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Objective:
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This document proposes a common economic sector classification that:
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• Can be used by investors and FSPs to identify and manage ESG risks of their portfolio
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• Satisfies the needs of proxy data providers to calculate PAI 1-3
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• Prepares investors and FSPs to report on other PAIs (4, 6,7,8,9)
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• Strikes the right balance between usefulness of information and feasibility of reporting
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• Can be broadly adopted by investors and FSPs to promote harmonisation
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Approach:
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The selection of sectors is based on the NACE sector classification that is widely used and recognized as a standard
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FSPs need to report NACE level 1 sector breakdown and, for sectors that represent more than 5% of their GLP report the NACE level 2 sub sector breakdown
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Exception to the above is for fossil fuel related sectors where FSPs need to give the level 2 breakdown even if GLP is less than 5% in such sectors.
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NACE Level 1 sector categorization has been adjusted to reduce the number of sectors that are less relevant in financial inclusion and for ESG risk measurement. 8 Level 1 sectors have been merged into sector S - OTHER SERVICES. As a result we have 14 instead 21 level 1 sectors (23 sectors if we count the mandatory subsectors related to fossil fuels)
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NACE Level 2 sector categorization has been adjusted to reduce the number of subsectors to the ones that are the most relevant in terms of ESG risks, based on the list of high / medium risk of the ESAT Environmental and Social Assessment Tool (IFC factsheet). As a result we have 42 instead of 99 level 2 sectors.
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Colour code for next tab:
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Level 1 indicators - must be reported
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Level 1 sub-indicators related to fossil fuel - must be reported
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Level 2 indicators - must be reported only if the corresponding level 1 sector represents more than 5% of GLP
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