgage methodology.

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If there is… A corporate, and it's a corporate bond that's in the underlying collateral pool.

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Then we'll use that methodology. One thing I do want to note, um, is that.

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It is possible. to consider whether or not the collateral or the use of proceeds from the financing.

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are used for green bonds. Um, so, um, in this decision tree, there is an optional route.

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Um, the first question of that route is, is the collateral green? In other words.

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If you have a pool of commercial real estate, are those green buildings?

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Um, if the answer is yes. Um, then you can apply the methodology, think about what that actually means, and maybe the emissions are lower because they're green buildings.

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If the answer is 9, um, then the question could be, well, are the use of proceeds raised.

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from this, uh, financing going to be used. for green projects, um, of the original nature.

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If the answer is yes, there is possible, potentially, to use the use of proceeds.

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Um, methodology, which is one of the other methodologies that was introduced.

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in this recent PCAF update.

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Maybe I'll just add some, um, some additional color there, uh, so the reason that we wanted to break this out was because.

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in June 2022, uh, ICMA published an appendix. As part of their green bond principles.

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That specifically broke out something called a. Secured green collateral bond and a secured green standard bond. Uh, and so we wanted to align with, um, ICMA as much as possible, because when we do see.

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labeled green bonds come to market. That means that they tend to align with ICMA. And so… It's import… it was important for us in our methodology to also align to the widely accepted industry standards.

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So, the green collateral bond would be when the collateral is, in fact, green or energy efficient.

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And then a securitization that comes out as labeled, but maybe the underlying collateral is not green.

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But as Monica mentioned, the use of proceeds will be used towards.

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green projects, um, we can reference the use of proceed structure.

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Thanks.

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Client, please.

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Alright, so we're coming here to how we calculate, um, the emissions. So, there's 5 steps.

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And, um, as I noted earlier, we're looking all the way through to the assets.

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So the first step is to figure out what sort of emissions are associated within the underlying assets. So in my examples.

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With the business or the office building that forms part of our collateral pool.

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Once we figure that out, we can then calculate.

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the finance emissions that are attributed to different levels of the structure, all the way to the investor.

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So, first determine the acid emissions. from the acid emissions.

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can apply an attribution factor that's, um… effectively… a PCAF, um, attributed.

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Um, formula. for finance emissions to the loans.

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Once we've got… um, information about the loans that we can start thinking about, well, the loans are part of a collateral pool.

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What are the emissions for the pool? And then we go into the deal structure. So, structured deals, like securitations, structured products typically have tranches.

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Um, and one of the questions is, um… how do you allocate emissions to those tranches?

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We view the deal… As a whole collateral pool. So, so, the collateral pool is where the emissions are. It is only what the collateral pool holds that can be distributed among the tranches.

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So, we're trying to divvy up, if you will, the collateral pools initiatives between tranches.

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The charges themselves. they would typically have, um, seniorities, so you can have a senior tranche.

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You can have them as an entrench, you can have multiple tranches.

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However, regardless of how the deal is structured. All of those tranches are secured on the same collateral pool.

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So, the seniority of the tranches is not important. What is important is looking through to the collateral pool and acknowledging that all of the investors, regardless of which branch they hold.

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are exposed to the same collateral pool. So this next phase is driven by the size of the deal tranches.

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And the last step, the investor. Um, that is determined by what the investor holds.

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If the whole investment in one tranche, then their emissions, their financed emissions, relate to.

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back holding within that one charge. that can hold investments across all of the tranches.

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Then you calculate how much they hold, um, of the deal.

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Um, they can hold… some of the tranches, not others. Again, you look through and figure out where they've got holdings.

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and take a portion of the emissions associated with that tranche that corresponds.

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to the size of their investment in that dealt tranche.

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Um, and over the next slides, I'll hand over to Leah here, over the next slides, we'll go through this step by step.

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But essentially, start with the asset. you pull it up to the collateral, and then you start divvying it up between the deal tranches and between the investors that are invested in the deal.

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So, the next few slides will use the same diagram, and we'll go through the steps that Monica spoke about on the earlier slides.

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Um, but we thought it was helpful to show the different formulas that we're using.

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Um, for the different sectors within insecuritized. So, when we first want to calculate the asset level emissions, um.

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Loan by loan, and then we want to calculate the emissions that are attributed to those loans.

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And the key here is using, um, is the collateral attribution factor.

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So, we calculate that by dividing the current outstanding amount of the asset.

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Um, by the asset value at origination. Um, and so… If we use property as an example, this would be the current outstanding amount of the property divided by the property value at origination.

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Um, and so, we always want to use the nominal value over the market value, uh, because that would be static, and everyone would have access.

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to that. So, when we think… when we're thinking about data availability as well, um, this was also factored into our decisions.

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However, if there is a case where current amount is not available.

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Um, we do have guidance in the methodology. That, uh, we can use.

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original amount in place of current outstanding amount. And so, as loans pay down and as, uh, as, well.

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As loans pay down, um, you will see that the outstanding amount will change, and.

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With PCAF, we always want to apply the follow the money principle.

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Um, and so we will see emissions decrease as those loans are paid down.

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Um, however, we do have guidance in the methodology, and I think, um, somewhere else in this webinar.

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That amortization, um, does not equate to real-world, uh.

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decarbonization efforts, so even as loans are paying down, you will see that the emissions will start to decrease.

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Um, but that should not equate to a decarbonizing portfolio.

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So if we move to the next slide, um, like I said, we're kind of just going to go sector by… or we're going to go.

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Um, vertical slice by vertical slice here, so when we started with collateral attribution factor.

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Um, now we want to attribute the emissions to the collateral pool, so those are going to be the accumulation of all of the.

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loans and the associated emissions within the collateral pool. And so you want to calculate the loan attribution factor.

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Uh, and so that's going to be the… Um, loan current outstanding amount of the pool divided by the total loan current outstanding amount, um, nominal value.

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Um, I don't know how much detail we want to go into as we move.

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through this, um, because we do have a worked example, but actually, Monica, I'll ask you, how much do we want to go into detail across all of these different verticals?

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Okay. I think that that's probably the right level. We'll get the work example, and we'll also have questions, so I guess if people do want us to go into more detail, we can always address that through the Q&A.

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Okay, perfect. Um, okay, so, yep, so again, if we go to the… maybe slide 4.

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Or, sorry, step 4, um, is, yep, we're gonna calculate the emissions that you attributed to the deal and its tranches. So, again, we're really just kind of going up that… up that ladder of.

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asset, loan, um, collateral pool, and then we're going to attribute the emissions by tranche.

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So, again, you have your tranche attribution factor, so… Um, your current outstanding amount of the tranche divided by.

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Current outstanding amount of the deal. We'll get you your, um, your deal-level emissions.

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And then if we go to the next slide, step 5, um, is going to be… Your investment attribution factor, and so this is where, as an investor, you're going to be able to calculate your financed emissions.

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depending on how much you are invested in the entire deal.

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Um, or can an individual tranche. So, I would say that the… Um, so… If we're looking at the formula, investment attribution factor is your tranche investment, um, over your… over the total tranche.

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Next slide, please.

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Next slide. Um… yeah, the… More formulas.

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This is the kind of death by formula. But, um, what we wanted to do here… yeah, what we wanted to do is sort of sum it up that, uh, as with other methodology.

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there's an attribution factor, um, and times the emission by that attribution factor.

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So, the financed emissions at the loan level, um, will look to.

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the emissions of the underlying assets, and you times that by an attribution factor.

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At collateral pool level, the financed emissions for the pool, they're looking to the loan attribution factor and the emissions that are coming through from the collateral.

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that supports the loan. At the tranche level, um, it's the tranche attribution factor that's being multiplied by what's coming through from the pool in terms of emissions.

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at the deal level, that's the total of all of the tranches, and then the investment level.

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It's what's coming through for the holding of the investor within the specific tranches they're invested in.

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And that…

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Um, it's also important to note that, um. the quality of the emissions data is important.

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Um, as is the case generally for the PCAF standard, reported emissions are preferred. Um, so earlier, so if you've got.

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reported emissions, you can apply the methodology. But you might not have a reported admission, it still may be possible to apply the methodology, so for.

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for example, PCAF has an emission factor database. So, quite a lot of sectors. Um, you can pick up, um, the emissions factor based on the sector.

00:27:30.000 --> 00:27:37.000
And a reference metric, an estimate. Um, Emma Schutz.

00:27:37.000 --> 00:27:44.000
It may be possible to source information from, um, external third-party data sources.

00:27:44.000 --> 00:27:52.000
There could be other ways of estimating. emissions. Again, as noted earlier.

00:27:52.000 --> 00:27:58.000
Um, it is a transparency is very, very important, so in terms of reporting, being clear on.

00:27:58.000 --> 00:28:06.000
what has been used. to determine the emissions that are being divvied up, um.

00:28:06.000 --> 00:28:11.000
within the deal and to the investors is quite important.

00:28:11.000 --> 00:28:26.000
Maybe just to… to add on there, um… a lot of the feedback that we received in the public consultation was around data availability, um, particularly in the securitized space, because we do have.

00:28:26.000 --> 00:28:35.000
Such diversity of collateral and, um… data, specifically as it relates to emissions, um, might be difficult to obtain.

00:28:35.000 --> 00:28:42.000
And so we thought it was important to call that out in the webinar, that it's… We always want to make sure that we're using the.

00:28:42.000 --> 00:28:50.000
Best, um… data available, the most accurate level of data available for emissions.

00:28:50.000 --> 00:28:56.000
So, we are starting to see progress there with reported emissions that are coming directly from the issuer.

00:28:56.000 --> 00:28:59.000
And I think that that shows progress in our market.

00:28:59.000 --> 00:29:07.000
Because, you know, a few years ago, we weren't seeing any of that, and now, on things like Auto ABS in certain jurisdictions.

00:29:07.000 --> 00:29:13.000
Um, we do see that coming through. So it's always important to use the best and most accurate.

00:29:13.000 --> 00:29:24.000
data that you have available, and be… transparent in the reporting where you're sourcing that data from. So, if it's directly from the issuer, if it is utilizing PCAFS.

00:29:24.000 --> 00:29:34.000
database, or if it is estimating emissions by, um… mapping additional external or third-party sources.

00:29:34.000 --> 00:29:44.000
Um, or any sort of emissions reduction factors or proxies that are being used, we want to make sure that those are… that those are reported as well.

00:29:44.000 --> 00:29:49.000
Next slide, please.

00:29:49.000 --> 00:29:54.000
And this is the promise worked example. Um, it is actually in the methodology.

00:29:54.000 --> 00:30:02.000
Um, so, um, it's… you can walk through it, um, in the… the methodology, but.

00:30:02.000 --> 00:30:12.000
What we tried to do, um, is show, um, how, um, things would be calculated within a small.

00:30:12.000 --> 00:30:24.000
pool of 5 mortgages. Um, so we created this hypothetical 3-tranch RMBS deal with 5 mortgages.

00:30:24.000 --> 00:30:31.000
And, um, what the… blue table shows.

00:30:31.000 --> 00:30:41.000
is the mortgage level calculations. Whereas the orange table shows the deal level calculations.

00:30:41.000 --> 00:30:54.000
So, at the mortgage level. Um, you need information on outstanding amount, you need information on property value, um, this is to allow you to calculate an attribution factor.

00:30:54.000 --> 00:31:05.000
And you look at the underlying asset of the mortgage, figure out what the emissions of that asset are, multiply that by the attribution factor.

00:31:05.000 --> 00:31:15.000
to get the original financed emissions. At pool level, you add those up to come up with the pool level financed.

00:31:15.000 --> 00:31:23.000
Um, emissions. Over time, in this particular deal, you've got amortization, so over time, um, the outstanding amount.

00:31:23.000 --> 00:31:28.000
may change, um, if it's amortization, it will go down.

00:31:28.000 --> 00:31:34.000
Um, so at a future point, um, in, in time.

00:31:34.000 --> 00:31:42.000
As the outstanding amount goes down. the financed emissions should be going down, which is the point the MLMH.

00:31:42.000 --> 00:31:50.000
earlier in our example due to amortization, there's a bit of reduction, um.

00:31:50.000 --> 00:32:01.000
in the emissions driven by the amount outstanding. Noting that just because the amount outstanding has gone down, the emissions of the underlying property.

00:32:01.000 --> 00:32:03.000
um, would not have gone down, it's just that.

00:32:03.000 --> 00:32:12.000
the amount is financed by the debt has gone down, the amount that's financed by the equity has gone up, the total emissions are still there.

00:32:12.000 --> 00:32:21.000
Unless the emissions have been reduced, which is another way that emissions obviously can come down within the deal if there is a reduction of emissions.

00:32:21.000 --> 00:32:26.000
in the underlying assets. And then at church level.

00:32:26.000 --> 00:32:38.000
You've got, say, 3 tranches. Um, so, each of those tranches contributes a certain level to the total deal, so the senior trust in our example is about 60% of the deal.

00:32:38.000 --> 00:32:44.000
That's effectively the attribution factor for. coal emissions.

00:32:44.000 --> 00:32:52.000
Um, so that senior charge gets about 60%. Of the poor emissions.

00:32:52.000 --> 00:33:00.000
Over time, as with the mortgages, the amount outstanding can go down, amortization is passed through to investors through the deal tranches.

00:33:00.000 --> 00:33:13.000
And as a consequence, um, the… emissions associated with individual tranches goes down, the finance emissions, and depending on where the investor sits.

00:33:13.000 --> 00:33:24.000
Um, there… Um, holdings, the, um, finance emissions can go down as a result of amortization. In our example here.

00:33:24.000 --> 00:33:35.000
We assume sequential amortization, so all of the… current outstanding reductions from the mortgages are passed through to the most senior tranche.

00:33:35.000 --> 00:33:37.000
So you can see a difference in the numbers.

00:33:37.000 --> 00:33:41.000
through that senior charge, but you're not seeing the difference for.

00:33:41.000 --> 00:33:46.000
the lower tarnishes, because they're not benefiting from the pay down within the structure.

00:33:46.000 --> 00:33:55.000
So things you would normally consider for such structures, where do you see… Um, the money going, if there's a pay down.

00:33:55.000 --> 00:34:02.000
Um, those apply, except we're now applying them. For, um, two emissions.

00:34:02.000 --> 00:34:10.000
And we can come back to that if you'd like, as part of the Q&A, but I suggest we move on to the next slide.

00:34:10.000 --> 00:34:12.000
Hello there, over to you.

00:34:12.000 --> 00:34:19.000
So, the next slide we wanted to highlight the limitations and approaches, um.

00:34:19.000 --> 00:34:29.000
I mentioned data earlier, so I won't spend too much time there, but data quality and availability always comes up.

00:34:29.000 --> 00:34:34.000
as a challenge in every conversation, and so we didn't want to ignore that.

00:34:34.000 --> 00:34:41.000
But I think it's important to realize that a lot of the work we are doing is.

00:34:41.000 --> 00:34:48.000
still best efforts. And the solution for all of these challenges is going to be transparency.

00:34:48.000 --> 00:34:53.000
Um, and so, specifically when it comes to, to data, um.

00:34:53.000 --> 00:34:59.000
It's important to report any sort of additional sources or estimations.

00:34:59.000 --> 00:35:06.000
Um, that are being made, whether that's using, um, third parties or internal.

00:35:06.000 --> 00:35:20.000
calculations to, um, come up with proxies. It's important to just be transparent about the data that you're using, where it's coming from, and how it's incorporated into your emissions calculations.

00:35:20.000 --> 00:35:26.000
Um, we also see that there are going to be country-specific.

00:35:26.000 --> 00:35:36.000
Limitations when it comes to data and assumptions, so a really good example of that are the Energy Performance Certificates, or EPC ratings that we see across Europe.

00:35:36.000 --> 00:35:44.000
Um, we see that UK has a different ratings and emissions for EPCs than other European countries.

00:35:44.000 --> 00:35:49.000
And so, again, this is going to be best efforts and reporting.

00:35:49.000 --> 00:35:58.000
Um, what EPCs you are including in any sort of emissions calculations, and how that, uh, affects the calculation.

00:35:58.000 --> 00:36:12.000
And, like I said, just being… being transparent. Um, the last thing is double counting. And so, we will see double counting in this space, just because of the nature and the complexity of securitization.

00:36:12.000 --> 00:36:18.000
Um, especially when you have things like SRTs or synthetic risk transfers.

00:36:18.000 --> 00:36:24.000
And structures like risk retention, where you can potentially have two.

00:36:24.000 --> 00:36:31.000
financial institutions, um, that are invested in the same asset within the same value chain.

00:36:31.000 --> 00:36:40.000
And it's going to be really hard for anyone to bifurcate those emissions, so we will have instances of double counting.

00:36:40.000 --> 00:36:54.000
Um, and I think we're just going to have to… have to deal with that until we come up with a better solution or more transparency around how the emissions are allocated, um, specifically amongst some of the more complex structures within securitization.

00:36:54.000 --> 00:37:03.000
Uh, the last thing that I'll say for the approach is engagement is really key here for all of these limitations.

00:37:03.000 --> 00:37:09.000
And so, that is, you know, we want to use this as a, um, kind of public service announcement to.

00:37:09.000 --> 00:37:15.000
Say, keep engaging with the market in order to improve access to data.

00:37:15.000 --> 00:37:24.000
Um, improved clarification around, you know, some of the country-specific limitations. Ultimately, this is going to get better.

00:37:24.000 --> 00:37:28.000
But it's going to have to start with us, and it's important to encourage, um, just better, more uptick.

00:37:28.000 --> 00:37:37.000
Um, and just access and improvement of data.

00:37:37.000 --> 00:37:50.000
Yeah, thank you. Next slide. Um, so the… What we've been talking about, um, is the core methodology. Um, however.

00:37:50.000 --> 00:37:57.000
The last section… has a lot more detail around various.

00:37:57.000 --> 00:38:03.000
structures and structural nuances. You might see in securitisation structured products.

00:38:03.000 --> 00:38:16.000
So, for example, um, the methodology can be applied to static and dynamic pools. They can be applied to risk transfers, um, that was mentioned just now.

00:38:16.000 --> 00:38:22.000
synthetic securitizations, it can be applied to master trusts.

00:38:22.000 --> 00:38:28.000
with the revolving portfolios, um, there is, um, additional guidance.

00:38:28.000 --> 00:38:37.000
Um, around different structural nuances and how to think about emissions and emissions allocations.

00:38:37.000 --> 00:38:44.000
There are also some structural features, um, such as intranial principle-only tranches.

00:38:44.000 --> 00:38:50.000
Um, how to deal with, um, over-collateralisation, extoots and residuals, um.

00:38:50.000 --> 00:38:56.000
liquidity funds, um, and in general, the approach is.

00:38:56.000 --> 00:39:05.000
If it is related to the collateral, so for example, interest only principal only, over-collateralisation is looking to the collateral.

00:39:05.000 --> 00:39:16.000
It's in scope. If it is less. Um, obviously associated with the collateral X nodes, residuals, reserve liquidity, which are providing.

00:39:16.000 --> 00:39:21.000
a cash service to the deal, in a sense. It is out of Skype.

00:39:21.000 --> 00:39:35.000
Um, the other things, um, worth noting, um, there is information around, um, risk retention and an approach suggested around that.

00:39:35.000 --> 00:39:43.000
Um, so, um, deals on balance sheet and off balance sheet, um, are in scope.

00:39:43.000 --> 00:39:52.000
Um, and last but not least. Um, there is guidance around principal loss, um, and defaults.

00:39:52.000 --> 00:40:00.000
Both of those are in scope, and the guidance also provides worked examples.

00:40:00.000 --> 00:40:09.000
Um, how to work out, um, the emissions for principal deficiency ledgers, um, and in the case of defaults, how to think about.

00:40:09.000 --> 00:40:19.000
Um, emissions. And I think with that, um, this is, uh, yeah, this was the last slide, and you can open to Q&A.

00:40:19.000 --> 00:40:39.000
Perfect. Thank you both so much for that wonderful presentation. We're gonna jump right into Q&A, um, so that we make sure that we get to sub-sovereign debt, um, when we need to, but thanks everyone for the questions coming in so far. Please keep them coming. Um, so Monica Malea, first question. So, many instruments on securitized assets are tradable.

00:40:39.000 --> 00:40:48.000
And investors can only hold for a short duration and not the full financial year. How do you account in this case?

00:40:48.000 --> 00:40:54.000
So, the main thing is, what are you holding whenever you produce your reporting?

00:40:54.000 --> 00:41:00.000
If you hold them when you produce your reporting, you include them. If you've sold them, you've sold them.

00:41:00.000 --> 00:41:09.000
Yeah, that's… that's right. Um, and the methodology is aligned with that. Um, you know, we realize that active managers are going to be constantly trading.

00:41:09.000 --> 00:41:16.000
And so, it's always reporting your holdings at the time of the reporting period.

00:41:16.000 --> 00:41:21.000
Um, and again, this is just gonna be… this is going to be best efforts.

00:41:21.000 --> 00:41:35.000
Perfect. So, for the next question, does it matter how the securitization structured product is shown on the balance sheet? Brackets, investment or accounts receivable.

00:41:35.000 --> 00:41:46.000
That is an accounting question. We will deflect. And suggest that they seek advice from, um, accountants.

00:41:46.000 --> 00:41:57.000
But, um, in principle, whether it's on balance sheet or off balance sheet is included in the methodology, so I think, in general, the guidance that you get.

00:41:57.000 --> 00:42:11.000
for our own balance sheet, off balance sheet transactions, and where to, um… to hold them for structured products in principle should apply, but one for the accountants.

00:42:11.000 --> 00:42:24.000
Thank you. So, insurance-linked securities use money market funds as collateral when reinsurance risks are securitized. Should these be looked through?

00:42:24.000 --> 00:42:27.000
Um… okay, go, go, Malia. I can see you over the response.

00:42:27.000 --> 00:42:38.000
Yeah, no. No, no, no, I was gonna say, we don't… we… We don't have any specific language on insurance leak securities.

00:42:38.000 --> 00:42:49.000
Um, so I would say… Again, it depends on the… Depends on the look-through that you have to the underlying collateral, I think.

00:42:49.000 --> 00:42:54.000
Um, and what can be… calculated.

00:42:54.000 --> 00:43:01.000
And so, I would say, you know, using the most granular information that you have available.

00:43:01.000 --> 00:43:07.000
You should calculate emissions for. If you don't, then that would be disclosed, and.

00:43:07.000 --> 00:43:14.000
You're unable to calculate finance emissions, so I think it will just depend on the level of look-through and the data that's available.

00:43:14.000 --> 00:43:19.000
But, Monica, if you have anything else? Yeah.

00:43:19.000 --> 00:43:28.000
I think the answer is leaning towards not in scope at this point, because if you look through, um, you know.

00:43:28.000 --> 00:43:32.000
Whilst there are methodologies. for insurance.

00:43:32.000 --> 00:43:44.000
There aren't methodologies for everything. Um, so it's probably more likely, I know in terms of existence of methodologies and data.

00:43:44.000 --> 00:43:54.000
Perfect, thank you. Next question for you both. So, the equation assumes that the tranche COA equals the deal level COA.

00:43:54.000 --> 00:44:03.000
In practice, this identity does not always hold. In such cases, which component of the equation should be used to compute the tranche attribution factor?

00:44:03.000 --> 00:44:14.000
The alternative approaches, uh, acceptable provided they distribute the deals, total financed emission to the tranches in a manner consistent with the follow-the-money principle.

00:44:14.000 --> 00:44:21.000
So, in principle, I'd say yes. You should always follow the money, and the.

00:44:21.000 --> 00:44:28.000
Um, the gist of the exercise is to distribute the collateral pool emissions.

00:44:28.000 --> 00:44:38.000
to all parts of. I'm a bit curious as to when the deal tranches won't add up to the deal total.

00:44:38.000 --> 00:44:54.000
I suspect it might be cases where, for example, we've got over-collateralisation, or something similar, or you've got, um… some element that's not sold to investors, but it's still part of the deal structure. If that is what the person was thinking.

00:44:54.000 --> 00:45:03.000
So just looking, uh, to the structural features, because we do provide guidance on what to do with, for example, over-collateralisation.

00:45:03.000 --> 00:45:11.000
Or equity tranches. Um… so if it's not salty vested, it doesn't mean it's not part of the structure, it's, I guess, the response.

00:45:11.000 --> 00:45:19.000
you can still allocate to that. tranche, even if it's not sold to investors.

00:45:19.000 --> 00:45:30.000
Perfect, thank you. So I got one more question for you both, just in terms of time. Um, so what happens in the case of re-securitization? Who accounts for the emissions, or is it.

00:45:30.000 --> 00:45:34.000
Yeah, or is there an attribution factor there?

00:45:34.000 --> 00:45:44.000
So, I would say, just because I know that we're short on time, um, we do account for re-securitizations and reruns as part of the, uh, methodology.

00:45:44.000 --> 00:45:49.000
And we do have a whole section in the technical guidance on re-securitizations.

00:45:49.000 --> 00:46:05.000
Um, we also have a worked example. So, um, that's kind of a, you know, rather than answering this on, um, on the webinar, I would say see the methodology. There's a lot of information there, and a worked example specifically for re-securitization that can be clicked through.

00:46:05.000 --> 00:46:25.000
Perfect, thank you both. So we still have a few questions in the chat, um, that we won't be able to get to for time. Monica, Melia, if you're able to have a look at those, um, quickly before you do log off, that would be really appreciated, but I just want to say thank you for both your work on developing this method and also taking the time to present with us today.

00:46:25.000 --> 00:46:26.000
Thank you.

00:46:26.000 --> 00:46:38.000
Thank you so much. And with that, uh, we are going to turn our attention to, uh, subsovereign debt. And so, uh, if we go to the next slide, I'd like to introduce Kamal and Janina, who will be our presenters today, and they'll walk us through the methodology.

00:46:38.000 --> 00:46:40.000
Uh, Kamalina, the floor is yours.

00:46:40.000 --> 00:46:47.000
Perfect, thank you very much. Um, maybe you can go to the next slide, please, Shannon.

00:46:47.000 --> 00:46:55.000
And we've seen this slide, um, yeah, before in this webinar, so that's basically the position trade, and that's just to show you exactly.

00:46:55.000 --> 00:47:00.000
yeah, what is the decision? Um, you go along to get to the sub-sovereign.

00:47:00.000 --> 00:47:08.000
that standard. So, obviously, we're talking about that, so, um, we have a debt instrument, and.

00:47:08.000 --> 00:47:20.000
There are no, um, like, proceeds allocated to specific assets. So, um… you have a no in this second question, and then you get to the sub-sovereign debt.

00:47:20.000 --> 00:47:28.000
Um, standard, which is basically in line with the sovereign debt standard, listed equity, corporate bonds, and unlisted equity business loans.

00:47:28.000 --> 00:47:36.000
standards. Um, yeah, maybe we already go to the next slide, please.

00:47:36.000 --> 00:47:46.000
Exactly. So, um, starting off with the asset class definition, so what is actually covered in the sub-sovereign?

00:47:46.000 --> 00:47:51.000
That's standard. Broadly speaking, um, the asset class includes.

00:47:51.000 --> 00:48:01.000
Um, sub-sovereign bonds and sub-sovereign loans. Um, of all maturities issued by regional, city, or local governments.

00:48:01.000 --> 00:48:17.000
in, um, yeah, domestic or foreign currency. That's, like, kind of the broad definition. Um, when we started developing this standard, we very quickly understood that, um, sub-sovereign space is a little bit.

00:48:17.000 --> 00:48:23.000
Yeah, more complex in terms of what types of issues are included in this asset class.

00:48:23.000 --> 00:48:30.000
And, um, so we said, okay, there are, we understood, okay, there are different types, and I will talk about this in a second.

00:48:30.000 --> 00:48:38.000
Um, what we actually mean with different types of issues, but there are different types, and this standard, to be very transparent.

00:48:38.000 --> 00:48:54.000
the sub-sovereign debt standard covers only parts of the sub-sovereign issuers that, um, that we identified and defined. And I think it's very helpful to directly basically jump to the next slide, because there it's very.

00:48:54.000 --> 00:49:02.000
Um, easy to understand, or to… it's very clear what types of sub-sovereign issues we.

00:49:02.000 --> 00:49:16.000
differentiate in the standard. So, um, we call them very broadly to kind of give you, like, a first hint. We call them sovereign likes of sovereigns and corporate-like sub-sovereigns. So that is already an indication.

00:49:16.000 --> 00:49:21.000
Um, where this is, uh, going. Um, so we have specific.

00:49:21.000 --> 00:49:40.000
issues that are really stove and like, so they… these are issuers that have a jurisdiction over a certain territory, and they are somehow in the position to also control the emissions, or the emissions that are, um.

00:49:40.000 --> 00:49:52.000
yeah, that are emitted within this, um, territory. Uh, these sovereign, like sub-sovereigns, they do not have a balance sheet. They are like a normal.

00:49:52.000 --> 00:49:59.000
sovereign, I would say. So, one distinction is that we do not have a balance sheet for these types of issues.

00:49:59.000 --> 00:50:06.000
So, um, we cannot construct any kind of enterprise value.

00:50:06.000 --> 00:50:12.000
And this is very similar, or, like, actually equivalent to what we see for sovereigns.

00:50:12.000 --> 00:50:17.000
So, for these types of sovereign-like sub-sovereigns without a balance sheet.

00:50:17.000 --> 00:50:29.000
Um, we… we, uh, yeah, we proposed it. There's a standard, um, proposes to calculate financed emissions by using, um, the territorial emissions.

00:50:29.000 --> 00:50:34.000
attributed to the regional PPP-adjusted GDP, which is actually.

00:50:34.000 --> 00:50:39.000
the same methodology that is applied to sovereign debt.

00:50:39.000 --> 00:50:52.000
Um… then… And this is actually the type of issue which is covered in the sub-sovereign bad standard that was added, uh.

00:50:52.000 --> 00:50:59.000
end of last year to the pickup standard. Then, on… I would say, the other hand, we have, um, and this is at the very bottom of.

00:50:59.000 --> 00:51:10.000
of this, uh, of this table, we have corporate-like subsorums, and these are actually, yeah, I mean, generally speaking, these are state-owned companies or agencies.

00:51:10.000 --> 00:51:25.000
that provide public services and facilities. Um, to, yeah, to communities, etc. So, these… Actually, they really act like… like a company, or like a corporate. And, um, usually.

00:51:25.000 --> 00:51:33.000
an enterprise value is available. And you can also derive from the activities, like, economic activity.

00:51:33.000 --> 00:51:41.000
base emissions. So… Um, for these types of sub-sovereign issues, so the corporate likes.

00:51:41.000 --> 00:51:50.000
the… we would refer… the standard refers, uh, the user to the existing standard, um, for business loans and unlisted equities.

00:51:50.000 --> 00:52:05.000
So, basically, um… these types of issues are not directly covered in the sub-Soverign debt standard, but they are covered, obviously, by a different methodology, namely what I said, the business loans and unlisted equity.

00:52:05.000 --> 00:52:11.000
Staggered. And then… and this is actually in the middle here of the table, we have sovereign-like sub-sovereigns.

00:52:11.000 --> 00:52:17.000
with a balance sheet, or at least you can construct something like a balance sheet, um, and an enterprise value.

00:52:17.000 --> 00:52:31.000
is… we added this, um, after the public consultation, we added this type of self-sovereign, because we got quite some feedback on this type, or, like, on… yeah, on this type of issues. We got.

00:52:31.000 --> 00:52:38.000
Um, many feedback givers said, okay, there are these types, and we want.

00:52:38.000 --> 00:52:55.000
their more flexibility. In fact. These are issues that have a significant, like, a certain degree of jurisdiction, but they also provide public services and facilities. So, like, yeah, exactly, yes, on the slide, waste management, water control, etc. And it is possible to construct a balanced.

00:52:55.000 --> 00:53:00.000
like, a balance sheet, or then also derive an enterprise value.

00:53:00.000 --> 00:53:07.000
So, for these sites, there are two examples which were explicitly mentioned in the public consultation, so these are.

00:53:07.000 --> 00:53:21.000
touch statement and Swedish komunes or communities. And, um, we… so the working group, after really considering, um, this feedback, we decided to give some flexibility here, and.

00:53:21.000 --> 00:53:36.000
Um, yeah, really… allow, basically, um… to choose either… and I mean, that's the recommended methodology to use the sub-sovereign debt standard, but there is.

00:53:36.000 --> 00:53:41.000
an option to also, um, go for the business loans and unlisted equity.

00:53:41.000 --> 00:53:48.000
Um… methodology, if you get the necessary input data for that.

00:53:48.000 --> 00:53:52.000
And what is… clear, and what is.

00:53:52.000 --> 00:53:59.000
clearly required is to be very transparent. So, due to the fact that the sub-sovereign.

00:53:59.000 --> 00:54:08.000
space, in terms of, like, what types of issues is more diverse. There is some kind of flexibility, and to… to not, um, yeah.

00:54:08.000 --> 00:54:22.000
to force, uh, for especially this middle… this hybrid, maybe I would call the type of sub-sovereign Asia, we… we just ask, or the standard just asks for… transparency, what is actually applied, what approach?

00:54:22.000 --> 00:54:31.000
And what methodology? Exactly. So, um… Exactly. As I said.

00:54:31.000 --> 00:54:39.000
before the sub-sovereign standard that we will talk about in this webinar covers, um.

00:54:39.000 --> 00:54:44.000
The first type of sub-sovereign issue, so the sovereign life without a balance sheet, um, plus the hybrid ones.

00:54:44.000 --> 00:54:52.000
If, uh, the sub-sovereign debt standard is chosen to be the right standard or methodology to be applied.

00:54:52.000 --> 00:55:09.000
Um, maybe… maybe we jump… back one slide quickly, but it's not, um… It's just to be… if you read the standard, um… You, you will notice we… Every country.

00:55:09.000 --> 00:55:24.000
So, the sub-sovereign layers that we have, or administrative structures that we have in countries might be very different from country to country. So, the names are different, maybe also the levels that exist.

00:55:24.000 --> 00:55:34.000
Um, are different. So, um, for the sake of the standard to be consistent and to, yeah, to have, like, a consistency within the standard, we defined three levels, so the.

00:55:34.000 --> 00:55:39.000
like, a region, a city, and then, like, going down to a local level.

00:55:39.000 --> 00:55:47.000
Um, however. It could be that for your specific portfolio, it makes more sense to go for two.

00:55:47.000 --> 00:55:52.000
layers or split it slightly differently, and depending on.

00:55:52.000 --> 00:56:05.000
If you're maybe only invested in one or two countries, but that's actually not, um… Yeah, it's not decisive how many levels… we did this now for the standard, but you might… you may deviate from this, um.

00:56:05.000 --> 00:56:11.000
from these three levels, just to be also clear on that.

00:56:11.000 --> 00:56:18.000
I think that's… about it on the asset class definition, so what is it actually that is covered in this.

00:56:18.000 --> 00:56:27.000
sub-sovereign debt standard, so it's really… what you saw on this… the other slide, in the first… the first row of the table.

00:56:27.000 --> 00:56:37.000
Great! Maybe we move on even one slide further, after now having clarified what is actually covered in terms of, um.

00:56:37.000 --> 00:56:42.000
Of type of issue, or what types of sub-sovereign issues are covered in the standard.

00:56:42.000 --> 00:56:53.000
Um, we, uh, can move on to, um… Which emissions are covered, and just to start with, we are very much following.

00:56:53.000 --> 00:57:06.000
the sovereign debt standard, um, here. So, there is an important difference in reporting requirements for Scope 1, Scope 2, and Scope 3 emissions for sub-sovereign borrowers as.

00:57:06.000 --> 00:57:15.000
the same as a two-pour-port sovereign. that standard, um… So, first of all, the Scope 1 emissions.

00:57:15.000 --> 00:57:26.000
shall be covered? Um, in the calculations of the financed emissions and, uh, Scope 1 is defined, uh, equivalent to the sovereign.

00:57:26.000 --> 00:57:32.000
Scope 1 emissions, which is basically all the domestic geographic emissions from sources within.

00:57:32.000 --> 00:57:42.000
the territory. Um, so this is now not a country, but it's the region, or the city, or the… that the local territory, um, where the issuer has.

00:57:42.000 --> 00:57:57.000
jurisdiction, or, like, exactly, uh, direct influence. And then the standard also defines, um, that the Scope 2 and Scope 3 emissions should be covered.

00:57:57.000 --> 00:58:05.000
As well as land use, land use change in forestry should be included in case it is available.

00:58:05.000 --> 00:58:11.000
So, Scope 2 is, uh… defined, um, also equivalent to sovereign.

00:58:11.000 --> 00:58:16.000
has scope to emissions. These are basically… and yeah, I would call it energy-related.

00:58:16.000 --> 00:58:31.000
Um, energy-related emissions that are imported. And then stop treat, basically, non-energy-related imported emissions. So that's… that's… whoever has implemented the sovereign debt standards should not be, like, completely.

00:58:31.000 --> 00:58:37.000
new to you. Um, it's, as always, important that.

00:58:37.000 --> 00:58:42.000
you are… if you apply the standard, that you are transparent in terms of what.

00:58:42.000 --> 00:58:49.000
is included in terms of emission scopes, so… just transparency as always.

00:58:49.000 --> 00:59:00.000
Key. Um… Well, I think we can… move on to the next slide.

00:59:00.000 --> 00:59:14.000
Exactly. And here, this is, as you can see, the, um, the equation to be used to calculate finance emissions, and.

00:59:14.000 --> 00:59:28.000
This is in line with, um, yeah, the general finance emissions calculation, so you have an attribution factor, and that's, um, multiplied by the sub… the emissions of the issue, in this case, obviously, the subtype.

00:59:28.000 --> 00:59:35.000
sovereign emissions and. And the attribution factor.

00:59:35.000 --> 00:59:43.000
is, um, in this case, as I said before, we cover sub-sovereign issues for which you cannot.

00:59:43.000 --> 00:59:47.000
construct an enterprise value as you do not have an.

00:59:47.000 --> 00:59:55.000
balance sheet available, and you allocate, um. by the PPP-adjusted GDP.

00:59:55.000 --> 01:00:03.000
So, this is also in line with the sovereign standard, so you have basically the outstanding amount invested, or the investment amount, into.

01:00:03.000 --> 01:00:10.000
the, um, into the issuer, divided by the PPP-adjusted GDP.

01:00:10.000 --> 01:00:17.000
Of this issue. Now, we are talking sub-sovereign PPP-adjusted GDP, and some of you might be a bit like, oh.

01:00:17.000 --> 01:00:37.000
What should this be? Where do I get this from? As it's not kind of a standard, um… And information that you get from public databases. And, um, my, uh, colleague Kumal, who chaired this working group together with me, she, um, can show you a little bit.

01:00:37.000 --> 01:00:41.000
how we get to this, but in general, it's actually exactly the same.

01:00:41.000 --> 01:00:46.000
um, approach… Uh, that is taken here for the subservence, um.

01:00:46.000 --> 01:00:51.000
Like, we… that is also applied for the sovereign debt.

01:00:51.000 --> 01:00:56.000
Um, exactly. So, in terms of emission data, we also have a data quality.

01:00:56.000 --> 01:01:04.000
Um, sport table in the presentation, so we will also talk about this, um, a bit later in the webinar.

01:01:04.000 --> 01:01:14.000
But obviously, there are different, um, levels of, uh, quali… Quality levels of data for emissions to be used.

01:01:14.000 --> 01:01:19.000
Um, obviously the best one is you have directly reported emissions, and then you have, kind of, the.

01:01:19.000 --> 01:01:26.000
the known hierarchy physical activity-based emissions, economic activity-based emissions, and an estimated emissions.

01:01:26.000 --> 01:01:31.000
And, um, we can… we will talk about this a little bit later, based on our data.

01:01:31.000 --> 01:01:47.000
quality table. Yeah, maybe we go to the next… Light?

01:01:47.000 --> 01:01:52.000
guarantee it's very much about already the PPP-adjusted GDP, not so much.

01:01:52.000 --> 01:01:59.000
About how we get to a regional or local PPP-adjusted GDP, but more about, um.

01:01:59.000 --> 01:02:08.000
what is actually the justification going. For PPP-adjusted GDP. And I think this discussion is not new.

01:02:08.000 --> 01:02:14.000
has already been discussed this topic with the PPPHS GDP is the right attribution.

01:02:14.000 --> 01:02:22.000
factor in connection with the sovereign. That's standard. But obviously, GDP is.

01:02:22.000 --> 01:02:34.000
a proxy for the output of a country, and it's directly linked to, um… emissions, usually, so the more it's produced, the more emissions a country emits. So I think.

01:02:34.000 --> 01:02:46.000
Um, we follow the sovereign debt standard here. Um… And, yeah, the discussion is also… the arguments are also laid out in the standard that.

01:02:46.000 --> 01:02:55.000
Um, yeah, only going… for, like, measuring, basically, the value of the country only via.

01:02:55.000 --> 01:03:01.000
the debt outstanding, that total amount of outstanding, that would just not be sufficient to really.

01:03:01.000 --> 01:03:13.000
Um, reflect the complete value, I would say, of the sovereign. So, um, usually a country is financed largely by taxpayer money, so, um, this is what we cannot.

01:03:13.000 --> 01:03:19.000
account for, so… GDP has been decided.

01:03:19.000 --> 01:03:24.000
previously already as a good proxy for the output of a country.

01:03:24.000 --> 01:03:32.000
Um, now… the adjustment, um, so doing a purchasing power parity PPP adjustment.

01:03:32.000 --> 01:03:35.000
And has also been discussed previously, whether that's, that's.

01:03:35.000 --> 01:03:44.000
That's a good way to do it, and, um, yeah, I think it's really just linking the output more to the real economy to eliminate, um.

01:03:44.000 --> 01:03:49.000
FX rate, um, effects. Which is just a little bit fairer.

01:03:49.000 --> 01:03:58.000
a reflection of the true value, I would say, of the… of the economy, so… Um, we also decided for the sub-sovereign.

01:03:58.000 --> 01:04:13.000
that standard to go for PPP-adjusted GDP. And as I said before, PPP-adjusted GDP is usually not readily available for regions, at least we were not… we didn't find any good sources for that.

01:04:13.000 --> 01:04:24.000
So, um, we decided to. construct this PPP-adjusted GDP for regions based on PPP adjustments that are used for countries.

01:04:24.000 --> 01:04:32.000
And, um, here I would like to hand over to my colleague Komal.

01:04:32.000 --> 01:04:33.000
Hi. Yes, thank you.

01:04:33.000 --> 01:04:45.000
Thanks, Janina. Hi, everyone. Uh, maybe we can move ahead to the next slide. Janina, I think you covered everything, you know, explained.

01:04:45.000 --> 01:04:46.000
Yeah, yeah.

01:04:46.000 --> 01:04:53.000
Details on, uh, sub-suburn, like, corporate-like, which I think is a technical evaluation. We had a lot of discussions on that.

01:04:53.000 --> 01:04:54.000
Absolutely.

01:04:54.000 --> 01:05:15.000
But I'm sorry. I'll take that back from you, thanks. So, um, uh, like we saw the formula on the previous slide, we are trying to understand that, you know, how did we derive the PPA-adjusted GDP kind of norm for this formula? So, basically, it consists of two steps.

01:05:15.000 --> 01:05:20.000
Now, we know that due to the absence of, you know, PPA-adjusted GDP for sub-sovereign territories.

01:05:20.000 --> 01:05:35.000
We should be using the adjustment factor of the country and ensure that it is applied to the sub-sovereign GDP within the respective country. This is to ensure that, you know, there is data availability.

01:05:35.000 --> 01:05:45.000
Because, um, of course, when you are deriving these factors, you have to look at country-based GDP and PPP adjustments.

01:05:45.000 --> 01:05:52.000
So the first step is obviously to derive at the PPP adjustment factor for country.

01:05:52.000 --> 01:06:06.000
And uh… we see the formula that, you know, you subtract PPP from the adjusted GDP, and then you divide it by GDP. The step two would be to apply the PPP adjustment factor to GDP of.

01:06:06.000 --> 01:06:15.000
And, uh, then again, you know, you take the next step of the formula, where you do the respective subtraction.

01:06:15.000 --> 01:06:28.000
So that's… that's the way how, you know, you can derive by using these two steps. You can derive at the PPP-adjusted GDP formulation that will be required for this sub-sovereign calculation.

01:06:28.000 --> 01:06:33.000
Uh, can we move on to the next slide?

01:06:33.000 --> 01:06:43.000
Thanks. So, uh, like every PCAP standard, uh, we have a quality table also for the sub-sovereign.

01:06:43.000 --> 01:06:51.000
emissions and, um… if we see, I think it's, it's very, uh, detailed here as well, unlike, uh, like other PCAP standards.

01:06:51.000 --> 01:07:03.000
And, uh, for Scope 1 and 2, the option 1 for reported emissions is it should be verified, uh, reported GHG emission. In that case, the quality score would be 1A.

01:07:03.000 --> 01:07:12.000
If it is unverified reported GAG emission of the subsurin territory, then in that case, the data quality score would be 1B.

01:07:12.000 --> 01:07:18.000
Again, this is, uh, uh, you know, in line with the sovereign standard.

01:07:18.000 --> 01:07:30.000
Also, for, uh, score 3, uh, you know, when we see an option 2, physical activity-based emissions, the reported GHG emissions of sub-sovereign territory are not known. In that case.

01:07:30.000 --> 01:07:38.000
it would be 2. And, uh, if we look at option 3, which is economic activity-based emissions.

01:07:38.000 --> 01:07:48.000
The reported GAG emissions of this up to, again, if it is not known, but emissions are calculated using sectoral revenue data. That's the difference between score 2 and 3.

01:07:48.000 --> 01:07:58.000
In Scoto, we calculate emissions based on primary physical activity data, and for 3, it is sectoral revenue data. So that's, that's the basic difference.

01:07:58.000 --> 01:08:18.000
And when we look at option 4, which is for score 5, uh, you know, you, again, uh, there is 4A and 4B. The difference is 4A looks at one level above, uh, that, for example, looking at regional data as proxy for city data, so that can be used.

01:08:18.000 --> 01:08:23.000
And 4B looks at GHG emissions from 2 levels above.

01:08:23.000 --> 01:08:44.000
So, uh, you know, you're looking at country-level data for city data. So that's the way how the entire, uh, quality data scoring is structured, and it is in line with the sovereign method, also in line with the standard PCAF methodology of always having a quality data quality score.

01:08:44.000 --> 01:08:54.000
Uh, for determining the quality of data that is being reported.

01:08:54.000 --> 01:09:02.000
So we have taken example, uh, here, in case for, you know, showing financed emissions for one of the subsovereignants.

01:09:02.000 --> 01:09:14.000
And, um… As part of this illustration, you would see that we are looking at an outstanding amount in subsovereign depth of 1,500 USD million.

01:09:14.000 --> 01:09:39.000
And, uh, against this outstanding amount, when we apply the PPP-adjusted GDP methodology, which we discussed, we would, uh, you know, we would get these numbers, and then when we move ahead, it would lead to sub-sovereign emissions, uh, numbers. So, and all this is derived and based on the formulas, you know, which we've discussed in the previous slides, wherein, you know.

01:09:39.000 --> 01:09:54.000
derive at finance emissions calculations. Uh, we have to look at outstanding amount, which is divided by PPP minus adjusted GDP, and it is multiplied by sub-sovereign emissions.

01:09:54.000 --> 01:10:10.000
Uh, we can see that, uh, you know, how the calculations are arrived using the numbers on the table above, wherein we see that finally the financed emissions figure comes to 32.7 to 8.91 tons CO2E.

01:10:10.000 --> 01:10:40.000
Uh, so we've threw this standard, we have tried to, uh, simplify the formulas, and uh… As part of our discussion today, uh, through these examples, we are also trying to make it easy for implementation for sub-sovereigns, you know, whoever on the call is looking at these formulas. When you apply it, actually, you know, to your calculations or methodologies, these examples should act as reference points and, you know, you should be able to go back to them and see that how you can.

01:10:43.000 --> 01:10:53.000
you know, work around these examples for actual implementation and application of the sub-soverance standards for your work.

01:10:53.000 --> 01:11:03.000
If we move on… So I think we've, again, uh, during our technical discussions, this was one of.

01:11:03.000 --> 01:11:14.000
The key and major critical discussions we had, uh, not just at the start of the working group, but throughout the working group, we kept on discussing how to make, uh, you know, this more.

01:11:14.000 --> 01:11:29.000
accessible, because we know that there will always be limitations in terms of availability of data, and we do recognize and acknowledge that even in the standard. So we understand that there will be limitations in terms of.

01:11:29.000 --> 01:11:44.000
Availability of data. Uh, in terms of emissions, there is currently literal data available for several emerging market countries. And, you know, even when you apply the methodology of PPP-adjusted GDP, it is not available at sub-sovereign levels.

01:11:44.000 --> 01:11:54.000
So, that is where we… we are, you know, in the standard we are describing that applying the respective country PPP adjustment factor.

01:11:54.000 --> 01:12:07.000
To convert subsoverian GDP to PPP-adjusted GDP, it will have some limitations, which may not reflect the price levels, and it may show deviation across regions within one country.

01:12:07.000 --> 01:12:17.000
But we understand that it would be reasonable for regions with the same currency. I think and through, you know, by recognizing these limitations.

01:12:17.000 --> 01:12:25.000
We are, uh, helping the users understand that, yes, PCAF recognizes these limitations.

01:12:25.000 --> 01:12:30.000
And, uh, thus, you know, that it is where the data quality table would be helpful.

01:12:30.000 --> 01:12:34.000
So, the approach would be to review the data quality.

01:12:34.000 --> 01:12:41.000
Uh, emissions in case where Scope 1 emissions are available, it is recommended to implement practices to review the data quality.

01:12:41.000 --> 01:12:48.000
And for Scope 2, Scope 3 in exported emissions, which are currently mostly not available on substant levels.

01:12:48.000 --> 01:12:58.000
So we've… we have detailed, uh, these limitations and approach as well as part of the standards.

01:12:58.000 --> 01:13:17.000
Can we move on? Again, uh, when we look in terms of limitations, we also recognize a limitation around attribution factors, uh, wherein we do understand that the GDP has its limitations as an attribution factor.

01:13:17.000 --> 01:13:22.000
It is a flow metric, and the relationship between investments and GDP is not one-to-one.

01:13:22.000 --> 01:13:29.000
When we look at the rationale of it, we would say, as covered by previous sections, to ensure harmonized framework.

01:13:29.000 --> 01:13:36.000
BCAF recommends, uh, that, you know, PPP-adjusted GDP as a proxy for total value.

01:13:36.000 --> 01:13:59.000
And I think even when you do your finance emissions calculations at sovereign level as well, you know, proxy calculations, if it is, if the data is not available, proxy calculations can be applied. So even in the subsidence standard, we are, um, uh, you know, providing.

01:13:59.000 --> 01:14:10.000
That kind of rational, where, yes, proxy data can be applied. However, you need to ensure that there is a better reflection of economic capacity, and it supports proportional attribution.

01:14:10.000 --> 01:14:31.000
Uh, that is where the standard ensures that the users are able to implement the standards, even with, you know, with PCAF recognizing and acknowledging these limitations.

01:14:31.000 --> 01:14:41.000
Okay, can we move on? We are also aware that there are limitations in terms of double counting, which occurs in two dimensions.

01:14:41.000 --> 01:14:49.000
Uh, wherein the first one would be, you know, having territorial emissions at sovereign, sub-sovereign, regional level, and sub-sovereign local levels.

01:14:49.000 --> 01:15:00.000
And there could also be double counting of emissions of non-sovereign sectors, which is, example, corporates, due to accounting of estimations at sub-sovereign territorial level.

01:15:00.000 --> 01:15:10.000
Ah, the approach would be to report separately. The double counting is not problematic as long as emission results of the different asset classes are reported separately.

01:15:10.000 --> 01:15:15.000
So, uh, it is again encouraged to ensure that, you know.

01:15:15.000 --> 01:15:29.000
Uh, in order to avoid the issue of double counting, different separate classes, the separate asset classes should be separated, and the accounting should be done of emissions based on those.

01:15:29.000 --> 01:15:37.000
Differences. Okay, can we move on?

01:15:37.000 --> 01:15:38.000
Okay, so… If we arrived at Q&A, Shanon, so over to you.

01:15:38.000 --> 01:15:43.000
Perfect.

01:15:43.000 --> 01:15:53.000
Thanks, Kamal. Thanks, Janina, for such a great presentation. Um, so we have some questions that have come in within the Q&A, so we will start and we'll jump into that. Um, also to our audience, please feel free to keep dropping questions in.

01:15:53.000 --> 01:16:01.000
I think…

01:16:01.000 --> 01:16:02.000
Hello. Right?

01:16:02.000 --> 01:16:11.000
And we will get to them. So, for the first… Question. Um… The standard for sub-sovereigns, can it also be applied to supranational bonds?

01:16:11.000 --> 01:16:18.000
I can take it, Kamala. I mean, um, this standard was written particularly for sub-sovereigns. I think, um.

01:16:18.000 --> 01:16:27.000
I would not apply it to supranationals, to be honest. I think supranationals is even… it's even, yeah, maybe even closer to the sovereign debt, because it's really, like, yeah.

01:16:27.000 --> 01:16:37.000
usually a combination of, like, the European Union, sorry. I mean, this would be kind of a supranational for me.

01:16:37.000 --> 01:16:43.000
Um, so I would not apply it to supranationals, but Kumal, I don't know, we haven't really discussed this in the working group.

01:16:43.000 --> 01:16:46.000
Um, maybe you have a comment on this as well.

01:16:46.000 --> 01:16:56.000
No, I agree, Janina. In my opinion, also, this will not apply to supranational bonds, because even at, you know, the initial phase of the working group.

01:16:56.000 --> 01:16:57.000
No.

01:16:57.000 --> 01:17:11.000
We had discussed that this would specifically be applicable to sub-sovereign, and I don't see, uh, you know, the current form of the standard being applicable to Supra nationals, for sure.

01:17:11.000 --> 01:17:20.000
Perfect. Thanks, Mo. So, for the next question, is there a cutoff between bonds in scope and liquidity out of scope? Um, for example, 3 or 6 months maturity?

01:17:20.000 --> 01:17:24.000
Yeah.

01:17:24.000 --> 01:17:25.000
So, uh, Janina, if you want to go ahead and then I… Question add in as well.

01:17:25.000 --> 01:17:36.000
Okay. Sorry, you mean, like, like, really short-term bonds? Is this the question?

01:17:36.000 --> 01:17:42.000
So, is there a cutoff between bonds and liquidity? So, 3 months or 6 months maturity?

01:17:42.000 --> 01:17:49.000
So, honestly, in the standard, currently, we have not defined a cutoff between bonds.

01:17:49.000 --> 01:17:57.000
Uh, you know, in terms of their maturity, we've not really defined that, uh, that as of, as of now.

01:17:57.000 --> 01:18:02.000
Uh, Janina, you would have any views on that?

01:18:02.000 --> 01:18:08.000
No, no, not really. I mean, I think we have not… we don't go into this, like, really, like.

01:18:08.000 --> 01:18:22.000
just to really understand the question, how to deal, like, really short-term bonds that I'm, like, is this the question? I mean, maybe I don't really get the question. Maybe the one… Yeah, can you explain it a little bit, because otherwise I would not have a comment on that.

01:18:22.000 --> 01:18:23.000
Yeah, well, maybe we'll ask… Oh, go ahead, go ahead.

01:18:23.000 --> 01:18:27.000
So, um… It's okay, Shanon, go ahead, go ahead.

01:18:27.000 --> 01:18:28.000
Go ahead.

01:18:28.000 --> 01:18:32.000
I was gonna ask if the author of that question wants to add in a bit more color and context in the Q&A function, we can come back to it.

01:18:32.000 --> 01:18:35.000
Hmm.

01:18:35.000 --> 01:18:42.000
Um, so we'll… for this time being, we'll move on to another question, we'll come back to that if possible. Um, in terms of data quality.

01:18:42.000 --> 01:18:50.000
If the country has a government organization, such as an environmental institute, which calculates territorial emissions.

01:18:50.000 --> 01:18:57.000
for all municipalities, could this data be considered as data quality score 1?

01:18:57.000 --> 01:19:10.000
I would say yes. Um, actually, we applied this standard already for our reporting. We have a discussion with our auditor, and we… we kind of have the agreement that this is, like, a data quality school one.

01:19:10.000 --> 01:19:16.000
In the end, so, um, if it's, uh, yeah, I would say yes.

01:19:16.000 --> 01:19:17.000
Okay, perfect.

01:19:17.000 --> 01:19:24.000
I would agree with that as well. Uh, and I think in the standard, we've taken this as one of the examples also.

01:19:24.000 --> 01:19:31.000
Uh, where we're talking about territorial emissions, so yes, it would apply as, uh, data quality score as one.

01:19:31.000 --> 01:19:51.000
Perfect. So, for, um, the next question, is there a recommended sources for those sectoral averages that PCAF recommends for consistency?

01:19:51.000 --> 01:19:59.000
So, we would recommend… Uh, you know, to use sources which are recognized.

01:19:59.000 --> 01:20:06.000
Uh, rather than using sources which, which… or, you know, secondary or tertiary sources.

01:20:06.000 --> 01:20:20.000
That would be my recommendation. And, uh, PCAF also always recommends using recognized sources instead of using secondary or tertiary sources.

01:20:20.000 --> 01:20:37.000
Perfect. And I'll add to that, um, from the Secretary's side, our database team and the climate data, um, working group, uh, which is a group of PKF signatories that were focused on data, they're reviewing all the new standards and helping to implement, um, verified and PCAF.

01:20:37.000 --> 01:20:48.000
Um, approved data sources to be implemented into the database in future updates, and so that is work ongoing as well. Um, so keep an eye out for that.

01:20:48.000 --> 01:21:01.000
So, next question. Do you have any thoughts on data availability for, um… U.S. States and cities, for example, given overall lack of reporting.

01:21:01.000 --> 01:21:10.000
So, I think we could make it more broader than U.S, but do you have any thoughts on data availability, where there's a lack of reporting in specific jurisdictions?

01:21:10.000 --> 01:21:33.000
Yeah, I think Komal already mentioned it, we don't… we didn't find so many sources for emerging markets, um, in particular, even though I recently, I mean, the Edgar database, so that's the European, um, yeah, database for emissions, they have a… they expanded, actually, their… their sub-sovereign or regional, I think they call it regional, um, um.

01:21:33.000 --> 01:21:41.000
emission reporting, also to countries outside of the EU, for sure, and there were also certain.

01:21:41.000 --> 01:21:49.000
Um, emerging markets, I think even China was included, like, on a regional level. So I think they are continuously.

01:21:49.000 --> 01:22:01.000
expanding, and I think this was also one of the main reasons to add on that, that we wanted to really have a sub-sovereign standard, a PCAP standard, which is, um, yeah.

01:22:01.000 --> 01:22:07.000
broadly accepted and adopted and implemented to also push a little bit more for.

01:22:07.000 --> 01:22:14.000
for data, um, uh, publications and databases to include.

01:22:14.000 --> 01:22:17.000
regional data, so it's really growing, but on… in the emerging market.

01:22:17.000 --> 01:22:23.000
space, I would say there's… still limited data.

01:22:23.000 --> 01:22:33.000
Yeah, and we did, uh, during the course of the standard formation, we did have discussions, and one of them, uh, was with CDP.

01:22:33.000 --> 01:22:41.000
Uh, specifically to understand, uh, you know, data availability around cities, but I, I completely agree with.

01:22:41.000 --> 01:22:56.000
Uh, with Janina and, uh, thus we have tried to, uh, incorporate and, you know, address these as far as possible within the standard itself.

01:22:56.000 --> 01:23:09.000
Thank you. Um, so we have, um… there's quite a few comments and questions in the Q&A about general data, PPP, um, GDP-adjusted data, what… two more, kind of, regional, territorial, um.

01:23:09.000 --> 01:23:19.000
areas, and so I'll take those… that question on, and just, again, mention that the database team and the data quality working group are looking to.

01:23:19.000 --> 01:23:36.000
build out additional resources and additional data sets, um, within the PCAF database. At this time, we do not have an update to share, but please do keep an eye out. That'll go out to all signatories and all those with access to the database once we do have them. Um, within the standard, we also, um.

01:23:36.000 --> 01:23:43.000
have data sources, um, example data sources available, so we do recommend you check that out as well.

01:23:43.000 --> 01:24:01.000
Um, one more question for you both. How should we deal with double counting issues in cases where separate reporting per asset class is not possible?

01:24:01.000 --> 01:24:06.000
Janina, are you?

01:24:06.000 --> 01:24:07.000
So…

01:24:07.000 --> 01:24:17.000
Um… I mean, it's recommended… yeah, sorry. I think we… we… I mean, in the standards, I mean, Kamal, we can comment together. Obviously, the recommendation is to, um, to report separately.

01:24:17.000 --> 01:24:26.000
However, if it's not possible, I mean, you need to be transparent that you cannot split it, um… And then, I mean, honestly.

01:24:26.000 --> 01:24:44.000
Yeah, I think then… then, I mean, you just need to be very transparent where exactly you report it in your external reporting, that everybody understands where it is, if you cannot separate it, and just explain, um, what is included, and that there might be a double counting. I mean, that's… If you cannot split it, then it's… it's…

01:24:44.000 --> 01:24:46.000
just as it is, right?

01:24:46.000 --> 01:24:58.000
Yeah, the objective is to be, uh, transparent. In your reporting, and if there is double counting and you're not able to separate it as per asset class.

01:24:58.000 --> 01:25:06.000
Our recommendation would be to clearly highlight and outline it so that, you know, the reporting continues to be transparent.

01:25:06.000 --> 01:25:19.000
And, uh, also, uh, you know, it is clearly evident that there has been double counting because of the limitations of not being able to differentiate in asset classes.

01:25:19.000 --> 01:25:35.000
Perfect. Thank you both. Um, that concludes the questions that we have in the chat, so we will take a moment to wrap up the session. I want to thank, um, a massive thank you to our panelists. These are the working group chairs who spend so much of… so much time.

01:25:35.000 --> 01:25:52.000
drafting these methods, analyzing the feedback, and we do really want to shout, uh, give them a shout-out and a huge kudos for all of their work, um, to develop these wonderful standards, so thank you to our panelists, um, also for their time today. Also, to thank you to everyone who joined this webinar for your engaging questions.

01:25:52.000 --> 01:26:18.000
Um, we will be sharing the recordings on the website, um, shortly, so please keep an eye out for the PCAF website, as well as our social medias. We'll announce when those are available. They will be available to the public. Um, and we have one more webinar in our series next week where we'll cover the insurance methodologies, so if those are relevant to you, we do suggest that you tune in. But just thank you for everyone for coming out today.

01:26:18.000 --> 01:26:26.000
and for sharing your questions, Kamal, Yanina, Monica, Malaya, thank you all for your time and your efforts on this. Um, and with that, have a great rest of your day.

01:26:26.000 --> 01:26:29.000
And we'll all see you soon.

01:26:29.000 --> 01:26:38.000
Thank you so much.