MEASURING AND REPORTING

Financed Emissions
The

GLOBAL GHG
ACCOUNTING& REPORTING

Standard

PART

A

Second edition
December 2022

Financed Emissions – Second Edition –The first edition of this Financed Emissions Standard has been reviewed by
the GHG Protocol and is in conformance with the requirements set forth in
the Corporate Value Chain (Scope 3) Accounting and Reporting Standard,
for Category 15 investment activities. The newly added sovereign debt
methodology and guidance on emission removals in this second edition are
pending GHG Protocol review and approval.

MEASURING AND REPORTING

Financed Emissions
The

GLOBAL GHG
ACCOUNTING& REPORTING

Standard

PARTA

Please cite this document as:
PCAF (2022). The Global GHG Accounting and ReportingStandard Part A: Financed Emissions. Second Edition.

2

Financed Emissions – Second Edition –

6
R

R

CH

AP

TE

TE
AP
CH

CH

CH

Reportemissions
5

4

AP

TE
AP

TE
AP
CH

Review and apply
accounting
methodologies foreach asset class

TE

R

2
R

1
R
TE
AP
CH

Reviewaccounting andreporting principles
and rules

R

Identify
businessgoals
3

Understandwhat GHG
accounting is

Introduction

Table of contents
Acknowledgements

4

Executive summary

7

1.

Introduction

10

2.

The importance of GHG accounting

17

3.

Using GHG accounting to set and achieve business goals

23

4.

Principles and requirements of GHG accounting for financials

34

4.1		

GHG accounting requirements derived from the GHG Protocol’s principles

35

4.2		

Additional requirements for accounting and reporting financed emissions

37

5.

Methodology to measure financed emissions

43

5.1		

Listed equity and corporate bonds

49

5.2		

Business loans and unlisted equity

66

5.3		

Project finance

79

5.4		

Commercial real estate

88

5.5		

Mortgages

94

5.6		

Motor vehicle loans

101

5.7		

Sovereign debt

109

6.

Reporting requirements and recommendations

122

7.

Glossary

130

8.

Acronyms

135

9.

References

138

10. Annex		

14119-12-2022

3

Financed Emissions – Second Edition –Acknowledgements
The Partnership for Carbon Accounting Financials (PCAF) is an industry-led initiative. Createdin 2015 by Dutch financial institutions (FIs), PCAF extended to North America in 2018 and scaled
up globally in 2019. The globalization of PCAF enables FIs worldwide to consistently measure anddisclose the greenhouse gas (GHG) emissions of their financial activities.
As an industry-led partnership, PCAF is governed by a Steering Committee which consists of ABN
AMRO, Amalgamated Bank, ASN Bank, the Global Alliance for Banking on Values, Morgan Stanley,
NMB Bank, Triodos Bank, and a representative from the United Nations (UN)-convened NetZero Asset Owner Alliance. At the time of publishing this document, more than 300 banks andinvestors participate in PCAF.1
Responding to industry demand for a global, standardized GHG accounting and reporting
approach, PCAF developed the Global GHG Accounting and Reporting Standard for the Financial
Industry, focusing on measuring and reporting financed emissions. Published in November 2020,
the standard provides detailed methodological guidance to measure and disclose GHG emissions
associated with six asset classes: listed equity and corporate bonds, business loans and unlisted
equity, project finance, commercial real estate, mortgages, and motor vehicle loans.
Since then, banks and investors have asked to expand the standard with more methods, also
covering other activities of the financial industry. From 2021 onwards, PCAF started the work on
three parts under the umbrella of the Global GHG Accounting and Reporting Standard for the
Financial Industry:• Part A: update of the first version standard on measuring and reporting financed emissions,by adding a method for sovereign debt and guidance to account for emission removals(“Financed Emissions Standard – second version”)• Part B: development of a standard for measuring and reporting the GHG emissions
associated to the capital market facilitation activities (“Facilitated Emissions Standard”)• Part C: development of a standard for measuring and reporting the GHG emissions
associated to re/insurance underwriting (“Insurance-Associated Emissions Standard”)

1

The full list of PCAF participants can be found at: https://carbonaccountingfinancials.com/financial-institutions-takingaction#overview-of-institutions

4

Financed Emissions – Second Edition –The

GLOBAL GHG
ACCOUNTING& REPORTING

Standard

The PCAF global greenhouse gas & accounting Standard for financed emissions

The PCAF global greenhouse gas & accounting Standard for financed emissions

Financed Emissions

Facilitated Emissions

The

GLOBAL GHG
ACCOUNTING& REPORTING

Standard

PART

A

A

The

Financed
Emissions

GLOBAL GHG
ACCOUNTING& REPORTING

Standard

PA RT

B

B

FacilitatedEmissions

The PCAF global greenhouse gas & accounting Standard for financed emissions

Insurance-Associated Emissions
The

GLOBAL GHG
ACCOUNTING& REPORTING

Standard

PA RT

C

C

Insurance-AssociatedEmissions

For Part A, 22 PCAF participants volunteered to develop a method for sovereign debt andguidance to account for emission removals. This group of volunteers is listed below:• ABN AMRO
• AIMCo• Amalgamated Bank
• Banco Pichincha• Bank of America• Barclays• Blackrock• Boston Common AssetManagement• CDC• CTBC Holding• Deutsche Bank
• Federated Hermes• FirstRand• FMO• Hannon Armstrong• HSBC• Landsbankinn• Morgan Stanley• Produbanco• Robeco• Triodos Bank• UN-convened Net-Zero
Asset Owner AllianceThis document is an update of the Financed Emissions Standard published in 2020, and includes:• A new methodology for sovereign debt
• Guidance on how to measure financed emissions related to GHG emission removals• Minor editorial changes to the first version of the Standard
The PCAF Secretariat facilitated the Core Team’s work by moderating their technical discussions,reviewing the content, and compiling and editing this document. The PCAF Secretariat is
operated by Guidehouse, a global consulting firm specialized in energy, sustainability, risk, andcompliance for the financial industry.

Throughout the development of the new methods (February 2021 – April 2022), PCAF engaged
with multiple stakeholders to consider their ideas, discuss PCAF methodological approaches, andreceive feedback. During November and December 2021, PCAF also held a public consultation
with financial institutions, policymakers, data providers, consultants, and nongovernmentalorganizations (NGOs).
In 2020 the GHG Protocol reviewed and approved the methodologies for listed equity and5Financed Emissions – Second Edition –corporate bonds, business loans and unlisted equity, project finance, commercial real estate,mortgages, and motor vehicle loans. These methodologies are in conformance with therequirements set forth in the Corporate Value Chain (Scope 3) Accounting and ReportingStandard for Category 15 investment activities. The sovereign debt methodology and theguidance on emission removals are pending GHG Protocol review and approval.
Please cite this document as:
PCAF (2022). The Global GHG Accounting and Reporting Standard Part A: Financed Emissions.
Second Edition.

6

Financed Emissions – Second Edition –Executive summary
The Partnership for Carbon Accounting Financials (PCAF) is a financial industry-led initiative.
Created in 2015 by Dutch financial institutions, PCAF extended to North America in 2018 andscaled up globally in 2019. PCAF helps financial institutions assess and disclose the greenhousegas (GHG) emissions from their loans and investments through GHG accounting.
GHG accounting enables financial institutions to disclose these emissions at a fixed point intime and in line with financial accounting periods. Measuring financed emissions allows financial
institutions to make transparent climate disclosures on their GHG emissions exposure, identify
climate-related transition risks and opportunities, and set the baseline emissions for targetsetting in alignment with the Paris Agreement.
Responding to industry demand for a global, standardized GHG accounting approach, PCAF
developed the Global GHG Accounting and Reporting Standard for the Financial Industry (theversion of the Financed Emissions Standard). In 2020 the GHG Protocol reviewed and approved
the methodologies for listed equity and corporate bonds, business loans and unlisted equity,
project finance, commercial real estate, mortgages, and motor vehicle loans. These methodologies
are in conformance with the requirements set forth in the Corporate Value Chain (Scope 3)
Accounting and Reporting Standard for Category 15 investment activities. The sovereign debt
methodology and the guidance on emission removals are pending GHG Protocol review andapproval.
The Financed Emissions Standard provides detailed methodological guidance for specific asset
classes. Widely tested by banks and investors, these methods assist in the measurement anddisclosure of GHG emissions associated with seven asset classes:

Listed equity andcorporate bonds

Business loans andunlisted equity

Commercial real estate Mortgages

Motor vehicle loans

Project financeSovereign debt

7

Financed Emissions – Second Edition –The Financed Emissions Standard also provides guidance on the treatment of GHG emission
removals in three asset classes: listed equity and corporate bonds, business loans and unlisted
equity, and project finance.
The Financed Emissions Standard provides detailed guidance for each asset class to calculate
the financed emissions resulting from activities in the real economy that are financed throughlending and investment portfolios. Emissions are attributed to financial institutions based on
robust, consistent accounting rules specific to each asset class. By following the methodologies
outlined in the Financed Emissions Standard, financial institutions can measure GHG emissions
for each asset class and produce disclosures that are consistent, comparable, reliable, and clear.
Limited data is often the main challenge in calculating financed emissions. However, data
limitations should not deter financial institutions from starting their GHG accounting journeys.
Beginning with estimated or proxy data can help financial institutions identify emission-intensive
hotspots in lending and investment portfolios. The Financed Emissions Standard provides
guidance on data quality scoring per asset class, facilitating data transparency and encouraging
improvements to data quality in the medium and long term. The Financed Emissions Standard
also provides recommendations and requirements for disclosures, which include a minimum
disclosure threshold with flexibility to report beyond this level. Any requirements not fulfilled mustbe accompanied by an explanation.
Using this Financed Emissions Standard equips financial institutions with standardized, robust
methods to measure financed emissions and enables them to:• Assess climate-related risks in line with the recommendation of the Task Force on Climaterelated Financial Disclosures (TCFD).
• Set science-based targets (SBTs) using methods developed by the Science Based Targets
initiative and other science-based methodologies.
• Report to stakeholders like the CDP.
• Inform climate strategies and actions to develop innovative products that support thetransition toward a net-zero emissions economy.

8

WRI and WBCSD published
Corporate Value Chain(Scope 3) Accounting andReporting Standard

2011

PCAF founded by
Dutch financial
institutions

2015

PCAF launched in
North America

2018

PCAF published 2 reports on
GHG accounting methods

2019

PCAF launches Global GHG
Accounting and Reporting Standard
for the Financial Industry

PCAF launched globally

2019

2020

Harmonizing and implementing acarbon accounting approach for thefinancial sector in North America
6

PFCs

SF

Corporate Value Chain(Scope 3) Accounting
and Reporting Standard
O
2

N

n

4

CH

end-of-life
treatment
soldproducts
offranchises

company
facilities

2

assetsCO

steam,
own
use

leasedforelectricity,cooling&company
vehiclesandactivities
relatedenergyfuelbusinesstravelcapitalgoods

ingenerated
waste
operations

purchased
goods
servicesandnassetsleasedemployeecommutingtransportatio
anddistribution

investmentspurchasedheatinguseofproducts
soldtransportatio
anddistribution

HFCs

processing
soldproducts

ofAccounting GHG emissions
and taking action:
harmonised approach for thefinancial sector in the Netherlands
Accounting GHG emissions and taking action: harmonised approach for the financial sector in the Netherlands PCAF The Netherlands, report 2019

Supplement to the GHG Protocol Corporate
Accounting and Reporting StandardThe

GLOBAL GHG
ACCOUNTING& REPORTING

PCAF The Netherlands, report 2019

Standard
F OR T H E F I NA NC I A L I N DUS T RY

Using the Standard is the first step in the journey
to align with the Paris Agreement
Steering

Measure&Disclose

Develop
Strategy
Scenario Analysis

Set Targets

Take
Actions
Net-zero emissions
by 2050

Monitor ProgressThis Standard was reviewed by the GHG Protocol andis in conformance with the requirements set forth in the
Corporate Value Chain (Scope 3) Accounting and ReportingStandard, for Category 15 investment activities.

Over 340 financial institutions,with over $ 85 Trillion in financial assets
committed (November 2022).

Listed Equity and Corporate Bonds
Outstanding amount× Company emissions
EVIC or Total company equity + debt

EVIC = enterprise value including cash

Business Loans and Unlisted Equity
Outstanding amount× Company emissions
EVIC or Total company equity + debt

Project Finance

Outstanding amount× Project emissions
Total project equity + debt

EVIC = enterprise value including cash

GHG accounting for seven asset classes

Commercial Real Estate
Outstanding amount× Building emissions
Property value at origination

Motor Vehicle Loans

Mortgages
Outstanding amount× Building emissions
Property value at origination

Outstanding amount
× Vehicle emissions
Total value at origination

Sovereign Bonds
Exposure to Sovereign Bond (USD)
× Sovereign Emissions
PPP-adjusted GDP (international USD)The Partnership for Carbon Accounting Financials (PCAF) is anindustry-led initiative enabling financial institutions to measure anddisclose greenhouse gas (GHG) emissions of loans and investments.

1. Introduction

1

1. Introduction

1

FAKE FOOTNOTE TO START AT 2

6
R

R

TE
AP
CH

R
AP
CH

CH

AP

TE

5

6

Reportemissions

TE

5

4

R

R

TE

R

TE
AP

AP
CH

CH

R

TE
AP

CH

AP

TE

3

4

Review
Review and apply Review and apply
IdentifyReview
Reportaccounting and accounting
accounting
andaccounting
business
emissions
reporting principlesreporting
methodologies
principles for methodologies
forgoalsand rules
andeachrules
asset class each asset class
CH

R

2
R

TE

AP
CH

AP

TE

2

1

R
TE

ER

1

PT

CH

CH

AP

TE

CH

RA

AP
CH

AP

TE

R

1

accounting is

3

UnderstandIdentify
what GHG
businessaccounting
goals
is

CH

UnderstandIntroduction
Introduction
what GHG

Introduction

Financed Emissions – Second Edition –The role of the financial sector
Under current national and international policies, the planet is on a trajectory to reach a global
increase in temperature between 2.1°C and 3.9°C by 2100 compared to pre-industrial levels.2
There is an urgent need to act in the short term for our long-term benefit. To limit global warming
to 1.5°C above preindustrial levels, all sectors of society need to decarbonize and collectively
reach net-zero emissions by 2050. The financial sector can help facilitate the transition in linewith a 1.5°C scenario by directing capital to support decarbonization.
To trigger changes in capital flows and signals for all sectors, the financial industry mustacknowledge and endorse the need for as well as the pace of decarbonization. The financial
industry should begin by better understanding the climate risks to their portfolio and thegreenhouse gas (GHG) emissions (or climate impact) associated with their loans and investments.
Measuring financed emissions is crucial in providing this understanding. If financial institutions
know the emissions financed by loans and investments, they can better identify and manage
risks, navigate emission reduction goals, act to reduce their portfolio climate impact, anddisclose progress. This understanding then triggers internal discussions and engagements withstakeholders to identify concrete actions that help lower financed emissions.

The role of PCAF and GHG emissions accounting in reporting,managing risks and opportunities, and aligning financial flows with
the Paris Agreement
Prior to the establishment of the Partnership for Carbon Accounting Financials (PCAF), financial
institutions used different approaches and accounting methodologies to measure financed
emissions and opted for various reporting metrics, which led to inconsistent assessments of theindustry’s climate impact. This lack of standardization hampered transparency, comparability, andaccountability of the financial sector.
Therefore, in 2019 banks, investors, and fund managers from five continents partnered to create
the Partnership for Carbon Accounting Financials (PCAF).3 Committed to the measurementand disclosure of the absolute GHG emissions of their portfolios (financed emissions), thisindustry-led initiative has rapidly expanded in North America, Latin America, Europe, Africa,and Asia Pacific.4 PCAF aims to standardize the way financial institutions measure and disclose
financed emissions and increase the number of financial institutions that commit to measuring
and disclosing financed emissions. Standardization increases transparency, comparability, andaccountability of the financial sector.
Measuring financed emissions is critical for financial institutions that want to improve theirclimate reporting. Measuring and transparently reporting financed emissions helps financial
institutions and their stakeholders understand the climate impact of the organization’s lending
and investment activities.

2
3
4(New Climate Institute and Climate Analytics, 2020)
More information about PCAF is found at: https://carbonaccountingfinancials.com/
A full list of PCAF participants is found at:https://carbonaccountingfinancials.com/financial-institutions-taking-action#overview-of-institutions

11

Financed Emissions – Second Edition –Additionally, financed emissions provide useful information to identify and manage climaterelated transition risks and opportunities. For example, financed emissions can be used as a
metric to stress test the resilience of portfolios against climate policies that could have a material
effect on the viability of an activity (e.g., carbon pricing). This information is helpful to develop
risk management strategies and to identify business opportunities that could support risk
management and the transition to a low carbon economy.
Lastly, accounting for financed emissions is an important part of the process that banks andinvestors take when aligning their lending and investment portfolios with the goals of the Paris
Agreement. This process has five non-linear stages:• Measuring and disclosing financed emissions• Setting science-based targets (SBTs)• Scenario analysis• Designing strategies to reach the targets• Implementing concrete actions to achieve the targets
Financial institutions also measure financed emissions to evaluate their progress against theiremissions-based targets.

Relationship with other financial sector climate initiatives
Multiple climate initiatives for financial institutions have been launched which closely relate to
the measurement of financed emissions including high-level commitments, scenario analysis,target setting, and concrete climate action and reporting. High-level commitments, policies andregulatory requirements endorsed by C-suite executives drive financial institutions to address
climate change. Measuring financed emissions provides the base year emissions for scenario
analysis and target setting, informs climate actions, and enables reporting (Figure 1-1).

12

Financed Emissions – Second Edition –Figure 1-1. Measuring financed emissions as the foundation for other initiatives

Source: (PCAF, 2020)

Figure 1-2 maps 19 of the most prominent open, global, collaborative climate initiatives forfinancial institutions against the technical elements of PCAF’s Strategic Framework for Paris
Alignment. The graphic indicates where each initiative is active, their respective audiences(banks, investors, or both), and their areas of focus.
PCAF focuses on measuring financed emissions, complementing the work and services that otherinitiatives offer to financial institutions. Building synergies is core to PCAF’s work, which has led tocollaborations with several initiatives, as indicated on the PCAF website. Notable collaborations
with other initiatives include:• United Nations Environment Programme Finance Initiative (UNEP FI) Principles for
Responsible Banking and its Collective Commitment to Climate Action• United Nations-convened Net-Zero Asset Owner Alliance• Task Force on Climate-related Financial Disclosures (TCFD)• Science Based Targets initiative for Financial Institutions (SBTi-FIs)• RMI’s Center for Climate-Aligned Finance• CDP• European Commission Technical Expert Group on Sustainable Finance (EU TEG)
• The Institutional Investors Group on Climate Change (IIGCC)• Paris Aligned Investment Initiative (PAII)

13

Financed Emissions – Second Edition –Figure 1-2. Cluster of climate initiatives

For whom?

B Banks

Existing collaborative climate initiatives
supporting FIs on climate actions
as of April 2021
I Investors

B I Banks & Investors

Focus of
Initiative

B

UN-convened Net-Zero Banking AllianceB

Climate Action in Financial Institutions

I

Investor Agenda: Investor Agenda Climate Plan (IACP)B I

UN Global Compact: Business Ambition for 1.5°C

B I

Partnership for Carbon Accounting Financials (PCAF)I

UN-convened Net-Zero Asset Owner AllianceI

Net Zero Asset Managers Initiative

B I

SBTi-Finance

B I
I

High-level Measurement
Commitment of Financed
Emissionsto ActTargetSetting

Scenario
Analysis

Strategy
Development

TakingActions

Disclosing

Carbon Risk Real Estate Monitor (CRREM)
Transition Pathway Initiative

B I 2DII Paris Agreement Capital Transition Assessment (PACTA)B I

RMI Center for Climate-Aligned FinanceI

Climate Action 100+

B

Climate Safe Learning Lab

B I

Powering Past Coal Alliance Finance Principles

B I

Bankers for Climate

B I

2DII Evidence for Impact

I

ClimateWise

B I

CDP Financial Services Questionnaire

Source: (PCAF, 2021)

Standardizing GHG accounting for financial institutions
This document is the second edition of the Global GHG Accounting and Reporting Standard for
the Financial Industry. Throughout this document, the Global GHG Accounting and ReportingStandard is commonly referred to as the Financed Emissions Standard. The purpose of the
Financed Emissions Standard is to provide financial institutions with transparent, harmonizedmethodologies to measure and report the emissions they finance through loans and investments
in conformance with the requirements of the GHG Protocol Corporate Value Chain (Scope 3)
Accounting and Reporting Standard.
The first edition of the Global GHG Accounting and Reporting Standard was developed byan original PCAF global core team, a heterogeneous group of banks and investors of varied
sizes and from different global regions, which has since expanded. This latest and larger PCAF
Global Core Team has wide experience in GHG accounting and consists of: ABN AMRO, AIMCo,
Amalgamated Bank, Banco Pichincha, Bank of America, Barclays, Blackrock, Boston Common
Asset Management, CDC, CTBC Holding, Deutsche Bank, Federated Hermes, FirstRand Ltd., FMO,
Hannon Armstrong, HSBC, Landsbankinn, Morgan Stanley, Produbanco, Robeco, Triodos Bank,and the UN-convened Net-Zero Asset Owner Alliance.
At the end of October 2019, the original PCAF global core team kicked off its activities byselecting a set of asset classes that are typical for banks, asset owners, and asset managers
globally. These asset classes were the focus of the first edition of the Global GHG Accounting andReporting Standard. In 2021, the now expanded PCAF Global Core Team continued by developing
14

Financed Emissions – Second Edition –additional asset class methods and guidance, which are now included in this second edition of the
Financed Emissions Standard. As the Financed Emissions Standard and PCAF evolve, additional
asset classes will be added. The second version of the Financed Emissions Standard covers thefollowing asset classes:

Listed equity andcorporate bonds

Business loans andunlisted equity

Commercial real estate Mortgages

Motor vehicle loans

Project financeSovereign debt

The exact definitions of these asset classes are provided in Chapter 5, Figure 5-1 illustrates how
to choose the right methodology for different asset classes.
The Financed Emissions Standard also covers guidance on measuring financed emissions
associated with loans and investments in GHG emission removal activities.
Throughout the development of the Financed Emissions Standard, PCAF engaged withmultiple stakeholders to consider their ideas, discuss PCAF methodological approaches, andreceive feedback. During November and December 2021, PCAF also held a public consultation
with financial institutions, policymakers, data providers, consultants, and nongovernmentalorganizations (NGOs) to solicit feedback for the methods added to this second edition of the
Financed Emissions Standard. More than 200 stakeholders were reached via targeted webinars
and 50 stakeholders provided direct feedback to the Financed Emissions Standard.

Built on the GHG protocol
The methodologies for listed equity and corporate bonds, business loans and unlisted equity,
project finance, commercial real estate, mortgages, and motor vehicle loans build on the GHG
Protocol standards for corporate reporting such as the GHG Protocol Corporate Accounting andReporting Standard,5 the Corporate Value Chain (Scope 3)6 Accounting and Reporting Standard,
and the supplemental Technical Guidance for Calculating Scope 3 Emissions.7 Specifically, thisFinanced Emissions Standard supplements the GHG Protocol Corporate Value Chain (Scope 3)
Accounting and Reporting Standard8 by providing additional detailed guidance per asset class.
In 2020 the GHG Protocol reviewed and approved the methodologies for listed equity andcorporate bonds, business loans and unlisted equity, project finance, commercial real estate,mortgages, and motor vehicle loans. These methodologies are in conformance with therequirements set forth in the Corporate Value Chain (Scope 3) Accounting and Reporting
5
6
7
8(WRI and WBCSD, 2004)(WRI and WBCSD, 2011)(WRI and WBCSD, 2011) and (WRI and WBCSD, 2013)(WRI and WBCSD, 2011)15

Financed Emissions – Second Edition –Standard for Category 15 investment activities. The sovereign debt methodology and theguidance on emission removals are pending GHG Protocol review and approval.
Beyond reporting the scope 3 category 15 emissions covered by this Financed Emissions
Standard, financial institutions abiding by this Financed Emissions Standard shall also measure
and report their scope 1 and 2 emissions as well as any other relevant scope 3 emissions
categories in line with the GHG Protocol’s Standards as mentioned above.

Expected users of this Financed Emissions Standard
This Financed Emissions Standard is written primarily for financial institutions that wish tomeasure and disclose the GHG emissions associated with their loans and investments, including
but not limited to:• Commercial banks• Investment banks• Development banks• Asset owners/managers (mutual funds, pension funds, closed-end funds, investment trusts)• Insurance companies

How to read this Financed Emissions Standard
The Global GHG Accounting and Reporting Standard uses precise language to indicate which
provisions are requirements, which are recommendations, and which are allowable options that
financial institutions may choose to follow. The following terms are used throughout this Financed
Emissions Standard::• “Shall” or “required”: indicates what is required for a GHG inventory to conform with thisFinanced Emissions Standard• “Should”: indicates a recommendation but not a requirement• “May”: indicates an allowed option• “Needs,” “can,” and “cannot”: may be used to provide guidance on implementing arequirement or to indicate when an action is or is not possible
Figure 1-3 provides the structure of this Financed Emissions Standard and the steps for disclosing
financed emissions.
Figure 1-3. Overview of the Financed Emissions Standard and steps for disclosing
financed emissions

6
R

R

TE
AP
CH

CH

AP

TE

TE
AP
CH

Reportemissions
5

4

Review and apply
accounting
methodologies foreach asset class

R

3
R
CH

AP

TE
AP
CH

Reviewaccounting andreporting principles
and rules

TE

R

1
R
TE
AP
CH

Identify
businessgoals
2

Understandwhat GHG
accounting is

Introduction

16

2.The importance of
GHG accounting
2. The importance of
GHG accounting

6
R

R

TE
AP
CH

R
AP
CH

CH

AP

TE

5

6

Reportemissions

TE

5

4

TE
AP

CH

CH

AP

TE

R

R

4

R
TE

3

R
TE

AP

AP
CH

CH

3

2

R

ER

AP

2

PT

RA

CH

CH

TE
AP
CH

Review
Review and apply Review and apply
IdentifyReview
Reportaccounting and accounting
accounting
andaccounting
business
emissions
reporting principlesreporting
methodologies
principles for methodologies
forgoalsand rules
andeachrules
asset class each asset class

TE

2

R

TE

1

R

TE

AP

AP
CH

CH

1
R
TE
AP
CH

Understand
UnderstandIdentify
businesswhat GHGwhat GHG
accountinggoals
isaccounting is

UnderstandIntroduction
what GHG
accounting is

Introduction

Financed Emissions – Second Edition –What is GHG accounting?
GHG accounting refers to the processes required to consistently measure the amount of GHGs
generated, avoided, or removed by an entity, allowing it to track and report these emissions overtime. The emissions measured are the seven gases mandated under the Kyoto Protocol and are to
be included in national inventories under the United Nations Framework Convention on Climate
Change (UNFCCC): carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons(HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6) and nitrogen trifluoride (NF3). For easeof accounting, these gases are usually converted to and expressed as carbon dioxide equivalents(CO2e).
GHG accounting is most commonly used by governments, corporations, and other entities tomeasure the direct and indirect emissions that occur throughout their value chains as a resultof organizational and business activities. According to the GHG Protocol Corporate Accounting
and Reporting Standard,9 direct emissions are generated by sources owned or controlled by thereporting company. Indirect emissions occur as a consequence of the operations of the reporting
company but that are generated by sources owned or controlled by another company.
Direct and indirect emissions are further categorized by scope and distinguished according to thesource of the emissions and the activity in an organization’s value chain in which the emissions
occur. The three scopes defined by the GHG Protocol—scope 1, scope 2 and scope 3—are briefly
described below and are illustrated in Figure 2 1.
• Scope 1: Direct GHG emissions that occur from sources owned or controlled by thereporting company, i.e., emissions from combustion in owned or controlled boilers, furnaces,
vehicles, etc.
• Scope 2: Indirect GHG emissions from the generation of purchased or acquired electricity,
steam, heating, or cooling consumed by the reporting company. Scope 2 emissions
physically occur at the facility where the electricity, steam, heating, or cooling is generated.
• Scope 3: All other indirect GHG emissions (not included in Scope 2) that occur in the value
chain of the reporting company. Scope 3 can be broken down into upstream emissions anddownstream emissions. Upstream emissions include all emissions that occur in the life
cycle of a material/product/service up to the point of sale by the producer, such as fromthe production or extraction of purchased materials.10 Downstream emissions include all
emissions that occur as a consequence of the distribution, storage, use, and end-of-life
treatment of the organization’s products or services.
The GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard11
categorizes scope 3 emissions into 15 categories, which are listed in Figure 2-1. As the figure
shows, the emissions resulting from a reporting company’s loans and investments fall under scope
3 downstream emissions, specifically under scope 3 category 15 (investments).

9 (WRI and WBCSD, 2004)
10 (WRI and WBCSD, 2013)
11 (WRI and WBCSD, 2011)18

Financed Emissions – Second Edition –GHG accounting of financial portfolios is the annual accounting and disclosure of scope 3
category 15 emissions at a fixed point in time in line with financial accounting periods.
Figure 2-1. Overview of GHG Protocol scopes and emissions across the value chain

CO 2

CH 4

N 2O

HFCs

PFCs

SF 6

NF3

Scope 1

Scope 2

DIRECT

INDIRECT

Scope 3

Scope 3

INDIRECTINDIRECT

purchased
goods andservicestransportationand distribution
purchased electricity,
steam, heating & coolingfor own use

capitalgoods

businesstravelfranchises

processing ofsold products
company
vehicleswaste
generated inoperations

Upstream activities

investments

company
facilities

employeecommutingfuel andenergy related
activities
transportationand distribution

leased assets

Reporting company

use of soldproducts

leased assets
end-of-life
treatment ofsold products

Downstream activities

Source: (WRI and WBCSD, 2011)

The importance of GHG accounting of loans and investments
To limit dangerous global warming and achieve the goals of the Paris Agreement, global GHG
emissions must be cut drastically. GHG accounting is a necessary step for organizations tobetter manage their emissions and align with the Paris Agreement. For a financial institution,scope 3 category 15 emissions, i.e., financed emissions, are often the most significant part ofits GHG emissions inventory. As a result, special consideration must be made regarding how
these emissions are measured. The Global GHG Accounting and Reporting Standard aims toprovide a standardized approach to account for financed emissions, ensuring that the approach
used by financial institutions is robust, transparent, and comparable over time and across asset
classes. This is crucial because measuring financed emissions is an important step financial
institutions take to assess climate-related risks and opportunities, set targets in line with the Paris
Agreement, and develop effective strategies to support the decarbonization of society.
As shown in Figure 1-1, measuring financed emissions is central to activities that enablefinancial institutions to embed climate action throughout their lending and investment activities.
Reporting financed emissions is important for showing stakeholders the climate impact of afinancial institution’s activities. Furthermore, the act of making a public disclosure shows that theorganization holds itself accountable for these impacts.
Financed emissions are a necessary input for climate scenario analysis. As such, financed
emissions are a key metric for financial institutions that want to understand and manage climaterelated transition risks and opportunities. As countries strive to meet the commitments defined19Financed Emissions – Second Edition –in their nationally determined contributions (NDCs),12 governments will strengthen their national
climate policies. Efforts will also increase to develop policies that support decarbonization andpotentially price emission-intensive activities through carbon pricing.13 These policies could havematerial impacts on the viability of certain loans and investments in emission-intensive industries.
Measuring financed emissions can help financial institutions uncover emission-intensive hotspots
in their portfolios. This enables them to take the necessary actions to minimize their exposure
to riskier assets and encourages them to develop climate-friendly products such as low carbon
funds, green bonds, sustainability-linked bonds, green mortgages, and more.
Figure 2-2 illustrates the five stages financial institutions follow to align with the Paris Agreement,
as explained in further detail in PCAF’s Strategic Framework for Paris Alignment. Measuring
financed emissions allows financial institutions to establish an emissions baseline for scenario
analysis and target setting. Without measuring a clear baseline, financial institutions do not havethe knowledge necessary to assess scenarios and define their climate targets, let alone gauge
their progress in aligning with the Paris Agreement. A robust, transparent, and harmonizedapproach to measuring financed emissions helps financial institutions make informed decisions
on target setting, strategy development, and the actions required to decarbonize the economy.
Figure 2-2. The Paris alignment value chain for financial institutions
Steering

Measure&Disclose

Develop
Strategy
Scenario Analysis

Set Targets

Take
Actions
Net-zero emissions
by 2050

Monitor Progress

As described in Chapter 1, multiple climate initiatives support the financial sector in
decarbonizing their portfolios. Each initiative plays a key role in the Paris Alignment process. For
instance:• PCAF focuses on standardizing the measurement and reporting of emissions associatedwith loans, investments, insurance liabilities and other financial products and services.
• TCFD and CDP provide a framework for disclosure.
• SBTi guides target setting through its Financial Sector Science-Based Targets Guidance.
• Other initiatives, such as Climate Action 100+ and Climate Safe Lending Network, support
financial institutions on defining concrete climate strategies and actions.

12 The Paris Agreement (Article 4, paragraph 2) requires each Party to prepare, communicate and maintain successive NDCs
that it intends to achieve. Parties shall pursue domestic mitigation measures, with the aim of achieving the objectives of suchcontributions.
13 (World Bank Group, 2020)20

Financed Emissions – Second Edition –GHG accounting helps measure three types of climate impact: generated
emissions, emission removals, and avoided emissions
GHG accounting is the annual corporate accounting and disclosure of GHG emissions financed
by loans and investments in the portfolio of a financial institution at a fixed point in time in linewith financial accounting periods. Financed emissions can be measured as amounts of GHGs
generated, avoided, or removed by an institution. The volume of GHG emissions emitted andfinanced by an institution is commonly referred to as its generated emissions. To limit climatechange and meet the goals of the Paris Agreement, financiers must actively seek out actions that
reduce generated emissions in absolute terms, i.e., absolute emissions.14
Not all loans and investments result in GHG emissions. Some may result in mitigating activities.
For instance, project-specific loans and investments in the forestry and land use sector, direct
air carbon capture and storage, or bioenergy with carbon capture and storage can result in CO2
being sequestered or removed from the atmosphere and stored in solid or liquid form, removing
its harmful global warming effect. Investments in afforestation projects can directly result in newly
planted trees absorbing CO2 from the air. The volume of CO2 absorbed is considered an emission
removal that can also be quantified and reported, demonstrating a type of positive contribution
toward decarbonization.
Similarly, project-specific loans and investments in renewable energy projects can result inemissions being avoided as they displace the emissions that would have otherwise occurred
without the project’s implementation. These emissions are referred to as avoided emissions andreporting them is a way to demonstrate a quantifiable positive contribution to decarbonization.
For the financial sector, which finances projects that lead to avoided emissions, quantifying thiseffect is relevant.
Reporting on emission removals and avoided emissions shall always be done separately from thatof the financial institution’s scope 1, 2, and 3 GHG inventories.

GHG accounting enables benchmarking
Measuring financed emissions in absolute terms, i.e., absolute emissions, provides financial
institutions with the necessary baseline for climate action to align with the Paris Agreement.
However, normalized data is often useful for banks and investors to manage climate transition
risk, set targets, or create new products. Normalizing the data means translating the absolute
financed emissions to an emission intensity metric (emissions per a specific unit). Different
intensity metrics can be used for different purposes: a wide array of intensity metrics is applied in
the market, each with its own merits. Table 2-1 lists the most common emission intensity metrics.
All the intensity metrics shown in Table 2-1 can be useful for steering. As the table shows,
economic emission intensity is the absolute emissions of a loan or investment divided by the loan
and investment volume in EUR or USD, expressed as tCO2e/€M or tCO2e/$M loaned or invested.
It can be useful for comparing different portfolios or parts of portfolios and for managing climate
14 The GHG Protocol often refers to generated emissions as absolute emissions. In this Financed Emissions Standard, where theterm “absolute emissions” is used, it is referring to generated emissions and not values relating to avoided emissions or emission
removals.

21

Financed Emissions – Second Edition –transition risks. Physical emission intensity is the absolute emissions of a loan or investment
divided by a value of physical activity or output, expressed as, e.g., tCO2e/MWh generated or
consumed or tCO2e/tonne product produced. It can be useful for setting science-based targets
and for comparing the emission intensity of companies operating in the same sector. The
weighted average carbon intensity (WACI)15 is expressed as tCO2e/€M or $M company revenue16
and can be used to understand a portfolio’s exposure to emission-intensive companies.
Table 2-1. Financed emissions metrics17
MetricPurposeAbsolute emissions

To understand the climate impact of
The total GHG emissions of anloans and investments and set a baseline asset class or portfolio
for climate action

Economic emission
intensity

To understand how the emission
intensities of different portfolios (orparts of portfolios) compare to eachother per monetary unit

Absolute emissions divided by theloan or investment volume in EUR
or USD, expressed as tCO2e/€M or
tCO2e/$M loaned invested

Physical emission
intensity

To understand the efficiency of aportfolio (or parts of a portfolio) in termsof total GHG emissions per unit of acommon output

Absolute emissions divided by avalue of physical activity or output,
expressed as, e.g., tCO2e/MWh,tCO2e/tonne product produced

Weighted averagecarbon intensity(WACI)18

To understand exposure to emissionintensive companies

Portfolio’s exposure to emissionintensive companies, expressed
as tCO2e/€M or $M company19
revenue

15
16
17
18
19

Description(TCFD, 2017)
The word company refers to the financial institution’s borrower or investee.
Adapted from (CRO Forum, 2020)(TCFD, 2017)
The word company refers to the financial institution’s borrower or investee.

22

3.Using GHG
accounting to set
achieve
3.and
Using
GHGbusinessgoals
accounting to
set and achievebusiness goals

6
R

R

TE
AP
CH

R

AP
CH

CH

AP

TE

5

6

Reportemissions

TE

5

4

TE

AP
CH

CH

AP

TE

R

R

4

TE

R

3

AP

3T

CH

R

CH

TE
AP
CH

AP

ER

3

R

TE

2

R

TE

AP

AP

AP
CH

CH

R

1
R

TE

CH

CH

AP

TE

1
R
TE
AP
CH

Identify IdentifyReview
Review
Review and apply Review and apply
Reportaccounting and accounting
accounting
andaccounting
business businessemissions
reporting principlesreporting
methodologies
principles for methodologies
forgoalsand rules
andeachrules
asset class each asset classgoals

UnderstandIdentify
what GHG
businessaccounting
goals
is
2

UnderstandIntroduction
what GHG
accounting is

Introduction

Financed Emissions – Second Edition –Understanding the climate impact of financial portfolios makes good business sense for financial
institutions. GHG accounting can help financial institutions achieve multiple objectives, such as
creating transparency for stakeholders, managing financial risks associated with climate policies
and regulations, creating new financial products to further the transition to net zero, and aligning
financial flows with the goals of the Paris Agreement (Figure 3-1). Financial institutions cite thesebusiness goals as the key reasons for assessing financed emissions, but this list is by no means
exhaustive. This chapter will elaborate on these goals in greater detail.
Figure 3-1. GHG accounting can help financial institutions meet multiple business goals

Business Goal 1

Business Goal 2

Business Goal 3

Business Goal 4

Create transparency
for stakeholders

Manage climate-relatedtransition risks

Develop climate-friendly
financial products

Align financial flows with
the Paris Agreement

Measurement of financed emissions

The level of detail captured in the assessment of financed emissions could dictate how well
the inventory can meet the business goals of the financial institution. For example, if a financial
institution wishes to use the inventory to manage risk, it may consider measuring and recording
sector-level emissions from its borrowers or investees to identify emission-intensive industry
investments in its portfolios. Other financial institutions may want to structure their inventory ina way that helps them track their financed emissions reduction goals year over year. In the end,
what is captured in the GHG inventory should serve the business goals of the financial institution.

Business goal 1: Create transparency for stakeholders
Financial institutions motivated to be more transparent about their climate impact can use GHG
accounting to measure the financed emissions associated with their loans and investments. Since
the economic crisis of 2007-2009, a wide range of stakeholders has demanded more transparency
around how their money is invested. In response to demand and the consensus that climatechange poses a considerable threat to the global economy, the Financial Stability Board (FSB)
launched the industry-led Task Force on Climate-related Financial Disclosures (TCFD). The remitof the TCFD was to develop recommendations for “consistent, comparable, reliable, clear andefficient climate-related disclosures by companies.”20 The TCFD framework21 has expanded since
the first recommendations were launched in 2017 to be the global guidance on how companies
should disclose their climate-related risks and opportunities. At the time of the publication ofthis edition of the Financed Emissions Standard, TCFD-recommended disclosures are voluntary.22
However, with strong backing from the central banks, the Supervisors Network for Greening
the Financial System, and the industry itself, companies will likely be faced with new regulatory
requirements in this arena.
20 More information about FSB can be found at:https://www.fsb.org/work-of-the-fsb/policy-development/additional-policy-areas/climate-related-financial-disclosures/
21 (TCFD, 2017)22 Except in New Zealand, where the government introduced mandatory TCFD disclosures in September 2020:
https://bit.ly/2TWUxwm. The UK also hopes to enshrine mandatory climate disclosures in line with TCFD recommendations in a
new law which would take effect as soon as April 2022, subject to Parliamentary approval. https://bit.ly/35B0rwF

24

Financed Emissions – Second Edition –For financial institutions, a key facet of TCFD disclosure relates to their lending and investment
activities. This facet is recognized by CDP, which—in aligning with the TCFD framework—adapted
its 2020 climate questionnaire for the financial sector to include a section on the reporting ofscope 3 category 15 (investment) emissions. The first step of this disclosure is measurement.
Information on how the PCAF methodologies support CDP in creating transparent reporting canbe found in Box 1.
Creating transparency for internal stakeholders can also be a business goal for financial
institutions. Assessing financed emissions allows the board members and senior management offinancial institutions to get a better picture of their organization’s impact on the climate and how
to steer activities toward the goals of the Paris Agreement. By measuring and disclosing financed
emissions, and thereby creating opportunities for climate disclosure, financial institutions caninternally align on their role, as well as the financial sector’s responsibility as a whole, in thetransition to a net-zero economy.

Box 1. PCAF supports CDP in creating transparency for stakeholders
Since its inception in 2000, CDP has evolved to become the globally accepted disclosuresystem for investors, companies, cities, states, and regions to report and manage theirenvironmental impacts. In response to the TCFD’s recommendations highlighting theimportance of indirect financing impacts (alongside the disclosed operational impacts),
CDP adapted its climate change questionnaire for the financial services sector to include
questions about financed emissions. From 2020 onward, CDP asks financial institutions todisclose their scope 3 category 15 (investments) emissions, along with the breakdown ofthese emissions by asset class, sector, and geography. The Global GHG Accounting andReporting Standard directly supports financial institutions in answering these questions
by providing asset class-specific methodologies and guidance for calculating financed
emissions that allow for disclosures on these levels. In its questionnaire, CDP names PCAF
as a key standard that can be used for measuring and reporting.
PCAF and CDP collaborate closely to enable financial institutions to provide transparent
disclosures for stakeholders. These disclosures in turn help stakeholders to better
understand financial institutions’ portfolio alignment with global climate goals and their
exposure to emission-intensive industries.

25

Financed Emissions – Second Edition –Figure 3‑2. Extract from the CDP climate change 2020 questionnaire
C-FS14.1

Do you conduct analysis to understand how your portfolio impacts the climate? (Scope 3 portfolio impact)
‘Yes’

‘No’

What are your organization's Scope 3

FS14.1b portfolio emissions?

(Category 15 "Investments" total emissions)FS14.1b

FS14.2

FS14.2b

What is your organization's Scope 3
portfolio impact?
(Category 15 "Investments" alternative carbon
footprinting and/or exposure metrics)

Why do you not conduct analysis tounderstand how your portfolio impacts the climate?
FS14.1c (Scope 3 Category 15 "Investments" emission oralternative carbon footprinting and/or
exposure metrics)

Are you able to provide a breakdown of your organization's Scope 3 portfolio impact?
'Yes, by asset class''Yes. by industry'

Break down yourorganization's Scope 3
portfolio impact byasset class.

Break down yourorganization's Scope 3
portfolio impact byindustry.

FS14.2b'Yes. by country/region'
Break down yourorganization's Scope 3
FS14.2c
portfolio impact bycountry/region.

DISCLOSURE INSIGHT ACTION

Note: This is a snapshot of the questionnaire from 2020; the questionnaire might be updated in the future. For the most recent
information consult with CDP.
Source: (CDP, 2020)

Business goal 2: Manage climate-related transition risks
Financial institutions are increasingly inclined to understand the exposure of their portfolios torisks posed by climate-related policies and regulations. GHG accounting helps these institutions
screen and identify areas of their lending and investment activities that fall under emissionintensive assets. Such lending and investment activities could suffer setbacks resulting from theintroduction of carbon prices and policies and regulations that are strict on fossil fuels.
Understanding the exposure to risk is at the heart of TCFD’s mission. TCFD’s guidance notes that
financial institutions that provide loans to or invest in companies with direct exposure to climaterelated risks may accumulate climate-related risks through their credit and equity holdings.23
Examples of such companies include fossil fuel producers, fossil fuel-based utilities, property
developers and owners, or agricultural and food companies.
Additionally, financial institutions that do not disclose their climate-related risks could face
reputational risk, especially when peers are increasingly doing so. Measuring and disclosing
financed emissions according to the Financed Emissions Standard and reporting according
to TCFD recommendations is a way for financial institutions to manage their climate-related
reputational risk. In its 2021 Annex, which updates and supersedes its 2017 recommendations, the23(TCFD, 2017)26

Financed Emissions – Second Edition –TCFD officially recommends that banks, asset owners and asset managers measure and disclose
financed emissions in line with the PCAF Financed Emissions Standard.24
Applying the GHG accounting methods in this Financed Emissions Standard, financial institutions
can identify areas of significant exposure to emission-intensive assets across their lending andinvestment portfolios and use this information as the basis to assess climate risk scenarios. By
disclosing in line with the requirements and recommendations in Chapter 6 of this Financed
Emissions Standard and the TCFD framework, financial institutions can show that they are serious
about climate action. Box 2 describes how the Financed Emissions Standard aligns with and adds
value to the TCFD framework.

Box 2. PCAF supports the TCFD framework in identifying and managing climate risk
One of the goals of the TCFD framework is to measure and disclose the risks posed toorganizations by climate-related policies and regulations that are implemented to further thetransition to a net-zero economy. PCAF directly supports this objective by providing financial
institutions with methodologies to measure financed emissions, resulting in a total value forthe absolute emissions associated with asset classes in their loan and investment portfolios.
As a result of emission assessments, financial institutions can identify emission-intensive
hotspots that could be subject to higher transition risk.
TCFD officially recommends that banks, asset owners and asset managers measure anddisclose financed emissions in line with the PCAF Financed Emissions Standard. The
quantification of financed emissions, the expected trajectory of these emissions, and theability of banks and investors to reduce emissions over time are important metrics toestimate the impact of transition risks. Once identified, these risks may be mitigated bysteering portfolios in line with the transition to a net-zero economy.

Business goal 3: Develop climate-friendly financial products
Included in the TCFD framework is disclosure related to business opportunities associatedwith the transition to a low carbon economy.25 According to the framework, opportunities are
categorized as resource efficiency, energy source, products and services, markets, and resilience.
For financial institutions, significant opportunities exist in each category, especially relating tosustainable finance products. For example, as Figure 3-3 shows, sustainable finance products
such as bonds have evolved: from green bonds issued to finance a specific corporate purpose,e.g., green-eligible projects such as wind farms, to bonds that are solely focused on general
corporate sustainability purposes, such as sustainability-linked bonds. In such sustainabilitylinked bonds, the full business of the issuer commits to a sustainable target, meaning the bond isconnected to the sustainable transition of the business.
24 (TCFD, 2021)
25 (TCFD, 2017)27

Financed Emissions – Second Edition –Figure 3-3. Evolution of green products in the bond market
Specific corporate purpose

Funding is for
specific green
expenditures
or projects

General corporate purpose

Funding is for
aggregated green
expendituresor portfolios

Funding supports Funding supports
the green portion the green portionof the balance sheetof the income
statement

Funding supports
sustainability-linked
KPIs

With the transition to a low carbon economy, financial institutions can develop innovative
products and services that enable their clients to decarbonize their business activities. By
measuring financed emissions and using the intensity metrics listed in Table 2-1, financial
institutions can see which sectors and businesses require the most help in their decarbonization
efforts and how best to support them in their transition to a net-zero future.

Business goal 4: Align financial flows with the Paris Agreement
Financial institutions’ commitments to set science-based targets,26 transition their investment
portfolios to net-zero GHG emissions by 2050 (e.g., Net-Zero Asset Owner Alliance27), and aligntheir lending with the objectives of the Paris Agreement (e.g., Net-Zero Banking Alliance28) are
examples of this business goal.
Financial institutions that want to align their financial flows with the goals of the Paris Agreement
implement portfolio GHG accounting to understand the absolute emissions they finance in thereal economy. These institutions use this information as the basis for analyzing decarbonization
scenarios and setting emission-based targets at the asset class or sector level. While otherclimate initiatives focus on scenario analysis and target setting (see Chapter 1), PCAF has been
established to focus solely on the GHG accounting of financial portfolios. Undertaking GHG
accounting equips financial institutions with a metric that can help track absolute emissions year
over year and compare it with their financed emissions goals.
Box 3 shows how the PCAF GHG accounting methods offered in this Financed Emissions
Standard align with SBTi’s framework for setting science-based emission reduction targets.
Version 1.0 of SBTi’s target-setting guidance for financial institutions was published in February
202229 and includes case studies of banks and investors using PCAF GHG accounting methods asa precursor to science-based targets.30
Next to setting targets, aligning financial flows with the Paris Agreement means that financial
institutions take concrete actions to transition their portfolio to net-zero financed emissions by
2050. In this process, banks and investors could identify opportunities to develop new productsthat help borrowers and investees reduce their own emissions.

26
27
28
29
30

Information about SBTs for financial institutions can be found at: https://sciencebasedtargets.org/financial-institutions
Information about the Net Zero Asset Owner Alliance can be found at: https://www.unepfi.org/net-zero-alliance
Information about the Net-Zero Banking Alliance can be found at https://www.unepfi.org/net-zero-banking(SBTi, 2020)
More information about the SBTi for financial institutions can be found at: https://sciencebasedtargets.org/financial-institutions

28

Financed Emissions – Second Edition –Box 3. Steering decarbonization: from GHG accounting to setting science-basedtargets
Financial institutions that decide to set science-based targets using SBTi’s Sectoral
Decarbonization Approach (SDA) need to measure their financed emissions to identify thebaseline from which targets would be established and to measure progress against thetargets.
The SBTi framework for the financial sector enables financial institutions to align lending
and investment portfolios with the goals of the Paris Agreement. Financial institutions thatset science-based targets and work toward attaining those targets act on opportunities tofinance the net-zero emission transition.
The SDA is a science-based target setting method that involves setting emissions-basedtargets, in which GHG accounting is a fundamental step of the process. The asset classes
covered in the Global GHG Accounting and Reporting Standard match the four asset classes
included in the SBT framework.
Figure 3-4. Asset classes covered by PCAF and SBTi

Asset classes covered in the
Global GHG Accounting
and Reporting Standard
Listed equity and corporate bonds
Business loans and unlisted equity

Asset classes covered by the
Science Based Targets initiative
Corporate instruments(equity, bonds, loans)

Project financeElectricity generation project financeCommercial real estate

Real estate (commercial & residential)

Mortgages

Mortgages

Motor vehicle loans
Sovereign debt

Financial institutions may use GHG accounting to screen and prioritize the parts ofthe portfolio that would be the focus for target setting (i.e., asset classes and sectors).
Additionally, financial institutions measure financed emissions to determine the emission
baselines from which emission-based science-based targets are set. To track progressagainst the emission-based target, financial institutions must therefore measure anddisclose their financed emissions annually.
Determining sector-specific emission intensity at the asset class or sector level is thestarting point to apply the SDA for target setting. Sector-specific emission intensity refers
to financed emissions per unit of activity data, e.g., kgCO2e/m2, gCO2e/kWh, tonCO2e/tonne
cement. Three steps are taken to derive emission intensities, as Figure 3-5 shows:29

Financed Emissions – Second Edition –Figure 3-5. From GHG accounting to setting science-based targets

MeasureGHG emissions
per loan andinvestment

Calculatefinancial institution's
share of emissions

Scope 1 & 2 emissions
per loan and investment(borrower's and investee's
emissions in tCO2e)

Attributed emissions
per borrower /per investee(financed emissions in tCO2e)

Calculateemission intensity∑ financed emissions∑ total attributed activity(tCO2e/m2, tCO2e/kWh,tCO2e/tonne products)

Selectdecarbonisation
pathway and set anemissions-based
SBT

Current emission intensity
is the baseline for anemissions-based SBT

For the latest Financial Sector Science-Based Targets Guidance, consult the Science Based
Targets initiative at https://sciencebasedtargets.org/financial-institutions
In addition to setting targets, aligning financial flows with the Paris Agreement means that
financial institutions take concrete actions to transition their portfolio to net-zero financed
emissions by 2050.

Net zero financed emissions by 2050
The Paris Agreement was reached in 2015 with the express aim of pursuing efforts to limit the
global temperature increase to 1.5°C above pre-industrial levels.31 Achieving this goal requires
global emissions to decline by about 50% by 2030 relative to 2010 levels and to reach net zero by
2050.32 Nonetheless, global emissions continue to increase. The level of ambition to achieve thegoals of the Paris Agreement and steer global emissions toward net zero in 2050 is significant.
FIs play a crucial role in this transition by facilitating the allocation of capital flows toward netzero goals. A critical component of net zero initiatives in the financial sector is decarbonizing
lending and investment portfolios following a 1.5°C scenario with low or no overshoot in the
global average temperature increase. Recently, the International Energy Agency (IEA) launched a
climate scenario that meets this criterion in its Net Zero by 2050 Roadmap. This scenario clearlyshows the rapid transition and milestones that are required to limit global warming to 1.5°C (seechart below).

31 United Nations Framework Convention on Climate Change, The Paris Agreement, 2015.
32 Intergovernmental Panel on Climate Change, 2018: Global Warming of 1.5°C. An Intergovernmental Panel on Climate Change
Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global GHG emissions pathways,
in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts toeradicate poverty [Masson-Delmotte, V., P. Zhai, H.-O. Pörtner, D. Roberts, J. Skea, P.R. Shukla, A. Pirani, W. Moufouma-Okia, C.
Péan, R. Pidcock, S. Connors, J.B.R. Matthews, Y. Chen, X. Zhou, M.I. Gomis, E. Lonnoy, T. Maycock, M. Tignor, and T. Waterfield(eds.)]. In Press.

30

Financed Emissions – Second Edition –Figure 3-6. Key Milestones on the Pathway to Net Zero
2021

2030

2035

2040

2050

No new unabatedcoal plant
approved

Universal energy
accessMost appliancesand coolingsystems sold are
best in class

50% of buildings
retrofitted tozero-carbon-readylevelsMore than 85% ofbuildings are zerocarbon ready50, of heavy trucksales are electric

50% of fuels usedin aviation are lowemissions

More than 90% of
heavy industrial
production is lowemissions

Around 90% ofexisting capacity
in heavy industries
reaches end ofinvestment cycle

Almost 70%
of electricity
generation globallyfrom solar PV andwind

No new oil and gas
fields approved fordevelopment; no
new coal mines ormine extensions

All new buildings
are zero-carbonready
60% of global car
sales are electric

No new ICE car
sales

Most new clean
technologies inheavy industry
demonstrated at
scale

2025
No new sales offossil fuel boilers

35
30
25

All industrial
electric motor
sales are best in
class

1020 GW annual
solar and windadditionsOverall netzero emissions
electricity
in advanced
economies

Phase-out of
un-abated coalin advanced
economies

Net-zero emissions
electricity globallyPhase-out of all
unabated coal andoil power plants

2045

Buildings

50% of heating
demand met byheat pumps

Transport

GtCO2 20

Industry

15
10
5Electricity
&
Heat

0
-5
2020

HydrogenCarboncapture

Other

2025

2030

2035

150 Mt low-carbonhydrogen
850 GW electrolysers
4 Gt CO2 captured

2040

2045

2050

435 Mt low-carbonhydrogen3.000 GW electrolysers
7.6 Gt CO2 captured

Source: IEA, “Net Zero by 2050: A Roadmap for the Global Energy Sector,” July 2021, 3rd Edition

Net zero is reached when anthropogenic emissions in the atmosphere are balanced byanthropogenic removals over a specified period. Climate science tells us that achieving net zero
will help humanity avoid the most catastrophic effects of climate change and huge financial risks.
Achieving net zero requires two primary components:
1. Deep decarbonization in energy, urban infrastructure and industrial systems, as well as
reversing emissions growth from land use systems
2. Permanently removing the residual GHG emissions that are unfeasible to reduce or avoid
FIs can help this transition by lending and investing capital in both mitigation solutions(avoided emissions) and carbon removal solutions (emission removals). The annual energy
sector investment, which averaged $2.3 trillion USD globally over 2016-2020, needs to nearly
double to $5 trillion USD by 2030 according to IEA’s Net Zero by 2050 Roadmap. Examples of
mitigation solutions can include renewable energy and carbon capture and storage (CCS), bothof which avoid the release of new fossil fuel emissions into the air whether from industrial sites
or conventional power plants. Examples of emission removals solutions can include technological31

Financed Emissions – Second Edition –methods such as direct air capture or nature-based methods such as forestry and land
management, both of which sequester existing emissions from the atmosphere.
The distinction between avoided emissions and emission removals is important from an
accounting perspective. The differences are illustrated in the figure below:
Figure 3-7: Avoided emissions and emission removals

Carbon offsets

Avoided emissions

Carbon removal

Is carbon stored?

Is carbon stored?

No

Avoided emissions, or emission
reduction without storage
Forward-looking,
Clear retrospective
counterfactual
emissions data:baseline:• N2O abatement• Renewable energy • Methane• Cleaner cookstoves abatement

Yes

Yes

How is carbon stored?

How is carbon stored?

Avoided emissions
with short-lived storage

Avoided emissions
with long-lived storage

Carbon removalwith short-lived storage

Carbon removalwith long-lived storage• Avoided damage toecosystems• Changes to ag
practices that retain
already-stored carbon• CCS on industrial
facilities• CCS on fossil-fuelpower plant• Afforestation &reforestation• Soil carbon
enhancement• Ecosystem restoration• DACCS• BECCS• Mineralisation• Enhanced weathering

Less permanent
Higher risk of reversal

More permanent
Lower risk of reversal

Less permanent
Higher risk of reversal

Avoided emissions

More permanent
Lower risk of reversal

Emission removals

Figure adapted from the Oxford Offsetting Principles.33

The global transition to net-zero requires increased lending to and investment in activities thatdrive deep decarbonization, as well as technology and nature-based emission removals solutions.
Measuring and reporting both generated emissions and emission removals enables FIs to trackprogress toward net zero.
FIs can finance emission removals via three ways:• Credit purchases: FIs can buy and retire carbon removal credits34 based in the voluntarycarbon market. Because these purchases are not part of their lending or investment
portfolio, these credits are not incorporated into the PCAF Financed Emissions Standard.
For more information, FIs should refer to the GHG Protocol on how to include carbon
credits in their accounting.35

33 Oxford offsetting principles, accessed at https://www.smithschool.ox.ac.uk/research/oxford-offsetting-principles
34 Reporting around the use of carbon credits may need to evolve because it does not yet consistently distinguish between
avoidance and removal credits.
35 Note that new GHG Protocol guidance is being developed on accounting for land sector activities and CO2 removals in corporate
GHG inventories, building on the Corporate Standard and Scope 3 Standard. Draft guidance for this is expected in 2022.

32

Financed Emissions – Second Edition –• Business Loans and Unlisted Equity: FIs can lend to or invest in companies such as
forestry companies that have emission removals within their organizational boundaries.
They can also lend to or invest in companies that purchase and retire carbon removal
credits. For more information on the financed emissions accounting of these lending andinvestment activities, see the methodology chapter on Listed Equity & Corporate Bonds
and the methodology chapter on Business Loans & Unlisted Equity.
• Project Finance: FIs can lend to or invest in nature-based or technological projects
that remove emissions from the atmosphere. They can also lend to or invest in projects
that purchase and retire carbon removal credits. For more information on the financed
emissions accounting of these lending and investment activities, see the methodology
chapter on Project Finance.

33

4. Principles andrequirements ofaccounting
4.GHG
Principles
and forfinancials
requirements of
GHG accounting for
financials

6
AP

TE

R

6
R

5

R

TE
AP

CH

CH

AP

TE

5

4

R
TE

4

AP

RA
CH

TE
AP
CH

CH

PT

ER

4

R

TE

3

R

TE

AP

AP

CH

Reportemissions

CH

Reviewaccounting andreporting principles
and rules

Review
Review and apply Review and apply
IdentifyReview
Reportaccounting and accounting
accounting
andaccounting
business
emissions
reporting principlesreporting
principles for methodologies
methodologies
forgoalsand rules
andeachrules
asset class each asset class
CH

3
R
TE

2
R
TE
AP

AP
CH

CH

R

1
R

TE

AP

AP
CH

CH

CH

AP

TE

R

TE

1

Introduction

UnderstandIdentify
what GHG
businessaccounting
goals
is
2

UnderstandIntroduction
what GHG
accounting isFinanced Emissions – Second Edition –To create this Financed Emissions Standard, PCAF harnessed the GHG accounting principles
from the GHG Protocol Corporate Accounting and Reporting Standard36 and the GHG Protocol
Corporate Value Chain (Scope 3) Accounting and Reporting Standard.37 Based on theseprinciples, PCAF developed an additional set of five overarching rules to guide accounting andreporting for financial institutions.

4.1		GHG accounting requirements derived
from the GHG Protocol’s principles
Like financial accounting and reporting, GHG accounting and reporting follows generally
accepted principles to ensure that an organization’s disclosure represents an accurate, veritable,
and fair account of its GHG emissions. The core principles of GHG accounting are set out in the
GHG Protocol Corporate Accounting and Reporting Standard38 and the GHG Protocol Corporate
Value Chain (Scope 3) Accounting and Reporting Standard.39 The GHG Protocol’s five core
principles are completeness, consistency, relevance, accuracy, and transparency. The Global GHG
Accounting and Reporting Standard for the Financial Industry follows these five core principles
and provides additional requirements on the application of these principles that are directly
relevant for financial institutions wishing to assess their financed emissions (Figure 4-1).

36
37
38
39

(WRI and WBCSD, 2004)(WRI and WBCSD, 2011)(WRI and WBCSD, 2004)(WRI and WBCSD, 2011)35

Financed Emissions – Second Edition –Figure 4-1. Additional PCAF requirements of GHG accounting and reportingare derived from the GHG Protocol’s five principles

GHG Protocol principles for
scope 3 inventories

Additional PCAF
requirements

CompletenessAccount for and report on all GHG emission
sources and activities within the inventory
boundary. Disclose and justify any specificexclusions.
Consistency
Use consistent methodologies to allow
for meaningful performance trackingof emissions over time. Transparently
document any changes to the data,
inventory boundary, methods, or any otherrelevant factors in the time series.
Relevance
Ensure the GHG inventory appropriatelyreflects the GHG emissions of the company
and serves the decision-making needs ofusers — both internal and external to thecompany
Accuracy
Ensure that the quantification of GHG
emissions is systematically neither over nor
under actual emissions, as far as can be
judged, and that uncertainties are reduced
as far as practicable. Achieve sufficientaccuracy to enable users to make decisions
with reasonable confidence as to theintegrity of the reported information.
Transparency
Address all relevant issues in a factual andcoherent manner, based on a clear audit
trail. Disclose any relevant assumptions
and make appropriate references to theaccounting and calculation methodologies
and data sources used.

Recognition
Financial institutions shall account for all
financed emissions under Scope 3 category
15 (Investment) emissions, as defined by
the GHG Protocol Corporate Value Chain(Scope 3) Accounting and ReportingStandard. Any exclusions shall be disclosed
and justified.
Measurement
Financial institutions shall measure andreport their financed emissions for each
asset class by “following the money”
and using the PCAF methodologies. As
a minimum, absolute emissions shall bemeasured. However, avoided and removed
emissions may be measured if data isavailable and methodologies allow.
Attribution
The financial institution’s share ofemissions shall be proportional to theshare of its exposure relative to the total(company, project, asset) value of theborrower or investee.
Data quality
Financial institutions shall use the highest
quality data available for each asset classand improve the quality of the data overtime.
Disclosure
Public disclosure of the results of PCAF
assessments is crucial for external
stakeholders and financial institutions
using the methodology to have a clear,comparable view of how the investments offinancial institutions contribute to the Parisclimate goals.

36

Financed Emissions – Second Edition –4.2		Additional requirements foraccounting and reporting financed
emissionsThis subchapter describes the additional requirements for GHG accounting for financials and how
these requirements guide the accounting and reporting of financed emissions regardless of thetype of loan and investment. Chapter 6 includes additional details on reporting requirements andrecommendations.

Recognition
According to the GHG Protocol Corporate Accounting and Reporting Standard,40 organizations
can choose from three approaches when defining their organizational boundaries andconsolidating the GHG emissions measured and reported in their inventories:• Equity share approach• Financial control approach• Operational control approach
The selection of one of these approaches affects which activities in the company’s value chain
are categorized as direct emissions (i.e., scope 1 emissions) and indirect emissions (i.e., scope 2
and scope 3 emissions).41
For consistency in reporting across organizations and reporting periods, this Financed Emissions
Standard requires financial institutions to measure and report their GHG emissions using either
the operational or financial control approach. As explained in Box 4, this means that emissions
from financial institutions’ loans and investments (without operational or financial control42)
will be reported under their scope 3 category 15 (investments) emissions, as defined by the
GHG Protocol Value Chain (Scope 3) Accounting and Reporting Standard.43 This requirement
eliminates inconsistencies in accounting that could arise from using the equity share approach,which would require scope 1 and 2 emissions from all equity investments to be reported under thefinancial institution’s scope 1 and 2 emissions (according to its share of equity in the operation).
As a result, the Financed Emissions Standard provides a harmonized approach that can beused by financial institutions wishing to account for and disclose their scope 3 category 15(investments) emissions (otherwise known as their financed emissions), and these are the sole
focus of this Financed Emissions Standard. Financial institutions following the Financed Emissions
Standard are required to report all financed emissions under scope 3 category 15 and discloseand justify any exclusions.

40 (WRI and WBCSD, 2004)
41 (WRI and WBCSD, 2004)
42 Only in cases that a financial institution has control (operational or financial, depending on the approach chosen) over theoperations of the borrower, or investee will 100% of their emissions be included within the organizational boundaries of thefinancial institution. As a result, these emissions will be included under the scope 1 and 2 emissions of the financial institution.
This can occur when a financial institution holds a controlling equity share in the investee. In general, however, most of thefinancial sector’s loans and investments are not held to gain control over their borrower or investee.
43 (WRI and WBCSD, 2011)37

Financed Emissions – Second Edition –Beyond reporting the scope 3 category 15 emissions covered by this Financed Emissions
Standard, financial institutions shall also measure and report their own scope 1 and 2 emissions
and any other relevant scope 3 emissions categories in line with the GHG Protocol’s standards.
Box 4 details consolidation approaches as applied to the financial sector.

Box 4. Why the Global GHG Accounting and Reporting Standard requires financial
institutions to measure and report financed emissions using the operational or financial
control approach
The GHG Protocol Corporate Accounting and Reporting Standard44 presents three
consolidation approaches when preparing GHG emission inventories: the equity shareapproach, the financial control approach, and the operational control approach. These
consolidation approaches are intended to define the organizational boundaries of thecompany for the purposes of accounting and reporting GHG emissions. The selection of oneof these approaches affects which activities in the company’s value chain are categorized
as direct emissions (i.e., scope 1 emissions) and indirect emissions (i.e., scope 2 and scope 3
emissions).
Under the equity share approach, an organization accounts for GHG emissions fromoperations according to its share of equity—or ownership—in the operation. So, holding a
15% equity share in another organization would require including 15% of its emissions acrossall its emission scopes: scope 1, 2, and 3.
Alternatively, an organization can report using the control approach, whereby the company
reports 100% of the GHG emissions over which it has control as if these emissions wereits own (i.e., 100% of direct emissions are reported under scope 1 and 100% of indirectemissions are reported under scope 2 or 3, respectively). Where the company owns aninterest but does not have control, it does not account for GHG emissions from operations
as part of its scope 1 and 2 emissions. However, emissions from such operations will bereported under scope 3 emissions according to its relative share of ownership.45

Box continues on next page �>

44 (WRI and WBCSD, 2004)
45 In practice, using a control approach means that when a company has control over an operation 100% of the scope 1 and 2
emissions of this operation are also reported under the companies’ scope 1 and 2 footprint.

38

Financed Emissions – Second Edition –A control approach can be subclassified as either financial control or operational control, andcompanies using the control approach must pick between these two options for reporting.
Using the financial control approach, the organization shall report 100% of emissions for
all activities in the company where it can directly influence financial and operational policies
and has the potential to benefit economically from the company’s activities. Using theoperational control approach, an organization shall account for 100% of emissions fromoperations over which it or one of its subsidiaries has control and the authority to introduce
and implement operational policies. In most cases, whether an operation is controlled by
the company or not does not differ between the financial control or operational control
approach.
The consolidation approach used by a financial institution has a significant impact on how
it accounts for its financed emissions. Choosing the equity share approach would require
scope 1 and 2 emissions from all equity investments to be reported under the financial
institution’s scope 1 and 2 emissions (according to its share of equity in the operation),whereas financed emissions from other asset classes would end up in scope 3.
However, when choosing a control approach, only emissions from those operations where
the financial institution, through its investments, holds a controlling interest would end up in
its scope 1 and 2 emissions. In all other cases financed emissions end up in scope 3 category
15. As financial institutions’ investments in equity or debt are typically not intended to holda controlling interest, this Financed Emissions Standard requires financial institutions tomeasure and report their GHG emissions using either the operational or financial control
approach. This requirement allows for consistent reporting of financed emissions in scope 3
emission category 15.

Measurement“Follow the money” is a key tenet for GHG accounting of financial assets, meaning that the money
should be followed as far as possible to understand and account for the climate impact in the real
economy, i.e., emissions caused by the financial institution’s loans and investments.
Financial institutions shall measure and report their financed emissions for each asset class using
the methodologies set out in this Financed Emissions Standard and covering the seven GHGs
required under the Kyoto Protocol. As a minimum, financial institutions shall measure the absolute
GHG emissions resulting from loans and investments (scope 3 category 15 emissions) in thereporting year. When relevant, emission removals should be measured and reported separately.
Avoided emissions from renewable power projects may also be measured and reported separately.
As a basis for reporting emissions, financial institutions shall choose a fixed point in time todetermine their lending and investment positions, such as the last day of its fiscal year (e.g., June
30 or December 31), to calculate an attribution factor. The GHG accounting period shall align withthe financial accounting period.

39

Financed Emissions – Second Edition –Attribution
According to the GHG Protocol Corporate Value Chain (Scope 3) Accounting and ReportingStandard, GHG emissions from loans and investments should be allocated to the reporting
financial institutions based on the proportional share of lending or investment in the borrower orinvestee.46 Attribution is based on the annual emissions of the borrower and investee; as a result,
GHG emissions are reported on at least an annual basis.
The methodologies in the Financed Emissions Standard apply the same general attribution
principles across all asset classes (Figure 4-2):
1. Financed emissions are always calculated by multiplying an attribution factor (specific tothat asset class) by the emissions of the borrower or investee.
2. 2. The attribution factor is defined as the share of total annual GHG emissions of theborrower or investee that is allocated to the loan(s) or investment(s).
3. 3. The attribution factor is calculated by determining the share of the outstanding amountof loans and investments of a financial institution over the total equity and debt of thecompany, project, etc. to which the financial institution has lent money or in which it has
invested capital.
The use of this common denominator, including both equity and debt funding, is important forthree reasons:
1. It ensures the use of one common denominator across all asset classes, which is in linewith leading practices in the financial sector.
2. It does not differentiate between equity and debt. Both contribute to the total financing of
the borrower or investee (and indirectly their emissions) and are therefore deemed equallyimportant.
3. It ensures 100% attribution of emissions over equity and debt providers and avoids double
counting of emissions between equity and debt providers as much as possible. This isspecifically important for financial institutions that hold both equity and debt positions
within the same companies or projects.
Figure 4-2. The general approach to calculate financed emissions

Financed emissions=∑i Attribution factorix

Emissionsi(with i = borrower or investee)

Outstanding amounti
Total equity + debti

46 (WRI and WBCSD, 2011)40

Financed Emissions – Second Edition –Double counting, which occurs when GHG emissions are counted more than once in the financed
emissions calculation of one or more institutions, should be minimized as much as possible.
Double counting occurs between the different scopes of emissions from loans and investments
when a financial institution lends to or invests in companies or projects in the same value
chain.47 This form of double counting cannot be avoided, but it can be made more transparent
by reporting the scope 1 and 2, emissions of loans and investments separately from their scope 3
emissions (see requirements on this in Chapter 6 of this Financed Emissions Standard).
Double counting can take place at five levels:• Between financial institutions• In co-financing the same entity or activity• Between transactions within the same financial institutions• Across different asset classes• Within the same asset class
Double counting between co-financing institutions and between transactions within the sameasset class of a financial institution can be avoided by using the appropriate attribution rules
consistently. PCAF defines attribution rules for each method described in this Financed Emissions
Standard. By using the correct attribution method, double counting of emissions between
financial institutions can be minimized. Additional asset class-specific information on attribution
can be found in Chapter 5.

Data quality
Financial institutions shall ensure that their GHG accounting appropriately reflects the GHG
emissions of their loans and investments and serves the decision-making needs of internaland external stakeholders. To safeguard these outcomes, financial institutions should use thehighest quality data available for each asset class for calculations and, where relevant, improve
the quality of the data over time. PCAF recognizes that high-quality data can be difficult to comeby when calculating financed emissions, particularly for certain asset classes. However, data
limitations should not deter financial institutions from taking the first steps toward preparing theirinventories. Even estimated or proxy data can help them identify emission-intensive hotspots
in their portfolios, which can inform their climate strategies. Where data quality is low, financial
institutions can develop approaches to improve it over time.
For measuring financed emissions in each asset class, various data inputs are needed to calculate
the financial institution’s attribution factor and the borrower’s or investee’s total emissions. The
data needed to calculate an attribution factor can typically come from the financial institution itself
and its borrower or investee. However, the data required to calculate the borrower or investee.
However, the data required to calculate the emissions of the borrower or investee might not bereadily available and must be sought out by the financial institution. The quality of this data can varydepending on assumptions relating to its assuredness, specificity, and other variables.
47 The scope 1 emissions of one company can be the upstream scope 2 or 3 emissions of its customer. For example, scope 1
emissions from a utility providing energy to a company would end up in the scope 2 inventory of that company. If both companies
are receiving funding from the same financial institution, these emissions would be double counted within its inventory.

41

Financed Emissions – Second Edition –High-quality data is often not available to the financial institution for all asset classes. In these
instances, the institution should use the best available data per the data hierarchy shown in
Figure 4-3. Data quality scorecards specific to each asset class are presented in Chapter 5 andAnnex 10.1.
Figure 4-3. General data quality scorecard
Data quality scoring from 1 to 5...

...enables financial institutions to develop a
strategy to improve data over time

Certain
Score 1

Score 3
Score 4
Score 5

Uncertain

GHG Emissions

Score 2

1

2

3

4

5

Data Quality Score

PCAF recognizes that there is often a lag between financial reporting and the reporting of
required emissions-related data for the borrower or investee. In these instances, financial
institutions should use the most recent data available even if it is representative of different
years, with the intention of aligning as much as possible. For example, it would be expected andappropriate that a financial institution’s reporting in 2020 for its 2019 financial year would use
2019 financial data alongside 2018 (or other most recent) emissions data.
Data quality scoring is specific to each asset class. More information on issues related to data
quality and how to employ the hierarchy for each asset class can be found in Chapter 5 andAnnex 10.1.

Disclosure
The public disclosure of absolute financed emissions is crucial for external stakeholders andfinancial institutions using the methodology to have an analogous view of the climate impactof financial institutions. To this end, financial institutions shall disclose absolute financed
emissions. To support their disclosures, financial institutions shall follow the requirements andrecommendations listed in Chapter 6 on how to report information relating to methodology,
calculations, timeframes, and data quality (as scored using the hierarchies provided in Chapter 5).

42

5.Methodology tomeasure financed
5.emissions
Methodology tomeasure financed
emissions

6
AP

TE

R

6
R

5

R

TE

PT

CH

RA
CH

TE
AP
CH

AP

5E

5

4

R

R

TE

TE

AP

AP

CH

CH

4

R
TE

3

R
TE
AP

AP
CH

Reportemissions

CH

Review and apply
accounting
methodologies foreach asset class

Review
Review and apply Review and apply
IdentifyReview
Reportaccounting and accounting
accounting
andaccounting
business
emissionsforreporting principlesreporting
methodologies
principles for methodologies
goalsand rules
andeachrules
asset class each asset class
CH

3
R
TE

2
R
TE
AP

AP
CH

CH

R

1
R

TE

AP

AP
CH

CH

CH

AP

TE

R

TE

1

Introduction

UnderstandIdentify
what GHG
businessaccounting
goals
is
2

UnderstandIntroduction
what GHG
accounting isFinanced Emissions – Second Edition –This chapter describes the methods to calculate financed emissions for seven asset classes.

Listed equity andcorporate bonds

Business loans andunlisted equity

Commercial real estate Mortgages

Motor vehicle loans

Project financeSovereign debt

Each asset class has its own section covering methodological guidance on the following elements: 48• Asset class definition• Emission scopes covered• Attribution of emissions• Equations to calculate financed emissions• Data required• Other considerations• Limitations
Guidance for calculating absolute emissions is covered in each asset class method. Guidancefor calculating avoided emissions is provided in the project finance method only. Methods forcalculating emission removals are provided in three asset classes: listed equity and corporate
bonds, business loans and unlisted equity, and project finance.49
This is an initial list of asset classes covered by PCAF. The initiative, with guidance from PCAF
participants and users, intends to both update the methodologies over time and add additional
ones. Developing an accurate, comparable, feasible, and broad-based standard covering
numerous asset classes will be an iterative process.

How to choose the right asset class method?
How financed emissions are measured may vary by the type of financing provided to the borrower
and investee and what is known about the flow of the money. Financial institutions should use
Figure 5-1 and the guidance that follows to select the appropriate asset class method.

48 These are the core elements in each asset class method. Some chapters include additional information, where relevant andspecific to the asset class..
49 Definitions of absolute emissions, avoided emissions, and emission removals can be found in Chapter 2 and in the glossary(Chapter 7).

44

Financed Emissions – Second Edition –Figure 5-1 intends to help financial institutions select the appropriate asset class method formeasuring financed emissions. The flowchart should be read from left to right, with each column
representing a choice to be made by the financial institution before ultimately determining theappropriate asset class method.
Beginning with the far-left side of the figure, financial institutions should select the type andsource of financing provided.50 The choices are:• Corporate finance: Finance provided to companies, such as listed equity, corporate bonds,
and business loans and equity investments in private companies (i.e., unlisted equity).
• Project finance: Financing provided to projects—such as energy, power, industrial,
infrastructure, and agricultural projects— that rely primarily on the project’s cash flow for
repayment.
• Consumer finance: Finance provided to individual and household consumers, such asmortgages and motor vehicle loans.
As described in Chapter 4, “follow the money” is a key tenet for GHG accounting of financial
assets. The money should be followed as far as possible to understand and account for the
climate impact of lending and investments. The next columns in Figure 5-1 relate to how much
is known about how the borrower or investee used the money and the activity for which thefinancing was used. The “Use of proceeds” column, a term defined by the GHG Protocol Corporate
Value Chain (Scope 3) Accounting and Reporting Standard, distinguishes between investments
and loans with known and unknown use of proceeds.
Known use of proceeds relates to investments and loans for specific (corporate or consumer)
purposes, i.e., the financial institution knows for what activity the money is used. On the other
hand, unknown use of proceeds refers to investments and loans for general (corporate or
consumer) purposes, i.e., the financial institution does not know exactly for what activity themoney is used, which holds for general-purpose loans. Both terms will be used throughout thefollowing subchapters.
For the column labeled “Use of proceeds” the financial institution should select “Known” or“Unknown” depending on whether information is held on how the borrower or investee uses themoney provided. If the use of proceeds is “Unknown,” the tile option in the next column, “Activity
sector,” will default to “All.” If the use of proceeds is “Known,” the financial institution will be
required to select the specific activity sector to which the loan or investment was provided.
Loans and investments can be used to finance different products and activities in various sectors.
The specific methodology for calculating financed emissions in these sectors can differ, as
described in the methods for commercial real estate (CRE), mortgages, and motor vehicle loans.
Financed emissions in all other sectors are treated the same way-see “All other” in Figure 5-1. Thismay change over time if financial institutions solicit PCAF to develop additional accounting rules
and guidance for other sectors, e.g., financial products for shipping or aviation.
50 Equity is defined as ownership in the company or project. Debt is defined as a financing instrument that requires repayment by
the borrower.

45

Financed Emissions – Second Edition –By following the guidance in Figure 5-1 thus far, financial institutions should know the appropriate
asset class method(s) to use to start estimating the financed emissions of their portfolio.
Each asset class method currently only covers financial products that are on the balance sheetof the financial institution and or managed by asset managers at the fiscal year-end. This meansthat financed emissions from products such as revolving credit facilities, bridge loans, and lettersof credit are only considered if there is outstanding finance on the balance sheet of the financial
institution at financial year-end. In a similar fashion, assets held for short durations or designatedas held for sale are not included in the Financed Emissions Standard. PCAF will discuss on how totreat such financing in the future and will provide more guidance in later editions of the Standard.
The Financed Emissions Standard only provides guidance on the seven asset classes mentioned
before. Table 5-1 defines these asset classes, including information on the financial products
being covered by the respective asset class and the location in the document where specificguidance can be found.
The Financed Emissions Standard does not provide explicit guidance on methods to calculate
financed emissions for every financial product including the following: private equity that refers
to investment funds, green bonds, loans for securitization, exchange traded funds, derivatives(e.g., futures, options, swaps), initial public offering (IPO) underwriting, and more. More detailed
guidance on such financial products will be considered and potentially published in later editionsof the Financed Emissions Standard.

46

Financed Emissions – Second Edition –Table 5-1. List of asset classes
Asset class

Definition

Listed equity andcorporate bonds

This asset class includes all on-balance sheet listed
Subchapter 5.1
corporate bonds and all on-balance sheet listed equity51
that are traded on a market and are for general corporate
purposes, i.e., unknown use of proceeds as defined by the
GHG Protocol.

Further guidanceBusiness loans andunlisted equity

This asset class comprises business loans and equity
Subchapter 5.2
investments in private companies, also referred to as
unlisted equity.
Business loans include all on-balance sheet loans andlines of credit to businesses, nonprofits, and any otherstructure of organization52 that are not traded on amarket and are for general corporate purposes, i.e.,with unknown use of proceeds as defined by the GHG
Protocol.
Unlisted equity includes all on-balance sheet equity
investments to businesses, nonprofits, and any otherstructure of organization that are not traded on a market
and are for general corporate purposes, i.e., with unknown
use of proceeds as defined by the GHG Protocol.

Project financeThis asset class includes all on-balance sheet loans or
Subchapter 5.3
equities to projects or activities that are designated forspecific purposes, i.e., with known use of proceeds as
defined by the GHG Protocol. The financing is designatedfor a defined activity or set of activities, such as theconstruction and operation of a gas-fired power plant, awind or solar project, or energy efficiency projects.

Commercial realestateThis asset class includes on-balance sheet loans for
specific corporate purposes, namely the purchase andrefinance of commercial real estate (CRE), and onbalance sheet investments in CRE when the financial
institution has no operational control over the property.
This definition implies that the property is used forcommercial purposes, such as retail, hotels, office space,industrial, or large multifamily rentals. In all cases, theowner of the building uses the property to conduct
income-generating activities.

Subchapter 5.4

Mortgages

This asset class includes on-balance sheet loans for
specific consumer purposes - namely the purchase andrefinance of residential property, including individual
homes and multi-family housing with a small number ofunits. This definition implies that the property is used
only for residential purposes and not for commercial
activities.

Subchapter 5.5

Motor vehicle loans

This asset class refers to on-balance sheet loans andlines of credit to businesses and consumers for specific(corporate or consumer) purposes - namely the financeone or several53 motor vehicles.

Subchapter 5.6

Sovereign debt

This asset class includes sovereign bonds and sovereignloans of all maturities issued in domestic or foreign
currencies. Both sovereign loans and bonds lead to thetransfer of funds to the country, which in turn creates a
debt obligation to be repaid by the borrowing country.

Subchapter 5.7

51 Listed equity refers to equity that is traded on a stock exchange or another securities exchange.
52 This also includes governmental-owned enterprises (e.g., state-owned companies such as municipal energy or public transport
providers), while loans to governments themselves are excluded. Loans to governments will be covered in a later edition of theStandard.
53 A single loan might cover the purchase of several vehicles or fleets. In any case, the methodology presented in this chapter should
be used.

47

Financed Emissions – Second Edition –Figure 5-1. Guidance for choosing an approach to calculate financed emissions
Financing type & source

Listed equity(equity)

Corporate bonds

Corporatefinance(debt)

Equity inprivate companies(equity)

Sovereign debt

Use of proceeds

Activity sector

UnknownAll

Unknown

All

Known

All

Unknown

All

Known

Real estate

Unknown

All

Sovereign debt

Unknown

All

Business loans
and unlisted
equity

Loans
Known

Consumerfinance

Equity & loans(equity & debt)

Listed equity
and corporatebonds

All other(debt)

Projectfinance

Asset class(as defined by PCAF)

Real estate

Commercial
real estate

Motor Vehicle

Motor vehicle
loans

Known

All

Project financeUnknownAll
All other

Not yetdevelopedby PCAF

Real estate

MortgagesLoans(debt)

Known

Motor Vehicle48

5.1		 Listed equity
and corporate bonds
5.1 Listed equity andcorporate bonds

6
AP

TE

R

6
R

5

R

TE

PT

CH

RA
CH

TE
AP
CH

AP

5E

5

4

R

R

TE

TE

AP

AP

CH

CH

4

R
TE

3

R
TE
AP

AP
CH

Reportemissions

CH

Review and apply
accounting
methodologies foreach asset class

Review
Review and apply Review and apply
IdentifyReview
Reportaccounting and accounting
accounting
andaccounting
business
emissionsforreporting principlesreporting
methodologies
principles for methodologies
goalsand rules
andeachrules
asset class each asset class
CH

3
R
TE

2
R
TE
AP

AP
CH

CH

R

1
R

TE

AP

AP
CH

CH

CH

AP

TE

R

TE

1

Introduction

UnderstandIdentify
what GHG
businessaccounting
goals
is
2

UnderstandIntroduction
what GHG
accounting isFinanced Emissions – Second Edition –Asset class definition
This asset class includes all on-balance sheet listed corporate bonds and all on-balance sheet
listed equity54 that are traded on a market and are for general corporate purposes (i.e., unknown
use of proceeds as defined by the GHG Protocol).
These include:• All types of corporate bonds for general corporate purposes• Common stock• Preferred stock
For indirect investments (e.g., investments in funds) that incorporate listed equity and bonds,
the methodological approach is the same provided the information on the individual holdings isavailable.
Green bonds, sovereign debt, and derivative financial products (e.g., futures, options, swaps) are
not covered by this asset class. The same holds for short and long positions or special casesof underwriting such as IPO underwriting. Guidance on such financial products are still underdevelopment and will be published in later editions of the Financed Emissions Standard.
Assets held for short durations and designated as held for sale are not in scope. These assets
may include, but not be limited to, trading account assets and debt securities carried at fair value.
Equity investments in private companies are not covered by this asset class because that isfinance not traded on a market. For more information on equity investments in private companies,
please refer to the business loans and unlisted equity asset class.

Emission scopes covered
Financial institutions shall report the absolute scope 1 and scope 2 emissions of borrowers
and investees across all sectors.
For reporting the scope 3 emissions of borrowers and investees, PCAF follows a phase-in
approach which requires scope 3 reporting for lending to and making investments in companies
depending on the sector in which they are active, i.e., where they earn revenues. For sectors
where scope 3 emissions reporting is required, the financial institutions shall separately disclose
these absolute scope 3 emissions, including the specific sectors covered. Separate reporting
allows for full transparency while acknowledging potential double counting issues when adding
these to the scope 1 and 2 emissions of borrowers and investees.
PCAF acknowledges that, to date, the comparability, coverage, transparency, and reliability ofscope 3 data still varies greatly per sector and data source. By requiring scope 3 reporting for
selected sectors over time, PCAF seeks to make scope 3 emissions reporting more common by
improving data availability and quality over time.
54

Listed equity refers to equity that is traded on a stock exchange or another securities exchange.

50

Financed Emissions – Second Edition –Financial institutions shall explain if they are not able to report the required scope 3 emissions
because of data availability or uncertainty. For all sectors where PCAF does not yet require scope
3 emissions reporting, financial institutions should follow the GHG Protocol Corporate Value Chain(Scope 3) Accounting and Reporting Standard and only account for scope 3 emissions where
relevant.
PCAF provides a sector list detailing where scope 3 emissions of borrowers and investees are
required to be reported (see Table 5-2). The sector list of PCAF aligns with the scope 3 phase-in
approach as defined by the EU TEG, which was included in Article 5 of the Commission DelegatedRegulation (EU) 2020/1818 of 17 July 2020 Supplementing the Regulation (EU) 2016/1011 of theEuropean Parliament and of the Council as regards minimum standards for EU Climate Transition
Benchmarks and EU Paris-aligned Benchmarks.
In practice, this means that financial institutions shall start reporting scope 3 emissions for theoil, gas, and mining sectors from 2021 onward and additional sectors will be added from 2023.
In the years toward 2023, PCAF will monitor the data availability and impact for these additional
sectors and will provide additional guidance on the reporting requirements.
The above requirement for all FIs to start reporting on the scope 3 emissions of borrowers orinvestees in the referenced sectors is a PCAF requirement. The legislation on which this phase-in
approach is based currently applies legally only to the methodology of EU climate benchmarks.
Table 5-2. List of sectors with required scope 3 emissions inclusion
as defined by the EU TEG55
Phase-in period

NACE Level 2 (L2) sectors considered

For reports published in
2021 onwards

At least energy (oil & gas) and mining (i.e., NACE L2: 05-09, 19, 20)

For reports published in
2023 onwards

At least transportation, construction, buildings, materials, andindustrial activities (i.e., NACE L2: 10-18, 21-33, 41-43, 49-53, 81)

For reports published in
2025 onwards

Every sector

Attribution of emissions
As a basic attribution principle, the financial institution accounts for a portion of the annual
emissions of the financed company determined by the ratio between the institution’s outstanding
amount (numerator) and the value of the financed company (denominator). This ratio is called theattribution factor.56
55 NACE is the abbreviation for the Statistical Classification of Economic Activities in the European Community. The NACE sector
codes provided in the table are identical to the codes of the lnternational Standard Industrial Classification of All Economic
Activities (ISIC) of the UN (see ISIC REV. 4). Non-European financial institutions are referred to the ISIC classification if thisclassification better serves their needs.
56 The attribution factor calculation is, in principle, only possible for listed equity and corporate bonds where financial data specificto the borrower or investee is available. For listed equity and corporate bonds where such data is unavailable, the attribution
factor cannot be calculated, but rough estimations on attribution can still be made based on region- and sector-specific average
financial data and the outstanding amount. This is explained in more detail in the Equations to calculate financed emissions andData required sections below (see Option 3b and Option 3c).

51

Financed Emissions – Second Edition –1. Outstanding amount (numerator): This is the actual outstanding amount in listed equity
or corporate bonds. It should be defined in line with the denominator. Therefore, the valueof outstanding listed equity is defined based on its market value (i.e., market price times
number of shares), and the value of outstanding corporate bonds is defined based on thebook value of the debt that the borrower owes to the lender. Financial institutions should
either use the calendar or financial year-end outstanding amount, provided the approach iscommunicated clearly and used consistently.
2. Company value (denominator): For all listed companies, this is the enterprise value
including cash (EVIC) of the respective company. Only for traded bonds to privatecompanies is this the sum of total company equity57 and debt,58 which can be found on theclient’s balance sheet, as no market value for equity is available.59
For listed companies:

𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓! =For bonds to private companies:

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎!
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝐶𝐶ℎ!

𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓! =(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑐𝑐 = 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏 𝑜𝑜𝑜𝑜 𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐)

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎!
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑!

57 In cases where the total company equity value according to the client’s balance sheet is negative, the financial institution shall set
total equity to 0; this means that all emissions are attributed to debt only, while no emissions are attributed to equity investments.
Such cases can happen when the retained earnings are negative while at the same time being higher than the other equity
components on the balance sheet of the client—e.g., this often holds for startups that have high negative profits during their firstyears of operation. By this approach, for those companies that are doing well (i.e., they have high retained earnings), financial
institutions attribute more emissions to equity providers; for those companies doing poorly (i.e., they have high retained losses),financial institutions attribute more emissions to debt providers. This is in line with the attribution factor rationale for listedcompanies, where the equity part of EVIC (i.e., market capitalization) also implicitly reflects retained earnings and losses (e.g., if
retained earnings increase, the share price and market capitalization generally also increase).
58 Total debt includes both current and long-term debt on the balance sheet.
59 If total debt or total equity cannot be obtained from a client’s balance sheet for whatever reason (e.g., for some it might be difficult
to obtain these values), financial institutions are allowed to fall back to the total balance sheet value (i.e., the sum of total equity
and liabilities, which is equal to the client’s total assets) with the intention of improving this data quality in the future.

52

Financed Emissions – Second Edition –EVIC is defined as: The sum of the market capitalization of ordinary shares at fiscal year-end,
the market capitalization of preferred shares at fiscal year-end, and the book values of total
debt60 and minorities’ interests. No deductions of cash or cash equivalents are made to avoid thepossibility of negative enterprise values.61
PCAF chose to align the definition of EVIC with the definition provided by the:1. EU TEG in its Handbook of Climate Transition Benchmarks, Paris-Aligned Benchmark andBenchmarks’ ESG Disclosure62
2. Commission Delegated Regulation (EU) 2020/1818 of 17 July 2020 Supplementing
Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards
minimum standards for EU Climate Transition Benchmarks and EU Paris-aligned
Benchmarks, which says EVIC should be used to determine the GHG intensities for thebenchmarks.
Box 5 further clarifies the rationale for using EVIC in the attribution factor of listed equity andcorporate bonds.

60 In its EVIC definition, the EU TEG refers to “the book values of total debt,” including all debt as listed on the company balance
sheet. This is different from some accounting definitions of book value of debt, which exclude some elements like non-interestbearing debt (also see next footnote on precautionary principle).
61 This is the standard definition of EVIC as provided by the EU TEG. For consistency reasons, PCAF decided to align with thisdefinition to ensure maximum alignment on metrics in the market, which also enables data providers to collect data in aconsistent way. In reality, specific elements of EVIC might not be readily available because data providers are still working onaligning their data with this definition. For cases where data is missing, the EU TEG (pg. 16 in its handbook of climate-related
benchmarks) recommends conducting corporate GHG data estimations based on the UN’s (1992) precautionary principle: “If in
doubt, err on the side of the planet not the side of the company.” Following this precautionary approach for EVIC calculations,financial institutions can decide to exclude elements of the EVIC (e.g., minority interests or certain elements of the book value ofdebt) as this would lead to a slightly lower EVIC and higher attribution of financed emissions to their own outstanding amount.
These slight deviations from the standard EVIC definition are allowed as long as: (1) they are in line with this precautionary
principle, and (2) the basis of the EVIC definition still includes the market value of equity (market capitalization) plus the total
book value of debt of any given company.
62 (EU Technical Expert Group on Sustainable Finance, 2019)53

Financed Emissions – Second Edition –Box 5. Rationale for EVIC as denominator in the attribution factor
As described in subchapter 4.2 of the Standard, PCAF applies the same general attribution
principles across all asset classes even though the actual equations and underlying(financial) data sources might differ per asset class. This principle defines that the
attribution factor for all asset classes is calculated by determining the attribution factorof the outstanding amount of a financial institution over the total equity and debt of thecompany, project, property, etc. in which the financial institution is invested. Applying thisprinciple means that, for the attribution of listed companies, a metric needed to be definedthat includes both the equity and debt of a listed company.
EVIC was selected as the attribution metric for listed equity and corporate bonds because it:• Includes both equity and debt in line with PCAF attribution principles and other asset
classes, ensuring alignment with similar asset classes (e.g., business loans).
• Is a common metric in the financial sector of a company’s total value and is expected
to gain more dominance because of its adoption by the EU TEG and the benchmark
regulation.
• Is based on company data (market value of equity and total book value of debt),
which is generally available to financial institutions and data providers. The availabilityof this data is expected to be further improved due to the EU climate benchmarks
regulation, which will stimulate data providers to collect EVIC data.
• Includes market valuation of equity, which is the most common approach in thefinancial sector to determine company ownership.
• Avoids issues with negative enterprise values due to the inclusion of cash (notdeducting cash as in the regular enterprise value definition) as well as issues withattributing more than 100% of a company’s emissions to financial institutions.
The simplified example below highlights how EVIC ensures 100% attribution of company
emissions by not deducting cash.
Example Company: Equity = 50, Debt = 50, Cash = 20
Approaches Enterprise
value

Attribution toequityAttribution to
debt

Total

EV excl. cash
(standard)

50 + 50 - 20 = 80

50/80 = 63%

50/80 = 63%> 100%

EV incl. cash

50 + 50 = 100

50 / 100 = 50%

50 / 100 = 50%

100%

Exceptions
If a financial institution only invests in equity and undertakes GHG accounting from a risk perspective,
emissions could also be attributed to the total market capitalization (market value of a company’s
outstanding shares) of the company. Please note, however, that the Financed Emissions Standard isaiming to standardize and harmonize GHG accounting across financial institutions and has a clear
preference for using EVIC. To enable a smooth transition from market capitalization to using EVIC, theexception to use total market capitalization will remain possible for a maximum of 2 years (ending in 2023).
54

Financed Emissions – Second Edition –Equations to calculate financed emissions
The financed emissions of a loan or investment in a company are calculated by multiplying theattribution factor by the emissions of the respective borrower or investee company. The total
financed emissions of a listed equity and corporate bonds portfolio are calculated as follows:63

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = @ 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓! × 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒!
!

(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑐𝑐 = 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏 𝑜𝑜𝑜𝑜 𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐)

The attribution factor represents the proportional share of a given company—that is, the ratio of
the outstanding amount to EVIC for listed companies and the total equity and debt for bonds to
private companies:
For listed companies:

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = @!

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎!
× 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒!
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝐶𝐶ℎ!

For bonds to private companies:

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑑𝑑 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = @!

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎!
× 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒!
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑!

(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑐𝑐 = 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏 𝑜𝑜𝑜𝑜 𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐)

The financed emissions from listed equity and corporate bonds can be calculated in different
ways depending on the availability of financial and emissions data specific to the borrower andinvestee. Overall, PCAF distinguishes three different options to calculate the financed emissions
from listed equity and corporate bonds depending on the emissions data used:

63 Wherein a financial institution is lending to or investing in a subsidiary of a larger entity, the attribution should be accounted at
the subsidiary level according to the “follow the money” principle, if the financial institution has balance sheet information on thesubsidiary. If the subsidiary’s balance sheet is unavailable, the financial institution should calculate the attribution factor based on
the total balance sheet of the entity to whom the financial institution has recourse for repayment of the loan.

55

Financed Emissions – Second Edition –• Option 1: reported emissions, where verified64 or unverified65 emissions are collected fromthe borrower or investee company directly (e.g., company sustainability report) or indirectly
via verified third-party data providers (e.g., CDP) and then allocated to the reporting
financial institutions using the attribution factor.
• Option 2: physical activity-based emissions, where emissions are estimated by thereporting financial institution based on primary physical activity data collected from theborrower or investee company (e.g., megawatt-hours of natural gas consumed or tonsof steel produced) and then allocated to the reporting financial institution using theattribution factor. The emissions data should be estimated using an appropriate calculation
methodology or tool with verified emission factors expressed per physical activity (e.g.,
tCO2e/MWh or tCO2e/t of steel) issued or approved by a credible independent body.
• Option 3: economic activity-based emissions, where emissions are estimated by thereporting financial institution based on economic activity data collected from the borrower
or investee company (e.g., euro/dollar of revenue or euro/dollar of sectoral assets) and thenallocated to the reporting financial institution using the attribution factor. The emissions
data should be estimated using official statistical data or acknowledged environmentallyextended input-output (EEIO) tables providing region- or sector-specific average emission
factors expressed per economic activity (e.g., tCO2e/€ or $ of revenue or tCO2e/€ or $ ofsectoral assets).66

Data required
PCAF distinguishes three options to calculate the financed emissions from listed equity andcorporate bonds depending on the emissions data used:• Option 1: reported emissions• Option 2: physical activity-based emissions• Option 3: economic activity-based emissions
While Options 1 and 2 are based on company-specific reported emissions or primary physicalactivity data provided by the borrower or investee or third-party data providers, Option 3 isbased on region- or sector-specific average emissions or financial data obtained from public data
sources such as statistics or data from other third-party providers.67
Options 1 and 2 are preferred over Option 3 from a data quality perspective because they provide
more accurate emissions results to a financial institution. Due to data limitations, financial
institutions might use Options 1 or 2 for certain companies and Option 3 for others. The data
quality mix shall be reflected in the average data quality score, as Chapter 6 illustrates.

64 This refers to reported emissions being calculated in line with the GHG Protocol and verified by a third-party auditor.
65 This refers to reported emissions being calculated in line with the GHG Protocol without verification by a third-party auditor.
Unverified reported emissions can be calculated by either an external party or by the borrower or investee company itself.
66 Sampling tests based on actual data on the company level extrapolated to the portfolio level can help to test the accuracy of
calculations based on this data from statistics or EEIO tables. This may also be used to refine the data for specific sectors or
regions if the reporting financial institution has a strong presence in and specific knowledge of the respective sector or region.
National agencies and regional data providers or statistical offices in individual regions may assist reporting financial institutions
and investee companies in various regions in finding regional and more relevant financial or emissions data information.
67 Option 1 and Option 2 were called “Approach 1: company specific approach” and Option 3 was called “Approach 2: Sector/region
average approximation” in the report produced by the PCAF Dutch team: (PCAF, 2019).

56

Financed Emissions – Second Edition –Table 5-3 provides data quality scores for each of the described options and sub-options (ifapplicable) that can be used to calculate the financed emissions for listed equity and corporate
bonds.
Table 5-3. General description of the data quality score table
for listed equity and corporate bonds68(score 1 = highest data quality; score 5 = lowest data quality)

Data Quality

Options to estimate thefinanced emissions

Score 11a

Outstanding amount in the company and EVIC
are known. Verified emissions of the company
are available.

1b

Outstanding amount in the company and EVIC
are known. Unverified emissions calculated by
the company are available.

2a69

Outstanding amount in the company and
EVIC are known. Reported company emissions
are not known. Emissions are calculatedusing primary physical activity data of thecompany’s energy consumption and emission
factors70 specific to that primary data. Relevant
process emissions are added.

2b

Outstanding amount in the company and
EVIC are known. Reported company emissions
are not known. Emissions are calculatedusing primary physical activity data of thecompany’s production and emission factors
specific to that primary data.

3a

Outstanding amount in the company, EVIC, andthe company’s revenue71 are known. Emission
factors for the sector per unit of revenue are
known (e.g., tCO2e per euro or dollar of revenue
earned in a sector).

3b

Outstanding amount in the company is known.
Emission factors for the sector per unit ofasset (e.g., tCO2e per euro or dollar of asset ina sector) are known.

3c

Outstanding amount in the company is known.
Emission factors for the sector per unit ofrevenue (e.g., tCO2e per euro or dollar ofrevenue earned in a sector) and asset turnoverratios for the sector are known.

Option 1:
Reported emissions

Score 2

Option 2:
Physical activitybased emissions
Score 3

Score 4

Option 3:
Economic activitybased emissions

When to use each option

Score 5

A detailed summary of the data quality score table, including data needs and equations to
calculate financed emissions, is provided in Annex 10.1 (Table 10.1-1). Data for all three options inTable 5-3 can be derived from different data sources.

68 For bonds to private companies, EVIC is defined as the total equity and debt of the respective company.
69 The quality scoring for the Option 2a is only possible for/applicable to scope 1 and scope 2 emissions as scope 3 emissions cannot
be estimated by this option. Other options can be used to estimate the scope 3 emissions, however.
70 Supplier-specific emission factors (e.g., from electricity provider) for the respective primary activity data are always preferred overnon-supplier-specific emission factors.
71 If revenue is not deemed a suitable financial indicator for estimating the emissions of a company in a certain sector, one can apply
other suitable financial indicators as a proxy. If an alternative indicator is used, the reasoning for the selection of this alternative
indicator should be made transparent. The data quality score will not be affected.

57

Financed Emissions – Second Edition –Official company filings
Where available, PCAF recommends using emissions data reported by companies, given thedata fully covers a company’s emissions-generating activities disclosed in official filings andenvironmental reports. The most recent available data should be used with mention to the data
source, reporting period, or publication date. Using this data is in line with Option 1.
Data providers (Option 1)
For Option 1 (reported emissions), PCAF recommends either collecting emissions from theborrower or investee company directly (e.g., company sustainability report) or third-party
data providers, such as CDP, Bloomberg, MSCI, Sustainalytics, S&P/Trucost, and ISS ESG. Data
providers typically make scope 1 and 2 emissions data available. PCAF encourages using the mostrecent available data and to mention the data source, reporting period, or publication date.
Data providers collect emissions data as reported by the companies themselves, either througha standardized framework such as CDP or through a company’s own disclosures in official filingsand environmental reports. They often have their own methodologies to estimate/calculatecompanies’ emissions, especially if this data is not reported. In this case, the calculation would
be in line with Options 2 or 3, assuming the methodology used is in line with the GHG Protocol.
Financial institutions should ask data providers to be transparent, disclose the calculation method
they use, and confirm alignment with the GHG Protocol. This will enable financial institutions
to apply the proper score to the data. PCAF also encourages data providers to apply the PCAF
scoring method to their own data, which would allow them to share the data quality scores
directly with their clients.
PCAF does not recommend a preferred data vendor. PCAF recommends using data providers that
use the standardized CDP framework and suggests data providers disclose the data quality scoreaccording to the scoring hierarchy in Table 5-3.72 When using data providers, PCAF recommends
using the same provider for all equity and bonds due to variability of scope 1 and 2 emissions
observed by providers.
Estimation models (Option 2 and 3)
Not all companies disclose their emissions data in official filings or through data providers.
Reporting in emerging markets often lags that of developed markets. To maximize the coverageof emissions data, the remaining gaps are often filled with estimates.
If no data is available, estimation models consistent with the emissions from the primary businessactivity may be used. Emission factors from production-based models (i.e., emission intensity perphysical activity) are preferred over emission factors from revenue-based models (i.e., emission
intensity per revenue) because the former are less sensitive to fluctuations in exchange rates orcommodity prices. Emission factors from production-based models in line with Option 2 are especially
useful for emission-intensive industries like utilities, materials, energy, and industrials. Emission factors
from revenue-based models in line with Option 3 (e.g., intensity-based or environmental input-output
models) have the advantage of requiring less detailed data from the financial institution.
72 More information about CDP can be found at: https://www.cdp.net/en58

Financed Emissions – Second Edition –For Option 2 (physical activity-based emissions), PCAF recommends using actual energy
consumption (e.g., megawatt-hours of natural gas consumed) or production (e.g., tons of steel
produced) data reported by companies, given the data fully covers the company’s emissionsgenerating activities. The emission factors expressed per physical activity used should be basedon appropriate and verified calculation methodologies or tools issued or approved by a credible
independent institution. Example data sources for retrieving emission factors are ecoinvent,73
Defra,74 Intergovernmental Panel on Climate Change (IPCC),75 GEMIS (Global Emissions Modelfor integrated Systems),76 and Food and Agriculture Organization of the United Nations (FAO).77
The most recent available data should be used, including a mention of the data source, reporting
period, or publication date.
For Option 3 (economic activity-based emissions), PCAF recommends using official statistical
data or acknowledged EEIO tables providing region- or sector-specific average emission factors
expressed per economic activity (e.g., tCO2e/€ or $ of revenue or tCO2e/€ or $ of sectoral assets).
Financial institutions should use emission factors that are as consistent as possible with theprimary business activity financed. For example, for a business loan to a paddy rice farmer, thefinancial institution should seek to find and use a sector-specific average emission factor forthe paddy rice farmer, the financial institution should seek to find and use a sector-specificaverage emission factor for the paddy rice sector and not an emission factor for the agricultural
sector in general. Example EEIO databases that can be used to obtain such emission factors are
EXIOBASE,78 Global Trade Analysis Project (GTAP),79 or World Input-Output Database (WIOD).80
PCAF’s web-based emission factor database provides a large set of emission factors for Options
2 and 3. The database, which is currently available only to PCAF signatories, can help financial
institutions get started with estimating the financed emissions of their investments.
PCAF expects that the financed emissions for most listed equity and corporate bonds canbe derived through either reported emissions (Option 1), physical activity data (Option 2),
or economic activity data (Option 3). However, PCAF allows the use of alternative options to
calculate emissions if none of the specified options can be used or in the case that new options
are developed. The reporting financial institution shall always explain the reasons for using analternative option if it deviates from the three options defined above.

73 More information can be found at: https://www.ecoinvent.org/
74 More information can be found at:https://www.gov.uk/government/publications/greenhouse-gas-reporting-conedition-factors-2019
75 More information can be found at: https://www.ipcc-nggip.iges.or.jp/EFDB/find_ef.php
76 More information can be found at: http://iinas.org/gemis-download.html
77 More information can be found at: http://www.fao.org/partnerships/leap/database/ghg-crops/en
78 More information can be found at: https://www.exiobase.eu
79 More information can be found at: https://www.gtap.agecon.purdue.edu
80 More information can be found at: http://www.wiod.org

59

Financed Emissions – Second Edition –Emission removals
Companies in an FI’s portfolio should report on emission removals, whether nature- or technologybased,81 as part of their GHG reporting. Reporting should follow existing GHG Protocol guidance,and emission removals shall be reported separately from both absolute emissions and any carbon
credits retired and generated.
Carbon credits generated by companies should be reported and carbon credits retired may bereported. These figures can provide transparency and context for the financed emissions andremovals. Ultimately, the goal of the PCAF Financed Emissions Standard is to transparently
report the total emissions impacts of lending and investments, not diluted by credits retired or
generated.
FIs can calculate attribution of companies’ reported emission removals using the existing
attribution logic set out in this chapter (see formula below); this same logic applies to any
attribution of companies’ reported credits retired or generated.
Emission removals =∑cOutstanding investmentc
× Company emission removalsc
EVIC or Total company equity+debt)c(with c = borrower or investee company)

Example accounting – a portfolio of different companies
An FI invests into multiple companies with different emissions profiles as illustrated in thefollowing table. All numbers are in tCO2e for the reporting year 2020 and are dummy data for the
purpose of this example.
Table 5-4: Example of data input for calculating a portfolio of different companies
Scope 1

Scope 2

Scope 3Emission
removals

Carboncredits
retiredCarbonAttribution
credits
factorgenerated

Forestry
company

1,000

100

5,000

20,000

0

5,000

10%

Industrial
company

20,0005,000

30,000025,000025%Energycompany

5,000

010,000

1,000

5,000

500

20%

The portfolio contains a forestry company that sells carbon credits based on its forestry activities,
an industrial company that buys carbon credits based on forestry activities, and a green energy
company that builds renewable energy plants combined with afforestation activities. The FI would
report aggregated numbers for this portfolio per the table below. This table sums the attributed
emissions and credits of the forestry, industrial, and energy companies from the table above. Notethat reporting carbon credits retired by clients is optional.

81 Note that new GHG Protocol guidance is being developed on accounting for land sector activities and CO2 removals in corporate
GHG inventories, building on the Corporate Standard and Scope 3 Standard. Draft guidance for this is expected in 2022. Where
necessary, the PCAF Global Standard will be updated in line with the final version of the new GHG Protocol guidance.

60

Financed Emissions – Second Edition –Table 5-5: Calculation example portfolio of different companies
Based on companies inabove tableCalculation

Total portfolio
numberScope 1 – Absolute emissions

1,000 x 10% + 20,000 x 25% + 5,000 x 20%

6,100

Scope 2 – Absolute emissions

100 x 10% + 5,000 x 25%

1,260

Scope 3 – Absolute emissions

5,000 x 10% + 30,000 x 25% + 10,000 x 20%

10,000Emission removals

20,000 x 10% + 1,000 x 20%

2,200

Carbon credits retired

25,000 x 25% + 5,000 x 20%

7,250

Carbon credits generated

5,000 x 10% + 500 x 20%

600

FIs may further subdivide these overall reporting categories into subcategories. For example,
carbon credits retired may be further reported separately by specific type of credit (e.g.,
emissions “avoidance” versus “removal”)82 or classified based on the credit standard (e.g., Verified
Carbon Standard (VCS) or Gold Standard). The FI may choose to separately report ‘net’ numbersthat display total absolute emissions minus total emission removals, for example. Nonetheless, forthe purposes of this Financed Emissions Standard, the fundamental requirement is that reporting
should at a minimum include separate numbers for absolute emissions and emission removals, inaddition to any ‘net’ numbers.
Example tool to calculate emission removals – the FoRESt Carbon Sequestration(FRESCOS) Tool
FMO has been working with three other European development finance institutions (CDC,
Finnfund, and Swedfund) and Finnish forestry expert Simosol to build an online tool to estimate
the amount of carbon sequestered through plantation and agroforestry operations, called the
FRESCOS Tool. The tool is built upon the IPCC Guidelines for National GHG Inventories andcan be found at https://www.frescos.earth. While PCAF does not endorse the use of this tool
specifically, the FRESCOS Tool is an example of a tool that can be used by FIs as a basis forcalculating financed emission removals. The FRESCOS tool is open for other FIs and interested
parties to use.

Limitations
Market value fluctuations
When using EVIC as the denominator, calculated financed emissions might change as a resultof fluctuating market prices. Applying corrections to EVIC could address this issue; however,
the application of inconsistent approaches can influence and reduce the comparability of
results between different financial institutions. In addition, corrections could theoretically beapplied to many other variables, like exchange rates, inflation, and emerging versus developed
markets, further reducing comparability. For that reason, all financial institutions shall report theirunadjusted absolute financed emissions in accordance with the calculations required by the PCAF
standard. However, financial institutions may optionally report their adjusted absolute financed
emissions with the requirement that such amounts must be disclosed separately along with adescription of the methodology, inputs and models utilized to calculate the corrections to EVIC.
Both unadjusted and adjusted absolute finance emissions will be required for all periods disclosed
in the financial reports being presented.
82 Reporting around the use of carbon offsets may need to evolve because it does not yet consistently distinguish between
avoidance and removal offsets.

61

Financed Emissions – Second Edition –When asset owners and asset managers convert absolute financed emissions into economic
emissions intensity by assets under management, market price fluctuations also influence thedenominator. Correcting this fluctuation can be approached as illustrated in the example below.
This approach was tested by asset owners and asset managers. Further research is needed toevaluate whether this adjustment factor is also applicable for banks when using an economic
emissions intensities over total loan exposure.

62

Financed Emissions – Second Edition –An approach for asset owners and managers to correct economic emissions intensity
For asset owners and managers, the economic emission intensity is a commonly used metricfor reporting and target setting purposes. The economic emission intensity is shown in theequation below and reflects absolute emissions associated with investments normalized for the
total size of the portfolio or assets under management.

Economic emission intensity =∑Outstanding amounti
Investee company' s EVICi

× Investee company' s emissionsi

i Total outstanding amount or assets under management (AuM)

When using this metric, especially the denominator is influenced by market value fluctuations. In
a bull market where valuation would increase, all else kept equal (GHG emissions and ownershipunchanged), the denominator would increase and as a result the economic emission intensity
would decrease. Under the influence of these fluctuations, an objective to reduce the economic
emission intensity by a certain percentage becomes a moving target. This undermines theutility of the metric to make comparisons from one time period to the next.
To address this limitation regarding the economic emission intensity, the EU TEG and EU
regulation on benchmarks suggest that asset owners/managers correct EVIC over time by
applying an inflation correction. Building on the EU inflation correction, PCAF recommends that
asset owners/managers adjust the economic emission intensity with the following adjustment
factor. The adjustment factor should be calculated as:
ADJb,T =

∑

i

wT ×

EVICb
EVICT

(With b = base year and T = current year and WT = benchmarks weights at time T)

There are two options for adjusting the economic emission intensity (backward or current):
1. The economic emission intensity can be adjusted in the base year (backward). Benefitsof adjusting the base year are that current reported carbon figures remain unadjusted.
Moreover, EVIC inflation correction applied to the baseline can be combined with otheradjustments that may be required, for example for data improvements or a changing
universe composition.
To calculate adjusted economic emission intensity in the base year (b):Economic emission intensityadjusted (b)=Economic emission intensity (b)× ADJb,T

2. The economic emission intensity can also be adjusted for the current reporting year.
Benefits of adjusting the current year are intuitiveness for annual reporting, where thefocus is usually on the metrics associated with the current year. Similarly, when assessing
progress against an objective to reduce the economic emission intensity by a certain
percentage, it is intuitive to keep the base emission intensity consistent.

63

Financed Emissions – Second Edition –To calculate adjusted economic emission intensity in current reporting year (T):
Economic emission intensityadjusted (T)=Economic emission intensity (T)

1

× ADJ

b,T

If asset owners/managers decide to apply this adjustment factor, PCAF requires them to report
both the unadjusted as adjusted economic emissions intensity separately. For transparency,
ideally the adjustment factor used and an explanation of how this was constructed and applied
would also be included.
Calculation example of applying the adjustment factor
Base year b
Company

Emissions(tCO2eq)

Market cap(M$)

Debt (M$)

EVIC (M$)

WeightEmissions/
EVIC(tCO2eq/M$)

A

60,000

800

400

1200

40%

50

B

100,000

600

400

1000

30%

100

C

120,000

400

400

800

20%

150

D

120,000

200

400

600

10%

200

Current year T
Company

Emissions(tCO2eq)

Market cap(M$)

A

60,000960

Debt (M$)

EVIC (M$)

Weight

400

1360

40%

Emissions/
EVIC(tCO2eq/M$)
44

B

100,000

720

400

1120

30%

89

C

120,000

480

400

880

20%

136

D

120,000

240

400

640

10%

188

Backward/base year adjustment
Plain(tCO2eq/M$)
Carbon footprint b

100

Carbon footprint T

90

Adjusted(tCO2/M$)

EVIC_b/
EVIC_T

89.6

Adjustment
0.88

0.896

0.89
0.91
0.94

Current year adjustment
Plain(tCO2eq/M$)
Carbon footprint b

100

Carbon footprint T

90

Adjusted(tCO2/M$)

EVIC_b/
EVIC_T

Adjustment
0.88

100.9

0.896

0.89
0.91
0.94

Decarbonization
Adjust T

0.914%

Decarbonization
Adjust b

0.914%

64

Financed Emissions – Second Edition –Organization identifiers
For larger listed equity and corporate bond portfolios, organization identifiers should be in place
to combine information from various sources. Examples of such identifiers include the Stock
Exchange Daily Official List, Legal Entity Identifier (LEI), International Securities Identification
Number (ISIN), and Committee on Uniform Security Identification Procedures numbers (CUSIP).
For large portfolios, matching external data sources can be a challenge when two companies
merge; the organization identifiers will be adjusted immediately while emissions data providers
might only update such information on an annual basis.

65

5.2		 Business loans
and unlisted equity
5.2 Business loans
and unlisted equity

6
AP

TE

R

6
R

5

R

TE

PT

CH

RA
CH

TE
AP
CH

AP

5E

5

4

R

R

TE

TE

AP

AP

CH

CH

4

R
TE

3

R
TE
AP

AP
CH

Reportemissions

CH

Review and apply
accounting
methodologies foreach asset class

Review
Review and apply Review and apply
IdentifyReview
Reportaccounting and accounting
accounting
andaccounting
business
emissionsforreporting principlesreporting
methodologies
principles for methodologies
goalsand rules
andeachrules
asset class each asset class
CH

3
R
TE

2
R
TE
AP

AP
CH

CH

R

1
R

TE

AP

AP
CH

CH

CH

AP

TE

R

TE

1

Introduction

UnderstandIdentify
what GHG
businessaccounting
goals
is
2

UnderstandIntroduction
what GHG
accounting isFinanced Emissions – Second Edition –Asset class definition
This PCAF asset class comprises:• Business loans• Equity investments in private companies, also referred to as unlisted equity
Business loans
Business loans include all on-balance sheet loans and lines of credit to businesses, nonprofits,
and any other structure of organization83 that are not traded on a market and are for general
corporate purposes, i.e., with unknown use of proceeds as defined by the GHG Protocol.84
Revolving credit facilities, overdraft facilities, and business loans secured by real estate such as
CRE-secured lines of credit are also included. Any off-balance sheet loans and lines of credit are
excluded.
For financing products such as revolving credit facilities, bridge loans, and letters of credit, which
are commonly provided by financial institutions, only those loans outstanding on the year-end
balance sheet of the financial institution are covered by this asset class.85
Methods for financed emissions from business loans for specific corporate purposes (i.e., withknown use of proceeds) are not included in this asset class but are instead covered by the project
finance asset class, even if they may not be structured as project finance per se (see subchapter
5.3). Business loans to finance commercial real estate or motor vehicles are also consideredseparate asset classes—i.e., CRE (see subchapter 5.4) and motor vehicle loans (see subchapter
5.6), respectively.86
Unlisted equity
Unlisted equity includes all on-balance sheet equity investments to businesses, nonprofits, andany other structure of organization that are not traded on a market and are for general corporate
purposes, i.e., with unknown use of proceeds as defined by the GHG Protocol. Unlisted equity isalso referred to as equity investments in private companies (i.e., the financial institution obtains
shares of the company) throughout the Financed Emissions Standard.
Private equity that refers to investment funds is not included in this asset class; guidance on suchprivate equity will follow in later editions of the Financed Emissions Standard.

83 This also includes governmental-owned enterprises (e.g., state-owned companies such as municipal energy or public transport
providers), while loans to governments themselves are excluded. Loans to governments (i.e., governmental lending) will becovered in a later edition of the Standard.
84 The term “company” is used throughout this subchapter but can refer to any type of organization, including nonprofits.
85 More detailed guidance on such financing is under development and will be published in later editions of the Standard; thisguidance will elaborate further on how to account for the significant interannual fluctuations of such financial products that may
not be captured appropriately when only considering the year-end balance sheet of a financial institution. For now, financial
institutions should be transparent on any major last minute increases or decreases at fiscal year-end because this can increase or
decrease the financed emissions from business loans significantly.
86 Financial institutions can still report their financed emissions from such business loans for specific corporate purposes (i.e.,with known use of proceeds) under an asset class called “business loans” if that is the name commonly used or preferred by thefinancial institution (e.g., when reporting internally or externally).

67

Financed Emissions – Second Edition –Emission scopes covered
Financial institutions shall report the absolute scope 1 and scope 2 emissions of borrowers
and investees across all sectors.
For reporting the scope 3 emissions of borrowers and investees, PCAF follows a phase-in
approach which requires scope 3 reporting for lending to and making investments in companies
depending on the sector in which they are active, i.e., where they earn revenues. For sectors
where scope 3 emissions reporting is required, the financial institutions shall separately disclose
these absolute scope 3 emissions, including the specific sectors covered. Separate reporting
allows for full transparency while acknowledging potential double counting issues when adding
these to the scope 1 and 2 emissions of borrowers and investees.
PCAF acknowledges that, to date, the comparability, coverage, transparency, and reliability ofscope 3 data still varies greatly per sector and data source. By requiring scope 3 reporting for
selected sectors over time, PCAF seeks to make scope 3 emissions reporting more common by
improving data availability and quality over time.
Financial institutions shall explain if they are not able to report the required scope 3 emissions
because of data availability or uncertainty. For all sectors where PCAF does not yet require scope
3 emissions reporting, financial institutions should follow the GHG Protocol Corporate Value Chain(Scope 3) Accounting and Reporting Standard and only account for scope 3 emissions where
relevant.
PCAF provides a sector list detailing where scope 3 emissions of borrowers and investees are required
to be reported (see Table 5-6). The sector list of PCAF aligns with the scope 3 phase-in approach as
defined by the EU TEG, which was included in Article 5 of the Commission Delegated Regulation (EU)2020/1818 of 17 July 2020, Supplements the Regulation (EU) 2016/1011 of the European Parliamentand of the Council as regards minimum standards for EU Climate Transition Benchmarks and EU Parisaligned Benchmarks.
In practice, this means that financial institutions shall start reporting scope 3 emissions for theoil, gas, and mining sectors from 2021 onward and additional sectors will be added from 2023.
In the years toward 2023, PCAF will monitor the data availability and impact for these additional
sectors and will provide additional guidance on the reporting requirements.
The above requirement for all FIs to start reporting on the scope 3 emissions of borrower/investee
companies in the referenced sectors is a PCAF requirement. The legislation on which this phasein approach is based currently applies legally only to the methodology of EU climate benchmarks.

68Financed Emissions – Second Edition –Table 5-6. List of sectors with required scope 3 emissions inclusion
as defined by the EU TEG87
Phase in period

NACE L2 sectors considered

For reports
At least energy (oil & gas) and mining
published in 2021 (i.e., NACE L2: 05-09, 19, 20)
onwards
For reports
published in
2023 onwards

At least transportation, construction, buildings, materials, and industrial activities(i.e., NACE L2: 10-18, 21-33, 41-43, 49-53, 81)

For reports
published in
2025 onwards

Every sector

Attribution of emissions
As a basic attribution principle, the financial institution accounts for a portion of the annual
emissions of the borrower and investee, as determined by the ratio between the outstanding
amount (numerator) and the value of the financed company (denominator). This ratio is called theattribution factor.88
1. Outstanding amount (numerator): This is the actual outstanding loan amount.
a For business loans, this is defined as the value of the debt that the borrower owes tothe lender (i.e., disbursed debt minus any repayments). It will be adjusted annually toreflect the correct exposure, resulting in the attribution to decline to 0 at the end of
the lifetime of the loan (i.e., when it is fully repaid).
b For unlisted equity (i.e., equity investments in private companies), the outstanding
amount is the outstanding value of equity that the financial institution holds in theprivate company. It is calculated by multiplying the relative share of the financial
institution in the respective investee89 by the total equity of the respective investee
according to its balance sheet. Financial institutions should either use the calendar or
financial year-end outstanding amount, provided the approach is communicated andused consistently.

87 NACE is the abbreviation for the Statistical Classification of Economic Activities in the European Community. The NACE sector
codes provided in the table are identical to the codes of the ISIC of the UN (see ISIC REV. 4). Non-European financial institutions
are referred to the ISIC classification if this classification better serves their needs.
88 The attribution factor calculation is, in principle, only possible for business loans and unlisted equity where client-specific financial
data is available. For business loans and unlisted equity where such data is unavailable, the attribution factor cannot be calculated
but rough estimations on attribution can still be made based on region- and sector-specific average financial data and the actual
outstanding amount. This is explained in more detail in the Equations to calculate financed emissions and Data required sections
below (see Option 3b and Option 3c).
89 The relative share of the financial institution in the respective investee is calculated by dividing the number of shares that thefinancial institution holds in the respective investee by the total number of shares of the investee.

69

Financed Emissions – Second Edition –2. Company value (denominator):a. For business loans and equity investments to/in private companies, this is the sum of
total company equity90 and debt,91 which can be found on the client’s balance sheet.92
b. For business loans to listed companies, this is the company enterprise value including
cash (EVIC) of the respective client.
For business loans and equity investments to/in private companies:
Attribution factorc =Outstanding amountc
Total equity+debtc

For unlisted equity,the outstanding amount is calculated as follows:# shares of financial institutionc# total sharesc

× Total equityc

For business loans to listed companies:
Attribution factorc =Outstanding amountc
Enterprise Value Including Cashc(with c=borrower or investee company)

EVIC is defined as: The sum of the market capitalization of ordinary shares at fiscal year-end,
the market capitalization of preferred shares at fiscal year-end, and the book values of total
debt93 and minorities’ interests. No deductions of cash or cash equivalents are made to avoid thepossibility of negative enterprise values.94

90 In cases where the total company equity value according to the client’s balance sheet is negative, the financial institution shall set
total equity to 0; this means that all emissions are attributed to debt only, while no emissions are attributed to equity investments.
Such cases can happen when the retained earnings are negative while at the same time being higher than the other equity
components on the balance sheet of the client—e.g., this often holds for startups that have high negative profits during their firstyears of operation. By this approach, or those companies that are doing well (i.e., they have high retained earnings), financial
institutions attribute more emissions to equity providers; for those companies doing poorly (i.e., they have high retained losses),financial institutions attribute more emissions to debt providers. This is in line with the attribution factor rationale for listedcompanies, where the equity part of EVIC (i.e., market capitalization) also implicitly reflects retained earnings and losses (e.g., if
retained earnings increase, the share price and thus the market capitalization generally also increase).
91 Total debt includes both current and long-term debt on the balance sheet.
92 If total debt or total equity cannot be obtained from a client’s balance sheet for whatever reason (e.g., for some it might be difficult
to obtain these values), financial institutions are allowed to fall back to the total balance sheet value (i.e., the sum of total equity
and liabilities, which is equal to the client’s total assets) with the intention of improving this data quality in the future.
93 In its EVIC definition, the EU TEG refers to “the book values of total debt,” including all debt as listed on the company balance
sheet. This is different from some accounting definitions of book value of debt, which exclude some elements like non-interestbearing debt (also see next footnote on precautionary principle).
94 This is the standard definition of EVIC as provided by the EU TEG. For consistency reasons, PCAF decided to align with thisdefinition to ensure maximum alignment on metrics in the market, which also enables data providers to collect data in aconsistent way. In reality, specific elements of EVIC might not be readily available because data providers are still working onaligning their data with this definition. For cases where data is missing, the EU TEG (pg. 16 in its handbook of climate-related
benchmarks) recommends conducting corporate GHG data estimations based on the UN’s (1992) precautionary principle: “If in
doubt, err on the side of the planet not the side of the company.” Following this precautionary approach for EVIC calculations,financial institutions can decide to exclude elements of the EVIC (e.g., minority interests or certain elements of the book value ofdebt) as this would lead to a slightly lower EVIC and higher attribution of financed emissions to their own outstanding amount.
These slight deviations from the standard EVIC definition are allowed as long as they are: (1) in line with this precautionary
principle, and (2) the basis of the EVIC definition still includes the market value of equity (market capitalization) plus the total
book value of debt of any given company.

70

Financed Emissions – Second Edition –PCAF chose to align the definition of EVIC with the definition provided by the:1. EU TEG in its Handbook of Climate Transition Benchmarks, Paris-Aligned Benchmark andBenchmarks’ ESG Disclosure95
2. Commission Delegated Regulation (EU) 2020/1818 of 17 July 2020 Supplementing
Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards
minimum standards for EU Climate Transition Benchmarks and EU Paris-aligned
Benchmarks, which says EVIC should be used to determine the GHG intensities for thebenchmarks.
Further clarification on the rationale for using EVIC for the attribution of listed companies isprovided in the asset class subchapter on listed equity and corporate bonds.

Equations to calculate financed emissions
The financed emissions from business loans and unlisted equity are calculated by multiplying theattribution factor by the emissions of the borrower or investee company and then taking the sumof these emissions:96

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = @ 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓! × 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒!
!

(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑐𝑐 = 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏 𝑜𝑜𝑜𝑜 𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐)

The attribution factor represents the proportional share of a given company—that is, the ratioof the outstanding amount to total equity and debt for private companies and EVIC for listedcompanies:
For business loans and equity investments to/in private companies:

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = @!

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎!
× 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒!
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑!

For business loans to listed companies:

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = @!

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎!
× 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒!
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝐶𝐶ℎ!

(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑐𝑐 = 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏 𝑜𝑜𝑜𝑜 𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐)

The financed emissions from business loans and unlisted equity can be calculated in different
ways depending on the availability of financial and emissions data specific to the borrower or
95 (EU Technical Expert Group on Sustainable Finance, 2019)
96 Wherein a financial institution is lending to or investing in a subsidiary of a larger entity, the attribution should be accounted at
the subsidiary level according to the “follow the money” principle, if the financial institution has balance sheet information on thesubsidiary. If the subsidiary balance sheet is unavailable, the financial institution should calculate the attribution factor based on
the total balance sheet of the entity to whom the financial institution has recourse for repayment of the loan.

71

Financed Emissions – Second Edition –investee. Overall, PCAF distinguishes three different options to calculate the financed emissions
from business loans and unlisted equity depending on the emissions data used.
• Option 1: Reported emissions, where verified97 or unverified98 emissions are collected fromthe borrower or investee company directly (e.g., company sustainability report) or indirectly
via verified third-party data providers (e.g., CDP) and then allocated to the reporting
financial institution using the attribution factor.
• Option 2: Physical activity-based emissions, where emissions are estimated by thereporting financial institution based on primary physical activity data collected fromthe borrower or investee (e.g., megawatt-hours of natural gas consumed or tons of steel
produced) and then allocated to the reporting financial institution using the attribution
factor. The emissions data should be estimated using an appropriate calculation
methodology or tool with verified emission factors expressed per physical activity (e.g.,
tCO2e/MWh or tCO2e/t of steel) issued or approved by a credible independent body.
• Option 3: Economic activity-based emissions, where emissions are estimated by thereporting financial institution based on economic activity data collected from the borrower
or investee company (e.g., euro/dollar of revenue or euro/dollar of asset) and then allocatedto the reporting financial institution using the attribution factor. The emissions data shouldbe estimated using official statistical data or acknowledged EEIO tables providing regionor sector-specific average emission factors expressed per economic activity (e.g., tCO2e/€or $ of revenue or tCO2e/€ or $ of sectoral assets).99

Data required
As described, PCAF distinguishes three options to calculate the financed emissions from businessloans and unlisted equity depending on the emissions data used:• Option 1: reported emissions• Option 2: physical activity-based emissions• Option 3: economic activity-based emissions
While Options 1 and 2 are based on company-specific reported emissions or primary physicalactivity data provided by the borrower or investee company or third-party data providers, Option
3 is based on region- or sector-specific average emissions or financial data obtained from publicdata sources such as statistics or data from other third-party providers.100
Options 1 and 2 are preferred over Option 3 from a data quality perspective because they provide
more accurate emissions results to a financial institution. Due to data limitations, financial
97 This refers to reported emissions being calculated in line with the GHG Protocol and verified by a third-party auditor.
98 This refers to reported emissions being calculated in line with the GHG Protocol without verification by a third party-auditor.
Unverified reported emissions can be calculated by either an external party or by the borrower or investee company itself.
99 Sampling tests based on actual data on the company level extrapolated to the portfolio level can help to test the accuracy of
calculations based on this data from statistics or EEIO tables. This may also be used to refine the data for specific sectors or
regions if the reporting financial institution has a strong presence in and specific knowledge of the respective sector or region.
National agencies and regional data providers or statistical offices in individual regions may assist reporting financial institutions
and investee companies in various regions in finding regional and more relevant financial or emissions data information.
100 Option 1 and Option 2 were called “Approach 1: company specific approach” and Option 3 was called “Approach 2: Sector/region
average approximation” in the report produced by the PCAF Dutch team: (PCAF, 2019).

72

Financed Emissions – Second Edition –institutions might use Options 1 or 2 for certain companies and Option 3 for others. The data
quality mix shall be reflected in the average data quality score, as Chapter 6 illustrates.
Table 5-7 provides data quality scores for each of the described options and sub-options (ifapplicable) that can be used to calculate the financed emissions for business loans and unlisted
equity.
Table 5-7. General description of the data quality score tablefor business loans and unlisted equity101(score 1 = highest data quality; score 5 = lowest data quality)

Data Quality

Options to estimate thefinanced emissions

Score 11a

Outstanding amount in the company and totalcompany equity plus debt are known. Verified
emissions of the company are available.

1b

Outstanding amount in the company andtotal company equity plus debt are known.
Unverified emissions calculated by thecompany are available.

2a102

Outstanding amount in the company and totalcompany equity plus debt are known. Reported
company emissions are not known. Emissions
are calculated using primary physical activity
data for the company’s energy consumption
and emission factors103 specific to that primarydata. Relevant process emissions are added.

2b

Outstanding amount in the company and totalcompany equity plus debt are known. Reported
company emissions are not known. Emissions
are calculated using primary physical activity
data for the company’s production andemission factors specific to that primary data.

3a

Outstanding amount in the company, totalcompany equity plus debt, and the company’s
revenue104 are known. Emission factors forthe sector per unit of revenue are known (e.g.,
tCO2e per euro or dollar of revenue earned in asector).

3b

Outstanding amount in the company is known.
Emission factors for the sector per unit ofasset (e.g., tCO2e per euro or dollar of asset ina sector) are known.

3c

Outstanding amount in the company is known.
Emission factors for the sector per unit ofrevenue (e.g., tCO2e per euro or dollar ofrevenue earned in a sector) and asset turnoverratios for the sector are known.

Option 1:
Reported emissions

Score 2

Option 2:
Physical activitybased emissions
Score 3

Score 4

Option 3:
Economic activitybased emissions

When to use each option

Score 5

A detailed summary of the data quality score table, including data needs and equations to
calculate financed emissions, is provided in Annex 10.1 (Table 10.1-2). Data for all three options inTable 5-7 can be derived from different data sources.
101 For business loans to listed companies, total company equity and debt is defined as the EVIC of the respective company.
102 The quality scoring for Option 2a is only possible for/applicable to scope 1 and scope 2 emissions as scope 3 emissions cannot be
estimated by this option. Other options can be used to estimate the scope 3 emissions, however.
103 Supplier-specific emission factors (e.g., from an electricity provider) for the respective primary activity data are always preferredover non-supplier-specific emission factors.
104 If revenue is not deemed a suitable financial indicator for estimating the emissions of a company in a certain sector, one can apply
other suitable financial indicators as a proxy. If an alternative indicator is used, the reasoning for the selection of this alternative
indicator should be made transparent. The data quality score will not be affected.

73

Financed Emissions – Second Edition –Data providers (Option 1)
For Option 1 (reported emissions), PCAF recommends either collecting emissions from theborrower or investee company directly (e.g., company sustainability report) or third-party
data providers, such as CDP, Bloomberg, MSCI, Sustainalytics, S&P/Trucost, and ISS ESG. Data
providers typically make scope 1 and 2 emissions data available. PCAF encourages using the mostrecent available data and to mention the data source, reporting period, or date of publication.
Data providers collect emissions data as reported by the companies themselves, either througha standardized framework such as CDP or through a company’s own disclosures in official filingsand environmental reports. They often have their own methodologies to estimate/calculatecompanies’ emissions, especially if emissions are not reported. In this case, the calculation would
be in line with Options 2 or 3, assuming the methodology used is in line with the GHG Protocol.
Financial institutions should ask data providers to be transparent, disclose the calculation method
they use, and confirm alignment with the GHG Protocol. This will enable financial institutions
to apply the proper score to the data. PCAF also encourages data providers to apply the PCAF
scoring method to their own data, which would allow them to share the data quality scores
directly with their clients.
PCAF does not recommend a preferred data vendor. PCAF recommends using data providers that
use the standardized CDP framework and suggests data providers disclose the data quality scoreaccording to the scoring hierarchy in Table 5-7.105 When using data providers, PCAF recommends
using the same provider due to variability of scope 1 and 2 emissions observed by providers.
Estimation models (Option 2 and 3)
Not all companies disclose their emissions data in official filings or through data providers.
Reporting in emerging markets often lags that of developed markets. To maximize the coverageof emissions data, the remaining gaps are often filled with estimates.
For Option 2 (physical activity-based emissions), PCAF recommends using actual energy
consumption (e.g., megawatt-hours of natural gas consumed) or production (e.g., tons of steel
produced) data reported by companies, given the data fully covers the company’s emissionsgenerating activities. The emission factors expressed per physical activity used should be basedon appropriate and verified calculation methodologies or tools issued or approved by a credible
independent institution. Example data sources for retrieving emission factors are ecoinvent,106
Defra,107 IPCC,108 GEMIS,109 and FAO.110 The most recent available data should be used, including amention of the data source, reporting period, or publication date.
For Option 3 (economic activity-based emissions), PCAF recommends using official statistical
data or acknowledged EEIO tables providing region- or sector-specific average emission factors
105 More information about CDP can found at: https://www.cdp.net/en
106 More information can be found at: https://www.ecoinvent.org/
107 More information can be found at: https://www.gov.uk/government/publications/greenhouse-gas-reporting-conversionfactors-2021
108 More information can be found at: https://www.ipcc-nggip.iges.or.jp/EFDB/find_ef.php
109 More information can be found at: http://iinas.org/gemis-download.html
110 More information can be found at: http://www.fao.org/partnerships/leap/database/ghg-crops/en74

Financed Emissions – Second Edition –expressed per economic activity (e.g., tCO2e/€ or $ of revenue or tCO2e/€ or $ of sectoral assets).
Financial institutions should use emission factors that are as consistent as possible with theprimary business activity financed.111 For example, for a business loan to a paddy rice farmer, thefinancial institution should seek to find and use a sector-specific average emission factor for the
paddy rice sector and not an emission factor for the agricultural sector in general. Example EEIO
databases that can be used to obtain such emission factors are EXIOBASE,112 GTAP,113 or WIOD.114
PCAF’s web-based emission factor database provides a large set of emission factors for Option 2
and Option 3 above. The database, which is currently available only to PCAF signatories, can help
financial institutions get started with estimating the financed emissions of their investments.
PCAF expects that the financed emissions for most business loans and unlisted equity canbe derived through either reported emissions (Option 1), physical activity data (Option 2),
or economic activity data (Option 3). However, PCAF allows the use of alternative options to
calculate emissions if none of the specified options can be used or in the case that new options
are developed. The reporting financial institution shall always explain the reasons for using analternative option if it deviates from the three options defined above.

Emission removals
Companies in an FI’s portfolio should report on emission removals, whether nature- or technologybased,115 as part of their GHG reporting. Reporting should follow existing GHG Protocol guidance,and emission removals shall be reported separately from both absolute emissions and any carbon
credits retired and generated.
Carbon credits generated by companies should be reported and carbon credits retired may bereported. These figures can provide transparency and context for the financed emissions andremovals. Ultimately, the goal of the PCAF Financed Emissions Standard is to transparently
report the total emissions impacts of lending and investments, not diluted by credits retired or
generated.
FIs can calculate attribution of companies’ reported emission removals using the existing
attribution logic set out in this chapter (see formula below); this same logic applies to any
attribution of companies’ reported credits retired or generated.
Emission removals =Outstanding investmentc
× Company emission removalsc(EVIC or Total company equity + debt)c(with c=borrower or investee company)

111 For conglomerates, financed emissions from a mix of activities can be estimated if data (e.g., revenue split) is available. If not, theprimary revenue-generating activity should be chosen.
112 More information can be found at: https://www.exiobase.eu
113 More information can be found at: https://www.gtap.agecon.purdue.edu
114 More information can be found at: http://www.wiod.org
115 Note that new GHG Protocol guidance is being developed on accounting for land sector activities and CO2 removals in corporate
GHG inventories, building on the Corporate Standard and Scope 3 Standard. Draft guidance for this is expected in 2022. Where
necessary, the PCAF Global Standard will be updated in line with the final version of the new GHG Protocol guidance.

75

Financed Emissions – Second Edition –Example accounting – a portfolio of different companies
An FI invests into multiple companies with different emissions profiles as illustrated in thefollowing table. All numbers are in tCO2e for the reporting year 2020 and are dummy data for the
purpose of this example.
Table 5-8: Example of data input for calculating a portfolio of different companies
Scope 1

Scope 2

Scope 3Emission Carbon
removals credits
retiredCarboncredits
generated

Attribution
factorForestry
company

1,000

100

5,000

20,000

0

5,000

10%

Industrial
company

20,0005,000

30,000025,000025%Energycompany

5,000

010,000

1,000

5,000

500

20%

The portfolio contains a forestry company that sells carbon credits based on its forestry activities,
an industrial company that buys carbon credits based on forestry activities, and a green energy
company that builds renewable energy plants combined with afforestation activities. The FI would
report aggregated numbers for this portfolio per the table below. This table sums the attributed
emissions and credits of the forestry, industrial, and energy companies from the table above. Notethat reporting carbon credits retired by clients is optional.
Table 5-9: Calculation example of a portfolio of different companies
Based on companies in above Calculation
table

Total portfolio
numberScope 1 – Absolute emissions

1,000 x 10% + 20,000 x 25% + 5,000 x 20%

6,100

Scope 2 – Absolute emissions

100 x 10% + 5,000 x 25%

1,260

Scope 3 – Absolute emissions

5,000 x 10% + 30,000 x 25% + 10,000 x 20%

10,000Emission removals

20,000 x 10% + 1,000 x 20%

2,200

Carbon credits retired

25,000 x 25% + 5,000 x 20%

7,250

Carbon credits generated

5,000 x 10% + 500 x 20%

600

FIs may further subdivide these overall reporting categories into subcategories. For example,
carbon credits retired may be further reported separately by specific type of credit (e.g.,
emissions “avoidance” versus “removal”)116 or classified based on the credit standard (e.g., Verified
Carbon Standard (VCS) or Gold Standard). The FI may choose to separately report ‘net’ numbersthat display total absolute emissions minus total emission removals, for example. Nonetheless, forthe purposes of this Financed Emissions Standard, the fundamental requirement is that reporting
should at a minimum include separate numbers for absolute emissions and emission removals, inaddition to any ‘net’ numbers.

116 Reporting around the use of carbon offsets may need to evolve because it does not yet consistently distinguish between
avoidance and removal offsets.

76

Financed Emissions – Second Edition –Example tool to calculate emission removals – the FoRESt Carbon Sequestration(FRESCOS) Tool
FMO has been working with three other European development finance institutions (CDC,
Finnfund, and Swedfund) and Finnish forestry expert Simosol to build an online tool to estimate
the amount of carbon sequestered through plantation and agroforestry operations, called the
FRESCOS Tool. The tool is built upon the IPCC Guidelines for National GHG Inventories andcan be found at https://www.frescos.earth. While PCAF does not endorse the use of this tool
specifically, the FRESCOS Tool is an example of a tool that can be used by FIs as a basis forcalculating financed emission removals. The FRESCOS tool is open for other FIs and interested
parties to use.

Limitations
Generalized nature of Option 3
One limitation of Option 3 is the generalized nature and necessary assumptions made in applying
region- or sector-specific average values (both for emissions and financial data). This makes
calculations less robust and more uncertain than those based on data specific to the borrower orinvestee, as the data for this option largely depends on assumptions and approximations derived
from region and sector averages. In addition, statistical data or acknowledged EEIO tables fora given region need to be critically mapped to the sector classification used by the reporting
financial institution, as the sectors may not map one-to-one and may cause financed emissions tobe over- or understated in the end.
Measurement inconsistencies
Inconsistencies can arise from measuring part of the portfolio with borrower- or investee-specificemissions data (which may encompass scopes 1, 2, and 3 emissions) and from measuring theother part with region- or sector-specific average emissions data (which often encompasses
only scope 1 and 2 emissions). One mitigating factor is that using borrower- or investee-specificemission data could improve the accuracy of the region- or sector-specific average data if thereporting financial institution had enough borrower- or investee-specific data points relative tothe size of the portfolio in a given sector. For example, if a majority of the borrowers in a lender’s
textile manufacturing loan portfolio provide specific emissions data, these averages could beapplied (instead of industrywide sector averages) to the remainder of the borrowers in the sector
that did not provide specific emissions data.

77

Financed Emissions – Second Edition –Timing of emissions
Another limitation of the described options stems from the use of year-end outstanding balances.
For a portfolio that includes loans and equity investments to businesses in industries with highseasonal variability or temporal volatility, using year-end outstanding balances may not capture
the activity occurring during seasons that do not overlap with the end of the year. Similarly,
reporting financial institutions using different fiscal calendars may be less comparable with eachother. A solution could be that financial institutions opt to conduct GHG accounting using an
average monthly balance for the year instead of a year-end balance. However, this would put
more burden on the reporting financial institutions. If financial institutions decide to apply suchaverage monthly balances, they should report these results separately and make the method andassumptions transparent.
Market value fluctuations
When using EVIC as the denominator for business loans to listed companies, assets undermanagement change as a result of fluctuating market prices. Under the influence of thisfluctuation, an objective to reduce relative financed emissions (also referred to as emission
intensities) by a certain percentage becomes a moving target. Using normalized assets undermanagement may help overcome this, as prices are held constant over the target period. For
example, the EU TEG and EU regulation on benchmarks require the application of an inflation
correction to changes in EVIC over time.
Applying corrections for market price fluctuations can highly influence the results and heavily
reduce the comparability of results between different financial institutions when appliedinconsistently. In addition, corrections could theoretically be applied to many other variables (likeexchange rates, inflation, emerging versus emerging markets, etc.), further reducing comparability.
For that reason, PCAF requires all financial institutions to report their uncorrected absoluteemissions as a minimum. Corrected results may optionally be reported separately. If the financial
institution decides to apply such adjustments, they should be made transparent. In the future,
PCAF will also investigate the challenges linked to steering on financed emissions and describe
the metrics in use by investors as emerging practices.

785.3		 Project finance
5.3 Project finance

6
AP

TE

R

6
R

5

R

TE

PT

CH

RA
CH

TE
AP
CH

AP

5E

5

4

R

R

TE

TE

AP

AP

CH

CH

4

R
TE

3

R
TE
AP

AP
CH

Reportemissions

CH

Review and apply
accounting
methodologies foreach asset class

Review
Review and apply Review and apply
IdentifyReview
Reportaccounting and accounting
accounting
andaccounting
business
emissionsforreporting principlesreporting
methodologies
principles for methodologies
goalsand rules
andeachrules
asset class each asset class
CH

3
R
TE

2
R
TE
AP

AP
CH

CH

R

1
R

TE

AP

AP
CH

CH

CH

AP

TE

R

TE

1

Introduction

UnderstandIdentify
what GHG
businessaccounting
goals
is
2

UnderstandIntroduction
what GHG
accounting isFinanced Emissions – Second Edition –Asset class definition
This asset class includes all on-balance sheet loans or equities to projects or activities that aredesignated for specific purposes, i.e., with known use of proceeds as defined by the GHG Protocol.
The financing is designated for a defined activity or set of activities, such as the construction
and operation of a gas-fired power plant, a wind or solar project, or energy efficiency projects.
To calculate emissions, only the financed (ring-fenced) activities are included. Emissions andfinancials related to existing activities outside the financed project but within the financed
organization are not considered.

Emission scopes covered
Financial institutions shall report the absolute scope 1 and 2 emissions of the project. Scope 3
emissions should be covered if relevant.117 Avoided and removed emissions may be reported if
relevant but must be reported separately from absolute emissions.

Attribution of emissions
As a basic attribution principle, the financial institution accounts for a portion of the annual
emissions of the financed project. This portion is determined by the attribution factor, which is
the ratio between the institution’s outstanding amount (numerator) and the total equity and debt
of the financed project (denominator).118

Attribution factorp =Outstanding investmentp
Total equity + debtp

For equity, the outstanding amount is calculated as follows:#shares of financial institutionp
× total equityp
total sharesp(with p=project)

The outstanding amount in the numerator is the amount of debt or equity provided by the individual
financier. In the case of debt, the outstanding amount is defined as the value of the debt the borrower
owes to the lender (i.e., disbursed debt minus any repayments119). In the case of equity, the outstanding
amount is the outstanding value of equity the financial institution holds in the project. It is calculated
by multiplying the relative share of the financial institution in the respective project120 by the total
equity of the respective project according to its balance sheet. Guarantees have no attribution until
they are called and turned into a loan. Financial institutions should either use the calendar or financial
year-end outstanding amount, provided the approach is communicated and used consistently.
117 Examples of projects where scope 3 emissions are relevant include but are not limited to nuclear power plants, hydroelectric
power plants, infrastructure projects (airports, highways), and oil and gas exploration.
118 The attribution factor calculation is, in principle, only possible for project finance where project-specific financial data isavailable. For project finance where such data is unavailable, the attribution factor cannot be calculated but rough estimations
on attribution can still be made based on region- and sector-specific average financial data and the outstanding amount. This is
explained in more detail in the “Equations to calculate financed emissions” and “Data required” sections below (see Option 3b andOption 3c).
119 It should be emphasized that the outstanding of a debt position does not include interest accrued by the borrower. This value
should only represent the amount disbursed by the financial institution minus any repayments on the principal because this moreaccurately reflects the impact of the loan in the real economy.
120 The relative share of the financial institution in the respective project is calculated by dividing the number of shares the financial
institution holds in the respective project by the total number of shares of the investee.

80Financed Emissions – Second Edition –At the start of the project, the total equity121 and debt122 in the denominator is the total financing
available for the project (total debt plus equity to realize the project).123 In subsequent years, it isexpected that projects will report annually on their financials, including balance sheet information,i.e., the total equity and debt within the project. The value of total equity and debt in the
denominator can then be used to calculate the attribution factor.
Figure 5-2 illustrates the attribution rule, where initially most of the emissions or avoided
emissions from the project are attributed to debt, but as debt is repaid more and more of theemissions become attributable to the equity providers.
Figure 5-2. Illustration of changes in equity/debt attribution over time
100%
90%
80%
70%
60%

50%
40%
30%
20%
10%
0%

01

23

45

67

89

10

11

12

13

14

attribution to debt

15

16

17

18

19

20

21

22

23

24

25

attribution to equity

Equations to calculate financed emissions
The financed emissions from a single project are calculated by multiplying the attribution factor
by the emissions of the respective project. The total financed emissions from multiple projects arecalculated using the following equation:

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = @ 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓" × 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒"(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑝𝑝 = 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝)"

In this asset class, the sum represents all projects in a financial institution’s portfolio, and theattribution factor represents the proportional share of a given project—that is, the ratio of theoutstanding amount to total equity and debt:

121 In cases where the total project equity value according to the project’s balance sheet is negative, the financial institution shall set
total equity to 0; this means that all emissions are attributed to debt only, while no emissions are attributed to equity investments.
This can happen when the retained earnings are negative while at the same time being higher than the other equity components
on the balance sheet of the project. By this approach, for those projects that are doing well (i.e., they have high retained earnings),
financial institutions attribute more emissions to equity providers; for those projects doing poorly (i.e., they have high retained
losses), financial institutions attribute more emissions to debt providers. This is in line with the attribution factor rationale forlisted companies, where the equity part of EVIC (i.e., market capitalization) also implicitly reflects retained earnings and losses(e.g., if retained earnings increase, the share price and market capitalization generally also increase).
122 Total debt includes both current and long-term debt on the balance sheet.
123 If total debt or total equity cannot be obtained from a project’s balance sheet for whatever reason (e.g., for some it might bedifficult to obtain these values), financial institutions are allowed to fall back to the total balance sheet value (i.e., the sum of total
equity and liabilities, which is equal to the project’s total assets) with the intention of improving this data quality in the future.

81

Financed Emissions – Second Edition –𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = @(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑝𝑝 = 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝)"

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎"
× 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒"
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑"

Overall, PCAF distinguishes three different options to calculate project emissions depending on
the availability of project-specific data:• Option 1: reported emissions, where verified124 or unverified125 emissions are collectedfrom the project directly or indirectly through independent third parties.
• Option 2: physical activity-based emissions, where emissions are estimated basedon primary physical activity data collected from the project (e.g., fuel consumed or
megawatt-hours of electricity produced). The emissions data should be estimated using
an appropriate calculation methodology or tool with verified emission factors expressed
per physical activity (e.g., tCO2e/MWh) issued or approved by a credible independent bodysuch as the International Energy Agency (IEA).
• Option 3: economic activity-based emissions, where emissions are estimated based on
economic activity data collected from the project (e.g., revenue or assets). The emissions
data should be estimated using official statistical data or acknowledged EEIO tables
providing region- or sector-specific average emission factors expressed per economic
activity (e.g., tCO2e/€ of revenue or tCO2e/€ of asset).126

Data required
Within the due diligence and monitoring of a project finance transaction, the availability andquality of project-specific data is generally good. Project-specific reported emissions (Option 1)
ranks highest in quality and consistency but will not always be available. Physical activity-based
data (Option 2) such as megawatt-hours produced is generally available from a previous year oras an estimate (e.g., P50 estimations for renewable energy projects).127 The lowest data quality
applies when there is no project-specific physical data and only financial data is available (Option
3).
The data quality scorecard in Table 5-10 is recommended for project finance. Financial
institutions can refine or further specify this generic data quality table per project type, as long as
these refined data quality tables are disclosed transparently.
124 This refers to reported emissions being calculated in line with the GHG Protocol and verified by a third-party auditor.
125 This refers to reported emissions being calculated in line with the GHG Protocol without verification by a third-party auditor.
Unverified reported emissions can be calculated by either an external party or by the borrower or investee itself.
126 Sampling tests based on actual data on the company level extrapolated to the portfolio level can help to test the accuracy of
calculations based on this data from statistics or EEIO tables. This may also be used to refine the data for specific sectors or
regions if the reporting financial institution has a strong presence in and specific knowledge of the respective sector or region.
National agencies and regional data providers or statistical offices in individual regions may assist reporting financial institutions
and borrower or investee companies in various regions in finding regional and more relevant financial or emissions data
information.
127 For renewable energy projects it is customary to have experts calculate percentile production predictions based on an analysis
of historic data resource data (wind, irradiation, hydraulic flow, etc.). The P50 value is the predicted annual production for which
there is a 50% probability it will be exceeded in a given year. The P90 value is the predicted value that has a 90% probability of
being exceeded in a given year (the 1-year P90) or of being exceeded in an average year over a 10-year period (the 10-year P90).
PCAF proposes using the P50 predicted production.

82

Financed Emissions – Second Edition –Table 5-10. General description of the data quality score table for project finance(score 1 = highest data quality; score 5 = lowest data quality)

Data Quality

Options to estimate thefinanced emissions

Score 11a

Outstanding amount in the project and total
project equity plus debt are known. Verified
emissions of the project are available.

1b

Outstanding amount in the project and total
project equity plus debt are known. Unverified
emissions reported by the project are available.

2a128

Outstanding amount in the project and total
project equity plus debt are known. Projectemissions are not known but calculated using
primary physical activity data for the project’s
energy consumption and emission factors129
specific to that primary data. Relevant process
emissions are added.

2b

Outstanding amount in the project and total
project equity plus debt are known. Projectemissions are not known. Emissions arecalculated using primary physical activity data
for the project’s production130 and emission
factors specific to that primary data.

3a

Outstanding amount in the project, total project
equity plus debt, and the project’s revenue131 are
known. Emission factors for the sector per unitof revenue or from similar projects is known (e.g.,
tCO2e per euro or dollar of revenue earned in asector).

3b

Outstanding amount in the project is known.
Emission factors for the sector per unit of asset
or economic activity-based emission factors
from similar projects (e.g., tCO2e per euro or
dollar of asset in a sector) are known.

3c

Outstanding amount in the project is known.
Emission factors for the sector per unit ofrevenue (e.g., tCO2e per euro or dollar of revenue
earned in a sector) and asset turnover ratios forthe sector or from similar projects are known.

Option 1:
Reported emissions

Score 2

Option 2:
Physical activitybased emissions
Score 3

Score 4

Option 3:
Economic activitybased emissions

When to use each option

Score 5

A detailed summary of the data quality score table, including data needs and equations to
calculate financed emissions, is provided in Annex 10.1 (Table 10.1-3).
PCAF expects that the financed emissions for most projects can be derived through either
reported emissions (Option 1), physical activity data (Option 2), or economic activity data
(Option 3).

128 The quality scoring for Option 2a is only possible for/applicable to scope 1 and scope 2 emissions as scope 3 emissions cannot be
estimated by this option. Other options can be used to estimate the scope 3 emissions, however.
129 Supplier-specific emission factors (e.g., from an electricity provider) for the respective primary activity data are always preferredover non-supplier-specific emission factors.
130 Production can refer to both the production of physical outputs such as steel as well as the production of electricity.
131 If revenue is not deemed a suitable financial indicator for estimating the emissions of a project, one can apply other suitablefinancial indicators as a proxy. If an alternative indicator is used, the reasoning for the selection of this alternative indicator should
be made transparent. The data quality score will not be affected.

83

Financed Emissions – Second Edition –Avoided emissions
Avoided emissions related to renewable power projects are the reduction in emissions of thefinanced project compared to what would have been emitted in the absence of the project (thebaseline emissions). They are calculated based on the GHG Protocol for Project Finance and are aseparate category compared to the calculation of absolute emissions based on the GHG Protocol
for Corporate Accounting.
Calculating the annual avoided emissions from a financial institution’s renewable power project
portfolio at a fixed point in time and in line with the financial reporting cycle is a complex process.
The (estimated) annual power production of these projects over the reporting period must becompared with the power mix per country over the same period. In this comparison, it is assumed
that the production of renewable power (over the reporting period) might have avoided the needto run certain fossil fuel power plants.
The power mix and associated grid emission factors can be derived using various approaches andassumptions, as illustrated in Table 5-11.
Table 5-11. Emission factors per type of power mix
Preferred
options

Type of mix

Description of emission factors

1

Operating margin132

The operating margin, represents the marginal generating
capacity in the existing dispatch hierarchy in a country/region
that will most likely be displaced (i.e., the generation from thepower plants with the highest variable operating costs in theeconomic merit order dispatch of the electricity system).

2

Fossil fuel mix traded

Emission factors based on the emissions of all fossil fuelpower (including or excluding nuclear) traded (i.e., produced
and imported minus exported) in a country or region.

3

Fossil fuel mix produced Emission factors based on the emissions of all fossil fuelpower (including or excluding nuclear) produced in a country
or region.

4

Average electricity mix

Emission factors based on the emissions of all power (fossil
and non-fossil) produced in a country or region.

Various publicly available data sources on national and international levels are available andprovide the data to calculate these emission factors (e.g., International Energy Agency (IEA), US
Environmental Protection Agency (EPA), European Environment Agency (EEA)).
PCAF prefers to use the operating margin emission factor for the accounting of the avoided
emissions of renewable power project portfolios over the reporting period. The International
Finance Institution (IFI)-harmonized GHG accounting standards and approaches calculated these
operating margin emission factors for various countries using the methodology published by the
IFI Technical Working Group on Greenhouse Gas Accounting.133

132 The operating margin is a term defined under the UNFCCC Clean Development Mechanism for grid-connected electricity
generation from renewable sources and represents the cohort of existing power plants whose operation will be most affected(reduced) by the project.
133 (IFI, 2020)84

Financed Emissions – Second Edition –If the operating margin is not available, financial institutions can use the fossil fuel mix traded,
the fossil fuel mix produced, or (as a last resort) the average electricity mix. In principle, PCAF
recommends excluding nuclear energy in line with the IFI methodology but also allows theinclusion of nuclear as most data sources include nuclear power under the fossil fuel mix.

Emission removals
Emission removals can be relevant for project finance. Sequestered emissions (which is one formof emission removals) account for carbon sinks where carbon is absorbed from the atmosphere.
Projects in an FI’s portfolio should report on emission removals, whether nature- or technology
based,134 as part of their GHG reporting. Reporting should follow existing GHG Protocol guidance,and emission removals shall be reported separately from both absolute emissions and any carbon
credits retired and generated.
Carbon credits generated by projects should be reported and carbon credits retired may bereported. These figures can provide transparency and context for the financed emissions andremovals. Ultimately, the goal of the PCAF Financed Emissions Standard is to transparently
report the total emissions impacts of lending and investments, not diluted by credits retired or
generated.
FIs can calculate attribution of projects’ reported emission removals using the existing attribution
set out in this chapter (see formula below); this same logic applies to any attribution of projects’
reported credits retired or generated.
Emission removals =∑p

Outstanding investmentp
× Project emission removalsp
Total project equity+debtp(with p=project)

Example accounting – a portfolio of different projects
An FI invests into multiple projects with different emissions profiles as illustrated in the following
table. All numbers are in tCO2e for the reporting year 2020 and are dummy data for the purposeof this example.
Table 5-12: Example of data input for calculating a portfolio of different companies
Scope 1

Scope 2

Scope 3Emission Carbon
removals credits
retiredCarboncredits
generated

Attribution
factorForestry
company

1,000

100

5,000

20,000

0

5,000

10%

Industrial
company

20,0005,000

30,000025,000025%Energycompany

5,000

010,000

1,000

5,000

500

20%

134 Note that new GHG Protocol guidance is being developed on accounting for land sector activities and CO2 removals in corporate
GHG inventories, building on the Corporate Standard and Scope 3 Standard. Draft guidance for this is expected in 2022. Where
necessary, the PCAF Global Standard will be updated in line with the final version of the new GHG Protocol guidance.

85

Financed Emissions – Second Edition –The portfolio contains a forestry project that sells carbon credits based on its forestry activities,
an industrial project that buys carbon credits based on forestry activities, and a green energy
project that builds renewable power plants combined with afforestation activities. The FI would
report aggregated numbers for this portfolio per the table below. This table sums the attributed
emissions and credits of the forestry, industrial, and energy projects from the table above. Notethat reporting of avoided emissions and carbon credits retired by clients is optional.
Table 5-13: Calculation example of a portfolio of different companies
Based on companies in above Calculation
table

Total portfolio
numberScope 1 – Absolute emissions

1,000 x 10% + 20,000 x 25% + 5,000 x 20%

6,100

Scope 2 – Absolute emissions

100 x 10% + 5,000 x 25%

1,260

Scope 3 – Absolute emissions

5,000 x 10% + 30,000 x 25% + 10,000 x 20%

10,000Emission removals

20,000 x 10% + 1,000 x 20%

2,200

Carbon credits retired

25,000 x 25% + 5,000 x 20%

7,250

Carbon credits generated

5,000 x 10% + 500 x 20%

600

FIs may further subdivide these overall reporting categories into subcategories. For example,
carbon credits retired may be further reported separately by specific type of credit (e.g.,
emissions “avoidance” versus “removal”)135 or classified based on the credit standard (e.g., VCS orGold Standard). The FI may separately report ‘net’ numbers that display total absolute emissions
minus total emission removals, for example. Nonetheless, for the purposes of this Financed
Emissions Standard, the fundamental requirement is that reporting should at a minimum include
separate numbers for absolute emissions and emission removals, in addition to any ‘net’ numbers.

Example tool to calculate emission removals – the FoRESt Carbon Sequestration(FRESCOS) Tool
FMO has been working with three other European development finance institutions (CDC,
Finnfund, and Swedfund) and Finnish forestry expert Simosol to build an online tool to estimate
the amount of carbon sequestered through plantation and agroforestry operations, called the
FRESCOS Tool. The tool is built upon the IPCC Guidelines for National GHG Inventories andcan be found at https://www.frescos.earth. While PCAF does not endorse the use of this tool
specifically, the FRESCOS Tool is an example of a tool that can be used by FIs as a basis forcalculating financed emission removals. The FRESCOS tool is open for other FIs and interested
parties to use.

Lifetime emissions
Portfolio accounting of emissions occurring in the reporting year does not consider lifetime
emissions insofar as these emissions happen before or after the reporting year. For example,
emissions related to future disposal of a wind park are not reported in the current reporting year.

135 Reporting around the use of carbon offsets may need to evolve because it does not yet consistently distinguish between
avoidance and removal offsets.

86

Financed Emissions – Second Edition –Nevertheless, this principle is problematic for construction projects. For example, in the case of agas-fired power plant, construction emissions would be accounted during the construction phaseand operational emissions during the operational phase. However, if the loan is repaid shortly
after operation starts, the portfolio emissions for that investment would only reflect a small
portion of the total emissions impact created during the lifetime of that gas-fired power plant.
As the power plant is often constructed by a third party (i.e., a construction company) contracted
by the project developer, the emissions of the construction and purchased goods and services arenormally reported under scope 3 of the project developer. These scope 3 emissions are usually
not significant enough to report or they might be unavailable, in which case no emissions will bereported. When these scope 3 emissions are relevant, they should be reported.
To address the above, a financial institution should, if they are an initial sponsor or lender, assess
the total projected lifetime scope 1 and 2 emissions for projects that were financed during thereporting year. Those emissions should be reported separately in the year of contracting. If afinancial institution would be an initial lender for the above example of a gas-fired power plant, it
should report in the year of contracting the total projected lifetime scope 1 and 2 emissions basedon the installed capacity of the plant, the expected load factor of the plant, the expected lifetimeof the plant, and the expected carbon content of the gas used.

Portfolio vs. (annualized) lifetime emissions
Various (multilateral) development banks have been working on harmonizing GHG accountingof new projects under the IFI Framework for a Harmonized Approach to Greenhouse Gas
Accounting.136 These financial institutions developed a methodology to calculate the expected
emissions of newly signed contracts for specific projects in the reporting year.137 In the IFI
methodology, avoided emissions are assessed using emission factors (called combined margin)that incorporate future greening of the electricity grid. These avoided emissions are annualized
and reported in the year of loan/equity origination.
Unlike the IFI methodology, PCAF’s portfolio GHG accounting involves calculating the annual
emissions linked to the financial institution’s balance sheet and using emission factors (operating
margin) that are based on the existing fossil fuel power plants in a country or region whose
operation will be most affected (reduced) by the project.
PCAF considers portfolio and (annualized) lifetime GHG accounting to be complementary.
Portfolio GHG accounting better lends itself to target setting compared to a global carbon
budget, whereas (annualized) lifetime GHG accounting can be used to reflect the generated
emissions or avoided emissions over the operational lifetime. Portfolio GHG accounting is moresuited to guide strategic developments on a portfolio level, while lifetime GHG accounting can beused to make investment-level decisions (e.g., to avoid investments with carbon lock-in).

136 (UNFCCC, 2015). Additional information can be found at: https://unfccc.int/climate-action/sectoral-engagement/ifisharmonization-of-standards-for-ghg-accounting
137 The emission factors can be found at: https://unfccc.int/climate-action/sectoral-engagement/ifis-harmonization-of-standards-forghg-accounting/ifi-twg-list-of-methodologies

875.4		 Commercial
real estate
5.4 Commercial
real estate

6
AP

TE

R

6
R

5

R

TE

PT

CH

RA
CH

TE
AP
CH

AP

5E

5

4

R

R

TE

TE

AP

AP

CH

CH

4

R
TE

3

R
TE
AP

AP
CH

Reportemissions

CH

Review and apply
accounting
methodologies foreach asset class

Review
Review and apply Review and apply
IdentifyReview
Reportaccounting and accounting
accounting
andaccounting
business
emissionsforreporting principlesreporting
methodologies
principles for methodologies
goalsand rules
andeachrules
asset class each asset class
CH

3
R
TE

2
R
TE
AP

AP
CH

CH

R

1
R

TE

AP

AP
CH

CH

CH

AP

TE

R

TE

1

Introduction

UnderstandIdentify
what GHG
businessaccounting
goals
is
2

UnderstandIntroduction
what GHG
accounting isFinanced Emissions – Second Edition –Asset class definition
This asset class includes on-balance sheet loans for specific corporate purposes, namely thepurchase and refinance of commercial real estate (CRE), and on-balance sheet investments in
CRE when the financial institution has no operational control over the property. This definition
implies that the property is used for commercial purposes, such as retail, hotels, office space,industrial, or large multifamily rentals. In all cases, the owner of the building uses the property to
conduct income-generating activities.
In case of no operational control, CRE investments by asset owners are also included in thismethod. These investments consist of deals where the asset owner partially owns the building
in a joint venture, joint operation, or in joint ownership, but doesn’t have the full authority tointroduce and implement operating policies at the property.
CRE investments listed in the stock market are classified as listed equity. In this case, financial
institutions shall use the method for listed equity (subchapter 5.1).
Loans secured by CRE for other purposes than CRE and loans to CRE companies that are
unsecured are classified as business loans if the loans are for general corporate purposes(i.e., with unknown use of proceeds as defined by the GHG Protocol). In these cases, financial
institutions shall use the method for business loans (subchapter 5.2).
Loans for construction and renovation of CRE are optional. As the building is often constructedby a third party (i.e., a construction company) contracted by the project developer, the emissionsof the construction are normally reported under scope 3 of the project developer during thebuilding’s construction phase. As such, it can be impractical for the lender to measure thefinanced emissions of a construction or renovation loan unless the project developer reports
construction emissions. The following section on emission scopes covered provides further
explanation.

Emission scopes covered
For property already built, financial institutions shall cover the absolute scope 1 and 2 emissions
related to the energy use of financed buildings during their operation. Energy use includes theenergy consumed by the building’s occupant and shared facilities.
Reporting financed emissions from construction or renovation of buildings is optional. Whenmeasuring these emissions, financial institutions should refer to the GHG Protocol’s guidance
to account for construction emissions.138 If the property developer is a company that measuresand reports construction emissions, financial institutions should account for the related financed
emissions during the building’s construction phase. If the property developer does not measure
and report construction emissions, financial institutions should engage with the property
developer to encourage the practice of measuring and reporting these emissions.
While reporting financed construction emissions is not yet required, PCAF acknowledges that
138 (ENCORD, 2012)89

Financed Emissions – Second Edition –construction emissions, notably building’s embodied GHG emissions, are important and should
not be neglected. PCAF will continue to monitor guidance developments139 on the subject. Whenrobust approaches and data to measure the embodied emissions of buildings are available, PCAF
could expand its coverage to include these emissions.

Attribution of emissions
When calculating the financed emissions, a building’s annual emissions are attributed based on
the ratio between the outstanding amount and the property value at the time of loan or equity
origination. This ratio is called the attribution factor:

𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓# =(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑏𝑏 = 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏)

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎#
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜#

For loan providers, the numerator is the outstanding loan amount,140 whereas for investors, it is
the outstanding investment amount. In both cases, the outstanding amount is the value of theloan or investment on the financial institution’s balance sheet.
When the property value at loan or equity origination is not feasible to obtain, financial
institutions shall use the latest property value available and fix this value for the following yearsof GHG accounting, i.e., the denominator remains constant from the first year of GHG accounting
onward.141 The property value should include the value of the land, the building, and any building
improvements. When a CRE loan is modified (e.g., loan amount is increased, renewed, refinanced,
or extended) and a new property value is obtained as part of the transaction, the property value
at origination shall be updated to the property value at the time of the modification.
When asset owners invest in CRE, they either fully finance the property or partially finance itthrough joint ventures, joint operation, or in joint ownership with other asset owners. When CRE
is fully financed by an asset owner and the asset owner doesn’t have operational control over thebuilding, 100% of the building’s emissions are attributed to the asset owner’s financed emissions.
When CRE is jointly financed by a group of asset owners, the attribution is based on the shareinvested by each asset owner.

139 For example, the World Business Council for Sustainable Development (WBCSD) is working on creating an approach for theembedded carbon of constructions. At this point, they are defining a theoretical approach with a working group consisting of realestate developers, building material producers, construction companies, and technical consultants. The key in this approach is
to use a life cycle assessment to obtain average values of embedded carbon per square meter of building, which will differ per
climate zone and building typology.
140 For loan providers, the outstanding amount in the numerator is defined as the value of the debt that the borrower owes to thelender (i.e., disbursed debt minus any repayments). It will be adjusted annually to reflect the correct exposure, resulting in theattribution to decline to 0 at the end of the lifetime of the loan (i.e., when it is fully repaid).
141 Availability of property value at origination varies by country. In some countries, financial institutions can easily retrieve theproperty value at origination from their books and do not typically update it to the current property value. In other countries,
regulators require financial institutions to update the property value year over year.

90Financed Emissions – Second Edition –Equations to calculate financed emissions
Financed emissions of a CRE loan or investment are calculated by multiplying the attribution
factor by the emissions of the building. Thus, financed emissions are calculated as follows:

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = @ 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓# × 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑛𝑛𝑔𝑔 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒#(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑏𝑏 = 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏)#

The emissions of buildings are calculated as the product of a building’s energy consumption
and specific emission factors for each source of energy consumed. The total energy use of thebuilding includes the energy consumed by the occupants of the building.

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = #,%𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎#
× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐#,% × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐%
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜#(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑏𝑏 = 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏 𝑎𝑎𝑎𝑎𝑎𝑎 𝑒𝑒 = 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠)

Data required
Actual building energy consumption is preferred but may not be widely available. In the absenceof metered data, energy use can be estimated based on building characteristics and publicly
available data.
Various sources and commercial databases are available and divide energy consumption bycharacteristics like energy label, type of property, and floor area of property. When applying thesedata on a large sample of financed properties, it is possible to get a reasonable approximation of
the emissions. Similarly, supplier-specific emission factors142 for specific energy sources should
be used if they are available. If they are not, average emission factors143 may be used. PCAF’s
web-based emission factor database provides emission factors by building type, floor area, andnumber of buildings for a large set of geographies. In March 2022, PCAF also launched a publicly
available database of emission factors for European buildings as part of its project, Financing
towards net-zero buildings.
To improve building energy use estimation, financial institutions should collect data on building
characteristics (e.g., size, building use, climate zone, and year constructed). Based on the data
available, the following data hierarchy is proposed in order of preference:

142 In the case of electricity, supplier-specific emission factors are the same as market-based emission factors.
143 In the case of electricity, average emission factors, which are non-supplier-specific emission factors, are the same as locationbased emission factors.

91

Financed Emissions – Second Edition –Table 5-14. General description of the data quality score table for CRE(score 1 = highest data quality; score 5 = lowest data quality)

Data Quality

Options to estimate thefinanced emissions

Score 11aPrimary data on actual building energy
consumption (i.e., metered data) is available.
Emissions are calculated using actual building
energy consumption and supplier-specificemission factors144 specific to the respectiveenergy source.

1b

Primary data on actual building energy
consumption (i.e., metered data) is available.
Emissions are calculated using actual building
energy consumption and average emission
factors specific to the respective energy source.

2a

Estimated building energy consumption per
floor area based on official building energy
labels AND the floor area are available.
Emissions are calculated using estimatedbuilding energy consumption and average
emission factors specific to the respectiveenergy source.

2b

Estimated building energy consumption
per floor area based on building type andlocation-specific statistical data AND the floorarea are available. Emissions are calculatedusing estimated building energy consumption
and average emission factors specific to therespective energy source.

3

Estimated building energy consumption perbuilding based on building type and locationspecific statistical data AND the number ofbuildings are available. Emissions are calculatedusing estimated building energy consumption
and average emission factors specific to therespective energy source.

Option 1:
Actual building
emissions
Score 2

Score 3
Option 2:
Estimated building
emissions based onfloor area
Score 4

Score 5

Option 3:
Estimated building
emissions based on
number of buildings

When to use each option

A detailed summary of the data quality score table, including data needs and equations to
calculate financed emissions, is provided in Annex 10.1 (Table 10.1-4).

Other considerations
Emission factors specific to energy source
Consumed energy can be converted to CO2e using emission factors. When converting building
energy use to emissions, care should be taken to use emission factors that are appropriate to theenergy type used in the building, e.g., electricity, natural gas, fuel oil, steam, etc. These factors
should be specified according to the type of energy consumed.

144 Supplier-specific emission factor is an emission rate provided by the energy supplier (e.g., utility) to its customers reflecting
the emissions associated with the energy it provides (e.g., electricity, gas, etc.). Average emission factors represent the average
emissions of the respective energy sources occurring in a defined boundary (e.g., national or subnational).

92

Financed Emissions – Second Edition –Building characteristics
Various building characteristics can be taken into consideration to provide additional resolution
to average energy consumption and emissions when actual data is unavailable. Many countries
conduct surveys to publicly provide building type and location-specific statistical data on averageenergy consumption by characteristics such as floor space,145 principal building activity, region,
number of floors, and year constructed. Other national surveys might provide tables on emissions
and energy source or end use by industry and region.
Where possible, the most common regional electricity grid mix data for the building’s location
should be used. If this is unavailable, country-level electricity grid mix emissions data should be
used.

Limitations
Country-specific assumptions
Many countries lack widespread use of building energy labels, and it may be challenging for
financial institutions to access a borrower’s measured energy consumption data. As such, limited
actual data will require financial institutions to estimate building energy use. Institutions may findthat the data they have available in the existing portfolio requires using average values. Collecting
additional building data at loan or investment origination may improve future estimations ofenergy use. Some municipal governments are collecting building energy data, and this could
prove useful for some financial institutions.
Some country-specific adjustments will need to be made to make the calculation applicabledepending on the data availability and standards in each country. The variations across countries
in their systems of categorizing the energy efficiency of buildings require a tailored approach for
optimal accuracy in calculations.
Property value
This Financed Emissions Standard requires financial institutions to use the property values
determined at loan or equity origination in relation to the original value of the property. Thus,
using the outstanding amount to the original value provides a consistent estimate of the
proportion of the project attributable to the loan and investment. Nevertheless, PCAF recognizes
that the availability of property value at loan or equity origination varies globally. In somecountries, financial institutions can easily retrieve the property value at origination from theirbooks and do not typically update it on an annual basis. In other countries, regulators require
financial institutions to update property values annually.
Considering these differences, and to ensure as much consistency as possible in the calculations,when financial institutions do not have the property value at origination, they shall use thelatest property value available. In addition, they shall fix this value for the following years of GHG
accounting, i.e., the denominator remains constant from the first year of GHG accounting onward.
The property value includes the value of the land, the building, and any building improvements.
145 When selecting an emission factor based on floor space, financial institutions should make sure that the unit of the emission
factor matches the type of floor area, e.g., net floor area, usable floor, etc.

93

5.5		 Mortgages
5.5 Mortgages

6
AP

TE

R

6
R

5

R

TE

PT

CH

RA
CH

TE
AP
CH

AP

5E

5

4

R

R

TE

TE

AP

AP

CH

CH

4

R
TE

3

R
TE
AP

AP
CH

Reportemissions

CH

Review and apply
accounting
methodologies foreach asset class

Review
Review and apply Review and apply
IdentifyReview
Reportaccounting and accounting
accounting
andaccounting
business
emissionsforreporting principlesreporting
methodologies
principles for methodologies
goalsand rules
andeachrules
asset class each asset class
CH

3
R
TE

2
R
TE
AP

AP
CH

CH

R

1
R

TE

AP

AP
CH

CH

CH

AP

TE

R

TE

1

Introduction

UnderstandIdentify
what GHG
businessaccounting
goals
is
2

UnderstandIntroduction
what GHG
accounting isFinanced Emissions – Second Edition –Asset class definition
This asset class includes on-balance sheet loans for specific consumer purposes—namely
the purchase and refinance of residential property, including individual homes and multifamily
housing with a small number of units. This definition implies that the property is used only forresidential purposes and not for commercial activities.
If the loan is used to refinance a mortgage and this loan is provided by the original mortgage
provider, the new loan supersedes the original mortgage. If the refinancing is done by an
institution other than the original loan provider, the new loan and associated building’s emissions
are attributed to the institution providing the loan for refinancing.
Home equity loans (HELs) and home equity lines of credit (HELOCs) are not required under
this methodology given that these products are generally consumer loans for general consumer
purposes, i.e., with unknown use of proceeds as defined by the GHG Protocol.146
Mortgages used to construct or renovate a house are not required at this point given that the
homeowner does not directly account for construction emissions. As a home is often constructedor renovated by a third party (i.e., a home builder) contracted by the homeowner, the emissionsof the construction would normally be accounted by the third party during the building’s
construction phase.147
Nevertheless, PCAF acknowledges that construction emissions, notably building’s embodied GHG
emissions, are important and should not be neglected. PCAF recommends financial institutions
to find opportunities in the due diligence process to influence the homeowner into making lowcarbon choices. PCAF will continue to monitor guidance developments148 on the subject. Whenrobust approaches and data to measure the embodied emissions of buildings are available, PCAF
could expand its coverage to include these emissions.

Emission scopes covered
Financial institutions shall cover the absolute scope 1 and 2 emissions related to the energy useof the property financed through the mortgage. Energy use includes the energy consumed by thebuilding occupants. If the mortgage is used to purchase a multifamily home with shared facilities,
scope 1 and 2 emissions of the whole property should be covered. If the mortgage is used to buy asingle apartment or house, emissions related to the apartment or house should be covered.

146 If the consumer loan is to purchase motor vehicles, financial institutions shall use the motor vehicle loans asset class method(subchapter 5.6).
147 Theoretically, these emissions would be categorized under scope 3 of the homeowner, but in practice homeowners do not reportemissions; thus, it is impractical for financial institutions to measure financed emissions of a construction or renovation mortgage.
148 For example, the WBCSD is working on creating an approach for the embedded carbon of constructions. At this point, they
are defining a theoretical approach with a working group consisting of real estate developers, building material producers,
construction companies, and technical consultants. The key in this approach is to use a life cycle assessment to obtain averagevalues of embedded carbon per square meter of building, which will differ per climate zone and building typology

95

Financed Emissions – Second Edition –Attribution of emissions
When calculating financed emissions, a building’s annual emissions are attributed to the mortgage provider
using a loan-to-value approach. Thus, the attribution is equal to the ratio of the outstanding amount at thetime of GHG accounting to the property value at the time of loan origination.

𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓# =(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑏𝑏 = 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏)

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎#
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜#

When the property value at loan origination is not feasible to obtain, financial institutions shall use the latest
property value available and fix this value for the following years of GHG accounting, i.e., the denominatorremains constant.149
The attribution approach assumes the residential property owner also takes ownership of the building’s
emissions.

Equations to calculate financed emissions
Financed emissions of mortgages are calculated by multiplying the attribution factor by the emissions of thebuilding. Thus, financed emissions are calculated as follows:

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = @ 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓# × 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒#(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑏𝑏 = 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏)#

The emissions of buildings are calculated as the product of a building’s energy consumption and specificemission factors for each source of energy consumed. The total energy use of the building includes the energy
consumed by the building’s occupant. The equation below is the result.

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = #,%𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎#
× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐#,% × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓%
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜#(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑏𝑏 = 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏 𝑎𝑎𝑎𝑎𝑎𝑎 𝑒𝑒 = 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑔𝑔𝑔𝑔 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 )149 Availability of property value at loan origination varies by country. In some countries, financial institutions can easily retrieve the property value
at loan origination from their books and do not typically update it to the current property value. In other countries, regulators require financial
institutions to update the property value year over year..

96

Financed Emissions – Second Edition –Data required
The availability of data on the energy consumption of properties is still limited in many countries;
in others, it has improved considerably due to policy regulations within the built environment,such as the introduction of energy performance certificates and energy labels. In such countries,
the available data is usually anonymized by averaging data over several households in the same
peer group. Often, buildings’ energy data is available by energy label, type of household or sector,
and type of property. When applying these data on many financed properties, it is possible to geta reasonable approximation of the emissions.
As more data sources become available, financial institutions are expected to move up the data
hierarchy. Easily accessible data for many countries is currently between score 4 and 5 of thedata quality score table provided below.
Some financial institutions may not collect information on property size, in which case they can
use the average energy consumption by building and geographic region. Financial institutions
should use the highest quality dataset available and evaluate new data sources on a regular basis.
Supplier-specific emission factors150 for specific energy sources should be used if they areavailable. If they are not, average emission factors151 may be used. PCAF’s web-based emission
factor database152 provides emission factors by building type (e.g., single-family house andmultifamily house), floor area, and number of buildings for a large set of geographies.

150 In the case of electricity, supplier-specific emission factors are the same as market-based emission factors.
151 In the case of electricity, average emission factors, which are non-supplier-specific emission factors, are the same as locationbased emission factors.
152 The PCAF web-based emission factor database is currently only available to financial institutions that have committed to PCAF.

97

Financed Emissions – Second Edition –The following data hierarchy is proposed in order of preference:
Table 5-15. General description of the data quality score table for mortgages(score 1 = highest data quality; score 5 = lowest data quality)

Data Quality

Options to estimate thefinanced emissions

Score 11aPrimary data on actual building energy
consumption (i.e., metered data) is available.
Emissions are calculated using actual building
energy consumption and supplier-specificemission factors153 specific to the respectiveenergy source.

1b

Primary data on actual building energy
consumption (i.e., metered data) is available.
Emissions are calculated using actual building
energy consumption and average emission
factors specific to the respective energy source.

2a

Estimated building energy consumption per
floor area based on official building energy
labels AND the floor area are available.
Emissions are calculated using estimatedbuilding energy consumption and average
emission factors specific to the respectiveenergy source.

2b

Estimated building energy consumption
per floor area based on building type andlocation-specific statistical data AND the floorarea are available. Emissions are calculatedusing estimated building energy consumption
and average emission factors specific to therespective energy source.

3

Estimated building energy consumption perbuilding based on building type and locationspecific statistical data AND the number ofbuildings are available. Emissions are calculatedusing estimated building energy consumption
and average emission factors specific to therespective energy source.

Option 1:
Actual building
emissions
Score 2

Score 3
Option 2:
Estimated building
emissions based onfloor area
Score 4

Score 5

Option 3:
Estimated building
emissions based on
number of buildings

When to use each option

A detailed summary of the data quality score table, including data needs and equations to
calculate financed emissions, is provided in Annex 10.1 (Table 10.1-5).
Financial institutions should work with actual data on the energy consumption of properties, if
available. The consumed energy at the household level (e.g., gas, electricity, heating oil, wood,etc.) can be converted to CO2e-emissions using supplier-specific emission factors or average
emission factors if no emissions data is provided in the chosen data sources. Some data sources
report only energy use whereas others report CO2e emissions.
As an intermediate step, financial institutions could start collecting building size data, in addition
to geographic location and building type, and energy labels, where available, to more accurately
capture the financed emissions of their mortgages.

153 Supplier-specific emission factor is an emission rate provided by the energy supplier (e.g., utility) to its customers reflecting
the emissions associated with the energy it provides (e.g., electricity, gas, etc.). Average emission factors represent the average
emissions of the respective energy sources occurring in a defined boundary (e.g., national or subnational).

98

Financed Emissions – Second Edition –Other considerations
Obtaining data on energy consumption
Actual energy consumption data specific to a certain mortgage portfolio is preferred because thiswill be more accurate than working with average energy consumption data. In some markets withclear government partnerships on climate action, financial institutions might attempt to work at
the policy level to obtain actual data directly from grid operators or government agencies. For
example, in 2020 seven Dutch financial institutions in PCAF collaborated with the Dutch Central
Bureau of Statistics to measure the emissions of their mortgage portfolios.
Almost all grids are reducing their emissions over time, resulting in gradually reduced emissions
for mortgage portfolios. Where possible, the most common regional electricity grid mix data forthe building’s location should be used; if unavailable, country-level electricity grid mix emissions
data should be used. If actual consumption data is unavailable, financial institutions should startcollecting building size, geographic location, and building type data to more accurately capture
the associated emissions of their mortgages.
If actual energy consumption data is used, it may be unclear if all the energy consumption isapplicable solely for the house or, for instance, also for an electric vehicle (EV). If possible, theactual energy consumption data can be further disaggregated to differentiate the electricity usedin the home from the electricity used for charging the vehicle.
Off-balance mortgages and subsidiaries
The scope of this methodology is on-balance sheet mortgages. Off-balance sheet mortgages are
not included. If relevant and substantial, off-balance sheet mortgages can be reported separately.
Distinguishing between private and corporate mortgages
No distinction is made between private or corporate mortgages.
Improving a home’s energy performance
The attribution approach assumes the residential property owner also takes ownership of the building’s
emissions. During the mortgage period, financial institutions may have the opportunity to work with theproperty owner to lower the building emissions by offering additional financial services that are used to
improve the energy performance of the building. Green mortgages, low carbon mortgages, or energy
efficient mortgages are some of the existing products in various markets around the globe.

Limitations
Results depend on data quality
Many assumptions must be made to calculate the emissions of mortgages as data is often difficult
to retrieve for privacy reasons. Even though the calculation method does not differ greatly, thedata sources used can yield different results—for instance, when average consumption data isreplaced by actual consumption data from grid operators.

99

Financed Emissions – Second Edition –Country-specific assumptions
Some country-specific adjustments will need to be made to make the calculation applicabledepending on the data availability and standards in each country. The variations across countries
in their systems of categorizing the energy efficiency of houses require a tailored approach for
optimal accuracy in calculations.

100

5.6		 Motor vehicle
loans
5.6 Motor vehicle loans

6
AP

TE

R

6
R

5

R

TE

PT

CH

RA
CH

TE
AP
CH

AP

5E

5

4

R

R

TE

TE

AP

AP

CH

CH

4

R
TE

3

R
TE
AP

AP
CH

Reportemissions

CH

Review and apply
accounting
methodologies foreach asset class

Review
Review and apply Review and apply
IdentifyReview
Reportaccounting and accounting
accounting
andaccounting
business
emissionsforreporting principlesreporting
methodologies
principles for methodologies
goalsand rules
andeachrules
asset class each asset class
CH

3
R
TE

2
R
TE
AP

AP
CH

CH

R

1
R

TE

AP

AP
CH

CH

CH

AP

TE

R

TE

1

Introduction

UnderstandIdentify
what GHG
businessaccounting
goals
is
2

UnderstandIntroduction
what GHG
accounting isFinanced Emissions – Second Edition –Asset class definition
This asset class refers to on-balance sheet loans and lines of credit to businesses and consumers
for specific (corporate or consumer) purposes - namely the finance of one or several154 motor
vehicles.
Financial institutions will finance different vehicle types and will also use different internal
definitions and categories for the motor vehicle types being financed by their investments. For
example, one financial institution may have a portfolio mainly of passenger cars and motorcycles,
while another financial institution may have a strong share of buses and heavy-duty trucks.
This methodology does not prescribe a specific list of vehicle types falling within this asset class.
Instead, it leaves it open for financial institutions to decide and define what vehicle types toinclude in their inventory of financed emissions. It is the responsibility of each financial institution
to define the vehicle types included in their respective inventories of financed emissions and,in the case of leaving a specific vehicle type out of the GHG accounting exercise, to provide atransparent explanation of why a vehicle type is excluded.
The following non-exhaustive list provides examples of the vehicle types that may fall under theasset class of motor vehicle loans:• Passenger car• Motorcycle• Light commercial truck (e.g., vans)• Medium/heavy commercial truck• Recreational vehicles• Bus• Snowmobiles/all-terrain vehicles• Boats, including outboard motors155• Yellow equipment (i.e., earth-moving vehicles for mining and construction)
Financial institutions typically finance motor vehicle loans through consumer lending or business
lending. Consumer lending for motor vehicles includes financing the purchase of a motor vehicle
for a private person, whereas business loans for motor vehicles typically includes financing a fleet
of motor vehicles for a business.156

154 A single loan might cover the purchase of several vehicles or fleets. In any case, the methodology presented in this chapter should
be used.
155 Depending on the portfolio of some financial institutions, it may be appropriate to differentiate between the vehicle and the
propulsion system of that vehicle. In this case, it is possible to apply the methodology for the vehicle as a whole but also to the
propulsion system on its own. An example of this are financial institutions that have boats on their portfolio. In this case, it iscommon to have loans for boats and also loans for outboard motors alone.
156 Note that the term “fleet” does not necessarily refer to multiple vehicles only. It can also refer to a single business vehicle.

102

Financed Emissions – Second Edition –Emission scopes covered
Financial institutions shall calculate and report the annual scope 1 and scope 2 emissions of thevehicles being financed:• Scope 1: Direct emissions from fuel combustion in vehicles• Scope 2: Indirect emissions from electricity generation consumed in EVs(hybrid and fully EVs)
Scope 3 emissions related to the production of vehicles, delivery of vehicles to buyers, ordecommissioning of vehicles after use do not need to be covered because these emissions are
difficult to obtain and can be considered rather marginal. However, if a financial institution seeks
to account for the production emissions of new vehicles (i.e., embodied emissions), they shouldreport the emissions as follows:• In the initial financing year, the financial institution shall report the production emissionsof the respective vehicle as a lump sum under scope 3 emissions, while the operation
emissions in the respective year shall be reported under scope 1 or 2 emissions.
• In the following financing years, the financial institution shall not report any production
emissions of the respective vehicle; they shall only report the operation emissions underscope 1 or 2 emissions.
This approach on scope 3 emissions only holds for new vehicles, not used vehicles.

Attribution of emissions
As a basic attribution principle, the financial institution accounts for a portion of the borrower’s
annual motor vehicle emissions as determined by the ratio between the outstanding amount(numerator) and the value of the motor vehicle at loan origination (denominator). This ratio iscalled the attribution factor:
1. Outstanding amount (numerator): This is the actual outstanding motor vehicle loan
amount, defined as the value of the debt that the debtor owes to the creditor. It will be
adjusted annually to reflect the correct exposure, resulting in the attribution to decline to
0 at the end of the lifetime of the loan (i.e., when it is fully repaid). Financial institutions
should either use the calendar or financial year-end outstanding loan, provided theapproach is communicated and used consistently.
2. Total value at origination (denominator): This is the total value of the motor vehicle
at loan origination, which corresponds to the price of the vehicle at the time of thetransaction, i.e., equity plus debt at origination.

𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓$ =𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎$
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜$(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑣𝑣 = 𝑣𝑣𝑣𝑣ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑜𝑜𝑜𝑜 𝑣𝑣𝑣𝑣ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓)

103

Financed Emissions – Second Edition –If the total value of the motor vehicle at origination (i.e., the denominator) is unknown, financial
institutions should take a conservative approach and assume 100% attribution. As soon as the
motor vehicle loan is repaid, the financed emissions associated to that loan are equal to 0.

Equations to calculate financed emissions
The financed emissions from a motor vehicle loan are calculated by multiplying the attribution
factor by the emissions of the motor vehicle. The total financed emissions from multiple motor
vehicle loans are calculated as follows:

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 = @ 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓$ × 𝑉𝑉𝑉𝑉ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒$$(𝑤𝑤𝑤𝑤𝑤𝑤ℎ 𝑣𝑣 = 𝑣𝑣𝑣𝑣ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑜𝑜𝑜𝑜 𝑣𝑣𝑣𝑣ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓)

The emissions can, in principle, be calculated by multiplying the distance traveled by thevehicle (e.g., km) by the fuel efficiency of the vehicle (e.g., l diesel/km, kWh electricity/km) andan emission factor specific to the fuel type of the vehicle (e.g., kg CO2e/l diesel, kg CO2e/kWhelectricity). The total financed emissions from multiple motor vehicle loans are calculated asfollows:
Financed emissions =∑v∑

Financed emissions =v, fOutstanding amountv
× Vehicle emissionsv
Total value at originationv

Outstanding amountv
× Distance traveledv x Efficiencyv,f × Emission factorf
Total value at originationv(with v=vehicle or vehicle fleet, f=fuel type)The financed emissions from motor vehicle loans can be calculated in several ways depending on
the availability of data to derive the emissions of the financed vehicle. Overall, PCAF distinguishes
three options to calculate the financed emissions from motor vehicle loans depending on the data
used:157• Option 1: actual vehicle-specific emissions,158 where emissions are calculated based on
actual vehicle fuel consumption or actual vehicle distance traveled for a known vehicle
make and model with data directly collected from the borrower.
- Option 1a: Vehicle emissions are calculated based on primary data on actual
vehicle fuel consumption.
- Option 1b: Vehicle emissions are calculated based on vehicle efficiency and fueltype (fossil or electricity) from known vehicle make and model159 and primarydata for actual vehicle distance traveled.
157 For all options the attribution factor is calculated in the same way; the only thing changing is the way vehicle emissions arecalculated.
158 For motor vehicle loans to consumers, this approach seems rather unrealistic as consumers are unlikely to report their actual
fuel consumption or distance traveled to a financial institution. However, for motor vehicle loans to businesses (in particular for
financing of company-owned staff cars), companies often collect information on actual fuel consumption or distance traveled andcould share such information with financial institutions.
159 Vehicle make and model refers to the name of the company that manufactures the vehicle and the product name of the vehicle.
For example, Toyota Prius.

104

Financed Emissions – Second Edition –• Option 2: estimated vehicle-specific emissions, where emissions are calculated basedon estimated vehicle distance traveled for a known vehicle make and model with datacollected from official statistics.
- Option 2a: Vehicle emissions are calculated based on vehicle efficiency and fueltype (fossil or electricity) from known vehicle make and model and estimatedvehicle distance traveled derived from local statistical data.160- Option 2b: Vehicle emissions are calculated based on vehicle efficiency and fueltype (fossil or electricity) from known vehicle make and model and estimatedvehicle distance traveled derived from regional statistical data.161• Option 3: estimated vehicle-unspecific emissions, where emissions are calculated basedon estimated vehicle distance traveled for an unspecified vehicle with data collected fromofficial statistics.
- Option 3a: Vehicle emissions are calculated based on vehicle efficiency and fueltype (fossil or electricity) from known vehicle type162 (vehicle make and model
are unknown) and estimated vehicle distance traveled derived from local orregional statistical data.
- Option 3b: Vehicle emissions are calculated based on vehicle efficiency and fueltype (fossil or electricity) from an average vehicle (vehicle make and model andvehicle type are unknown)163 and estimated vehicle distance traveled derived
from local or regional statistical data.

Data required
PCAF distinguishes three options with six sub-options to calculate the financed emissions frommotor vehicle loans depending on the data used. Although Option 1b, Option 2a, and Option 2b
are all based on known vehicle characteristics of vehicle efficiency and fuel type, the data usedfor vehicle distance traveled is of higher quality for Option 1b than it is for Option 2a, and it is ofhigher quality for Option 2a than it is for Option 2b. In this sense, while there are several options
to calculate financed emissions, the quality of the results is not the same for all these options.
For this reason, PCAF gives a higher score to results obtained with higher data quality and alower score to results obtained with lower data quality (score 1 = highest data quality; score 5 =lowest data quality). If a financial institution uses a mix of options to calculate the emissions ofa borrower, the data score for the lower-rated option should be assumed for this borrower (i.e.,score 4 from Option 3a). Take for instance a line item for which actual distance traveled andvehicle type are known, while vehicle make and model are unknown. This means that Option 1b
and Option 3a are mixed, and therefore, the highest possible data quality score this line item
could receive is score 4. This is because that is the score of the lowest-rated option in the mix,
Option 3a.
Table 5-16 provides data quality scores for each of the described options that can be used to
calculate the financed emissions for motor vehicle loans.
160 Local statistical data refers to statistical data at the province/state or small country level.
161 Regional statistical data refers to statistical data at the large country or a subcontinental level.
162 Vehicle type refers to an overall vehicle class such as passenger car, bus, or light commercial truck.
163 If it is not possible to know the vehicle type, then an average vehicle can be assumed.

105

Financed Emissions – Second Edition –Table 5-16. General description of the data quality score table for motor vehicle loans(score 1 = highest data quality; score 5 = lowest data quality)164, 165

Data Quality

Score 1

Options to estimate
When to use each option
the financed emissions
1a

Outstanding amount and total value at origination ofvehicle or vehicle fleet are known. Primary data on actual
vehicle fuel consumption is available. Emissions arecalculated using actual fuel consumption and fuel typespecific emission factors.

1b

Outstanding amount and total value at origination ofvehicle or vehicle fleet are known. Vehicle efficiency andfuel type (fossil and/or electricity) are available fromknown vehicle make and model.166 Primary data on
actual vehicle distance traveled is available. Emissions
are calculated using estimated fuel consumption and fueltype-specific emission factors.

2aOutstanding amount and total value at origination ofvehicle or vehicle fleet are known. Vehicle efficiency andfuel type (fossil and/or electricity) are available fromknown vehicle make and model. Distance traveled isestimated based on local statistical data.167 Emissions
are calculated using estimated fuel consumption and fueltype-specific emission factors.

2b

Outstanding amount and total value at origination ofvehicle or vehicle fleet are known. Vehicle efficiency andfuel type (fossil and/or electricity) are available fromknown vehicle make and model. Distance traveled isestimated based on regional statistical data.168 Emissions
are calculated using estimated fuel consumption and fueltype-specific emission factors.

3a

Outstanding amount and total value at origination ofvehicle or vehicle fleet are known. Vehicle efficiency
and fuel type (fossil and/or electricity) are estimatedfrom known vehicle type (vehicle make and model areunknown).169 Distance traveled is estimated based on
local or regional statistical data. Emissions are calculatedusing estimated fuel consumption and fuel type-specificemission factors.

3b

Outstanding amount and total value at origination ofvehicle or vehicle fleet are known. Vehicle efficiency andfuel type (fossil and/or electricity) are estimated for an
average vehicle (vehicle make and model and vehicle typeare unknown).170 Distance traveled is estimated based on
local or regional statistical data. Emissions are calculatedusing estimated fuel consumption and fuel type-specificemission factors.

Option 1:
Actual vehiclespecificemissions

Score 2
Option 2:
Estimated
vehicle-specificemissions
Score 3

Score 4
Option 3:
Estimated
vehicleunspecificemissions
Score 5

A detailed summary of the data quality score table, including data needs and equations to
calculate financed emissions, is provided in Annex 10.1 (Table 10.1-6).

164 Fuel type in the case of electric or hybrid vehicles can also refer to electricity.
165 For all options shown in the table, supplier-specific emission factors (e.g., from electricity provider) for the respective primaryactivity data are always preferred over non-supplier-specific emission factors (i.e., also sometimes referred to as average emission
factors).
166 Vehicle make and model refers to the name of the company that manufactures the vehicle and the product name of the vehicle.
For example, Toyota Prius.
167 Local statistical data refers to data at the province/state or small country level.
168 Regional statistical data refers to data at the large country or a subcontinental level.
169 Vehicle type refers to a passenger car, bus, or light commercial truck.
170 If it is not possible to know the vehicle type, an average vehicle can be assumed.

106

Financed Emissions – Second Edition –Data for all three options can be derived from different data sources. Data on vehicle efficiency
and fuel type per vehicle make and model can be derived from official statistical data sources
such as the US EPA’s Federal Test Procedure171 and the EEA’s Worldwide Harmonized Light
Vehicles Test Procedure (WLTP).172 Both data sources provide detailed vehicle efficiency andfuel type information by make and model. Option 1b, Option 2a, and Option 2b require suchinformation. If make and model are unknown to the reporting financial institution (Option 3),
vehicle efficiency and fuel type can be estimated on the vehicle type level (e.g., passenger car)using the International Council on Clean Transportation’s (ICCT’s) Transportation Roadmap173
or the International Transport Forum at the Organisation for Economic Co-operation andDevelopment (ITF OECD).174
If no actual distance traveled is known to the reporting financial institution, data on vehicle
distance traveled can be estimated based on data sources such as the ICCT Transportation
Roadmap or the ITF OECD. Several local statistical data sources provide geography-specificvehicle distances traveled. For the US and Canada, state- or province-level distance per year canbe retrieved from carinsurance.com175 and the Canadian Office of Energy Efficiency.176
PCAF’s web-based emission factor database, which is currently available only to financial
institutions that have committed to PCAF, provides emission factors per vehicle type (e.g.,
passenger car) and per vehicle make and model (e.g., VW Polo) for a large set of geographies.
These motor vehicle emission factors are widely based on the sources mentioned above.
PCAF expects that the financed emissions for motor vehicle loans can be derived through either
actual vehicle-specific emissions (Option 1), estimated vehicle-specific emissions (Option 2), or
estimated vehicle-unspecific emissions (Option 3). However, PCAF allows the use of alternative
approaches to calculate emissions if none of the specified options can be used or in the casethat new approaches are developed. The reporting financial institution shall always explain thereasons for using an alternative approach if it deviates from the options defined above.
171 The US EPA’s Federal Test Procedure is a series of drive cycle tests to measure the tailpipe emissions and fuel efficiency ofpassenger cars. Because these tests are used to verify that cars sold in the US meet EPA regulatory standards, their results reflect
the road performance of passenger cars in the US. The results for more than 4,000 makes and models are publicly available on
fueleconomy.gov, downloadable in .csv format.
172 The WLTP is a global, harmonized standard of drive cycle tests to determine the tailpipe emissions and fuel efficiency ofpassenger cars. It was developed by the United Nations Economic Commission for Europe to replace the old New European
Driving Cycle (NEDC) as the European vehicle homologation procedure. The NEDC was shown to be flawed, enabling
manufacturers to meet EU environmental standards during lab tests but not on the road (Dieselgate). The WLTP was conceived
to rectify this. The WLTP final version was published in 2015. Hence, even though it will become a truly international standard
in time, it is only used in the EU for now, and its results only reflect the performance of cars sold within the EU. These results
are published by the EEA in .csv format and can be downloaded at https://www.eea.europa.eu/data-and-maps/data/co2-carsemission-16.
173 The ICCT’s Transportation Roadmap has been a global reference for environmental performance data on all major transportation
modes, fuel types, and vehicle technologies since 2012. Over the past decade, the ICCT has extended its roadmap model tocover 11 of the largest vehicle markets (Australia, EU, Brazil, Canada, China, India, Japan, Mexico, South Korea, Russia and theUS) and five aggregate regions (Africa, Other Asia-Pacific, Other Europe, Other Latin America, and the Middle East). The mostrecent results of the model (2017) are downloadable in .xlsx format on the ICCT website: https://theicct.org/transportationroadmap#about.
174 The OECD iLibrary maintains a database of transport statistics collected by the ITF on the transport of freight (maritime, air, andsurface) and passengers (car, rail, and air) in its member states
https://www.oecd-ilibrary.org/transport/data/itf-transport-statistics_trsprt-data-en.
175 More information can be found at: https://www.carinsurance.com/Articles/average-miles-driven-per-year-by-state.aspx
176 More information can be found at: http://oee.nrcan.gc.ca/publications/statistics/cvs08/appendix-1.cfm?graph=6&attr=0107

Financed Emissions – Second Edition –Limitations
Data availability
Information regarding actual vehicle distance traveled may not be easily available. If actual data isunavailable, PCAF proposes using local or regional averages on vehicle distance traveled by state,province, country, or region.
PCAF proposes that financial institutions collect the actual vehicle make and model to determine
the exact vehicle efficiency and fuel type. If the financial institution does not track the vehicle
make and model, PCAF proposes that the financial institution fall back to a generic vehicle type(e.g., passenger car, motorcycle, light commercial truck, medium/heavy commercial truck, bus) orto an average vehicle as a last resort. For average vehicles, the vehicle efficiency is determined by
the weighted average vehicle efficiency in the respective geography.
Dual fuel vehicles
For dual fuel vehicles, the percentage of usage per fuel (e.g., gasoline vs. electricity) may be
unknown. If the vehicle make and model is known, PCAF recommends assuming an average usage
split for the respective hybrid vehicle based on information from national agencies or the vehicle
manufacturer. If such information is not available, PCAF proposes either applying an averagegeography-specific usage split, or, if that is also not available, the conservative assumption thatthe combustion engine (e.g., gasoline) is used 100% of the time.
Electricity grid estimates
Exact electricity source data will not be known for each vehicle in a financial institution’s portfolio(e.g., where does the borrower source electricity? Does the borrower source gray or green
electricity?). Where possible, the most common local or regional electricity grid mix emission
factor for the borrower’s location should be used. If unavailable, the most common local orregional electricity grid mix emission factor for the financial institution’s branch should be used
(i.e., location of the financial institution where the loan was issued). If also unavailable, countrylevel electricity grid mix emissions data should be used.

108

5.7		 Sovereign debt
5.7 Sovereign debt

6
AP

TE

R

6
R

5

R

TE

PT

CH

RA
CH

TE
AP
CH

AP

5E

5

4

R

R

TE

TE

AP

AP

CH

CH

4

R
TE

3

R
TE
AP

AP
CH

Reportemissions

CH

Review and apply
accounting
methodologies foreach asset class

Review
Review and apply Review and apply
IdentifyReview
Reportaccounting and accounting
accounting
andaccounting
business
emissionsforreporting principlesreporting
methodologies
principles for methodologies
goalsand rules
andeachrules
asset class each asset class
CH

3
R
TE

2
R
TE
AP

AP
CH

CH

R

1
R

TE

AP

AP
CH

CH

CH

AP

TE

R

TE

1

Introduction

UnderstandIdentify
what GHG
businessaccounting
goals
is
2

UnderstandIntroduction
what GHG
accounting isFinanced Emissions – Second Edition –Asset class definition
This asset class includes sovereign bonds and sovereign loans of all maturities issued in domestic
or foreign currencies. Both sovereign loans and bonds lead to the transfer of funds to the country,
which in turn creates a debt obligation to be repaid by the borrowing country.
Sovereign debt is typically issued by the central government or treasury. Financial institutions’exposure to central banks typically consists of cash, foreign exchange, and derivative (repo)
transactions. This central bank exposure is not within scope of this accounting standard.
However, in some countries, central banks also issue debt on behalf of the sovereign. In thosecases, central banks should be assigned the emissions of the respective sovereign.
It is challenging to extend this methodology to sub-sovereign and municipal counterparties
due to very limited data availability and because these counterparties are not directly subject
to international GHG emissions inventory standards (e.g., by the United Nations Framework
Convention on Climate Change [UNFCCC]). Therefore, these counterparties are not explicitly partof this asset class.
In terms of covering supranationals – these supranationals are political unions first, and theirbalance sheets represent the aggregated balance sheets of their members. Technically, it ispossible to aggregate the GHG emissions of supranationals as a sum of the emissions of its
members. Practically, this would lead to double counting. However, the aggregated view can be
useful for engagement with respective bodies.

Emissions covered
Financial institutions shall report sovereign borrowers’ absolute scope 1 and should report scope
2 and 3 in line with the proposed scope definitions below.
Scope definition:
The GHG Protocol’s definition of scope 1, 2, and 3 emissions was initially developed forclassification of corporate emissions. Next to the corporate emissions, the GHG Protocol also
published a Global Protocol for Community-Scale Greenhouse Gas Inventories (i.e. an Accounting
and Reporting Standard for Cities)177, which translated the scope definitions to cities. PCAF has
attempted to mirror this approach for sovereign debt.
The table below represents the PCAF scope definition for sovereign debt. Ideally financial
institutions follow this breakdown in their reporting.

177 Global Protocol for Community-Scale Greenhouse Gas Emission Inventories, GHG Protocol, 2014 (revised edition in 2021),
https://ghgprotocol.org/greenhouse-gas-protocol-accounting-reporting-standard-cities

110Financed Emissions – Second Edition –Table 5-17: PCAF scope definition for Sovereign Debt
Scope 1

Scope 2

Scope 3

Domestic GHG emissions fromsources located within the
country territory

GHG emissions occurring as aconsequence of the domestic
use of grid-supplied electricity,heat, steam and/or coolingwhich is imported from another
territory

Emissions attributable to nonenergy imports as a result ofactivities taking place within the
country territory

This aligns with the UNFCCC
definition of domestic territorial
emissions, including emissions fromexported goods and services

Under this approach, a sovereign is seen primarily as a national territory, and its direct (scope 1)
GHG emissions are attributable to emissions generated within its boundaries. Similar to emissionsclassification of cities, scope 2 are emissions attributable to the purchase, in this case import, ofelectricity, steam, heat and cooling from outside the country territory. Finally, scope 3 emissions
are related to all other (non-energy) imports from goods or services from outside the country
territory as a result of activities taken place in the country territory.
The classification allows to account for a holistic view of a sovereign’s responsibility in generating
emissions within and outside its boundaries. In particular, the approach allows to account for:• Production emissions as defined by UNFCCC national emissions inventory (scope 1)• Holistic view of a sovereign’s emissions activity (scope 1 + 2 + 3) as requested by the EU
Sustainable Finance Disclosure Regulation (SFDR)This approach also allows for GHG accounting of emissions of sovereign debt taking theconsumption-based view. For consumption-based accounting, the emissions related to export
should be subtracted:
Consumption Emissions = Production emissions – Exported emissions + Imported emissions.
So according to our scope definition, this would be:
Consumption Emissions = scope 1 + 2 + 3 – Exported emissions.
Our proposed scope 1 definition aligns with the definition of production emissions. Production
emissions are emissions attributable to emissions produced domestically and include domestic
consumption and exports. This definition follows the territorial emissions approach adopted
by UNFCCC for annual national inventories and is typically referenced by sovereigns in their
Nationally Determined Contributions (NDCs).
In line with UNFCCC, the emissions should cover GHG emissions from specified key sectors andcategories (energy, industrial processes and product use, agriculture, forestry, other land use, andwaste).178 However, there is a divergence of views among emissions data providers and climate
experts regarding the accounting of land use, land-use change, and forestry (LULUCF) emissions
given significant data uncertainty. Also, LULUCF emissions have the potential to distort theoverall trends of the key sectors (energy, industrial processes) that contribute to global warming.
178 Quality assurance/Quality control and verification, IPCC Guidelines for National Greenhouse Gas Inventories, 2006.
https://www.ipcc-nggip.iges.or.jp/public/2006gl/pdf/1_Volume1/V1_6_Ch6_QA_QC.pdf

111

Financed Emissions – Second Edition –As countries treat LULUCF emissions differently in their mitigation targets and investors might
have diverging views on the potentially offsetting role of land-use and forestry emissions, financial
institutions shall report scope 1 emissions including and excluding LULUCF.
Table 5-18: Example of Country Production Emissions including and excluding LULUCFCountry

Production Emissions incl.
LULUCF (ktCO2eq, 2018)

Production Emissions excl.
LULUCF (ktCO2eq, 2018)

Netherlands

191,029.65

186,394.47

Canada736,886.99

728,475.89

Finland

48.071,956,281.8

Austria

73,500.8

78,627.6

Source: https://di.unfccc.int/ghg_profile_annex1

Although Production Emissions is currently frequently the key metric to account for sovereign
GHG emissions, PCAF also recommends that financial institutions track the GHG emissions ofcountries more holistically and report Consumption Emissions as described above.
Consumption Emissions reflect the demand side of sovereign emissions and account for
consumption patterns and trade effects. This metric provides a broader view of a sovereign’s
GHG emissions and tackles the issue of carbon leakage that arises due to production shifts fromcountries where goods and services are actually consumed later. It is also an important metricin the context of broader sovereign responsibility for emissions caused. As sovereigns focus
on production emissions GHG reduction targets, their consumption emissions might follow a
different trend, which can be seen in the example below:179

Production vs. consumption-based CO₂ emissions, Switzerland

Annual consumption-based emissions are domestic emissions adjusted for trade. If a country imports goods theCO2 emissions needed to produce such goods are added to its domestic emissions; if it exports goods then thisis subtracted.

120 million t

Consumption-based CO2 emissions

100 million t

80 million t

60 million t

40 million t
Production-based CO2 emissions

20 million t

0t

1990

1995

2000

2005

2010

2015

2020

Source: Global Carbon Project
OurWorldInData.org/co2-and-other-greenhouse-gas-emissions/
Note: This measures CO2 emissions from fossil fuels and cement production only – land use change is not included.

• CC BY

179 Production vs. consumption-based CO2 emissions, Switzerland, Our World in Data, 2021.
https://ourworldindata.org/grapher/production-vs-consumption-co2-emissions?country=~CHE

112

Financed Emissions – Second Edition –Although consumption emissions are currently not included in the UNFCCC Paris Agreement
Framework and inventory, financial institutions can use this metric for a more holistic assessmentof a sovereign’s GHG emissions and for engagement with sovereigns. They can also use thismetric for potential collective engagement with UNFCCC to broaden the scope of countries’
accountability.
Nevertheless, PCAF acknowledges that there are current limitations to the usability of this metricgiven the following:• Difficulty in accurate allocation of emissions along the supply value chain• Involvement of input output models that can vary depending on the data provider• Time lag in data availability (approximately 2 years compared with production emissions)• The fact that only CO2 emissions are typically available

Attribution of emissions
PCAF requires using the following approach for attribution of emissions for Sovereign debt:

Attributed Emissions =Exposure to Sovereign Bond (USD)
× Sovereign Emissions (tCO₂e)
PPP-adjusted GDP (international USD)

Rationale:
According to the general logic in this Financed Emissions Standard, the financial institution’sshare of emissions shall be proportional to the size of its exposure to the borrower’s total value.
Another key principle of PCAF is ‘follow the money,’ meaning that the money should be followed
as far as possible to understand and account for the climate impact in the real economy.
For a listed company, total value is measured by Enterprise Value Including Cash (EVIC). Applying
the same logic to countries is more challenging because there is no appropriate measurement ofa sovereign’s equity, leaving only outstanding debt in the denominator of the attribution factor.
However, using debt for attribution of sovereign emissions has limitations. It is inaccurate becausesovereigns rarely finance themselves primarily with debt as opposed to tax revenue. Therefore,
using outstanding national debt levels only (not including a measurement for equity) as thedenominator for attribution makes the approach highly dependent on the extent of a country’s
government’s debt.
The table below illustrates this point. Singapore and Hong Kong have fairly comparable scope 1
emissions (here excl. LULUCF, source: EDGAR) and similar GDP levels. However, the low level ofoutstanding debt contracted by Hong Kong relative to Singapore leaves a hypothetical investor(with equal $1 million USD investments in sovereign debt of both entities) with significant GHG
emissions in Hong Kong compared with Singapore.
The attribution for this example is computed as follows

Exposure to Sovereign Bond (USD)× Scope 1 Emissions (tCO₂e)
Debt of Country (USD)

113

Financed Emissions – Second Edition –Table 5-19: Example of (volatility of) attribution based on national debt
Country

Scope 1emissions(tCO2e)Debt($ Millions USD)

Exposure($ Millions USD)

Debt Approach(tCO2e)Singapore

61,451,586

312,935

1

196

Hong Kong

42,654,105

159

1

268,264

As the example above shows, attributing emissions by government debt can generate unwanted
incentives in portfolio steering.
These effects are also present in corporate emissions accounting, where emissions attributed
to financial institutions are strongly dependent on the underlying enterprise value (EVIC) of therespective corporate. However, the impacts on portfolio steering tend to be less pronounced
because the EVIC metric includes a measurement for equity (not attributing all emissions todebt) and given that a much larger universe of corporates exists compared with sovereigns.
Given the issue described above, this methodology uses an alternative approach to emissions
attribution for sovereign debt allowing for a link to the real economy impact. This alternative
involves taking Purchase Power Parity (PPP)-adjusted GDP (i.e., the value of a country’s output
as a proxy for the ‘value of the country’) adjusted by the PPP factor to improve the comparison
between the actualExposure
economytosizes(see theIntensity
Sovereign
Bond(USD)Section below to demonstrate thecomparison) and attribution
by the sovereign’s GDP:
Debtofofemissions
Country (USD)

Attributed Emissions =Exposure to Sovereign Bond (USD)× Scope 1 Emissions (tCO₂e)
PPP – adjusted GDP (international USD)

Table 5-20: Comparison of attribution based on national debt versus the
PPP-adjusted GDP approach
Country

Emissions(tCO2e)Debt($ Millions
USD)

PPPadjusted
GDP ($
Millions
USD)

Exposure($ Millions
USD)

Debt
approach(tCO2e)PPPadjusted
GDP
approach(tCO2e)Singapore

61,451,586

312,935

579,762

1

196

106

Hong Kong

42,654,105

159

469,1821

268,264

91

Given comparable sizes of the economies as measured by PPP-adjusted GDP, the countries would
receive a more appropriate treatment in terms of financed emissions in financial portfolios.
The following table illustrates further examples of the difference in ranking by the two attribution
factors. Relating emissions to the sizes of the economy and to produced output (PPP-adjustedGDP) allows for a potentially fairer treatment. For example, the US and Japan—two of the largest
emissions producers in the world—would rank much more favorably by debt attribution factor
given their relatively large sizes of outstanding debt.

114

Financed Emissions – Second Edition –Table 5-21: Example of difference in ranking by national debt and
PPP-adjusted GDP approach
Country

China

Absolute
Production
Emissions
Mt CO2eGross
PPP-adj. GDPgovernment Debt ($ Millions Int’l)($ Millions USD)

Rank
Production
Emissions/
Debt

Rank by
Production
Emissions/
PPP adj.
GDP

11.5357.905.659

23.487.798

2

1

Australia

433

573.961

1.324.171

6

2

Canada585

1.528.280

1.898.870

83South Korea

652

667.605

2.209.424

5

4

India

2.597

1.980.623

9.560.220

35

United States

5.107

22.869.681

21.433.226

15

6

Japan

1.154

12.071.286

5.345.808

25

7

Thailand275

225.431

1.342.165

48

Indonesia

626

327.789

3.338.144

1

9Mexico485

686.5992.608.650

710Belgium

104

530.794628.371

16

11

Finland43

161.257

285.024

12

12

Netherlands

156

472.075

1.031.484

9

13

Germany703

2.198.292

4.644.166

10

14

Brazil478

1.662.405

3.229.055

11

15

Austria72

316.751520.804

13

16

Spain

259

1.337.221

1.988.355

17

17Portugal

48285.248378.124

18

18

Italy

332

2.673.312

2.677.118

23

19

UnitedKingdom

365

2.423.556

3.240.511

20

20France315

2.693.686

3.320.559

24

21

Singapore

53

406.936579.763

22

22

Ireland37

242.618430.334

19

23

Sweden45

197.622565.620

14

24

Switzerland

39277.619602.64121

25

Naturally, attribution by PPP-adjusted GDP is not the perfect metric, and countries with larger
PPP-adjusted GDP receive a relatively more favorable treatment. For example, take Thailand
versus Spain: the countries have comparable emissions levels, but Spain’s larger GDP allows it torank more favorably. An improvement for Thailand as compared to attribution by debt exists in its
improved ranking (8 versus 4) when PPP-adjusted GDP attribution is applied.
The examples above demonstrate attribution of production emissions. However, the same logic
can apply to attribution of consumption emissions – only that the total Absolute Emissions willaccount for domestic and imported sources of emissions that ultimately contribute to the GDP of
the respective sovereign.
PCAF admits that there is not a 1:1 relationship between a financial institution’s investment
and a sovereign’s GDP, in contrast to a more straightforward relationship between a financial
115

Financed Emissions – Second Edition –institution’s purchase of a share of a sovereign’s outstanding debt. However, empirical evidence
suggests that there is limited interdependence between sovereign debt and emissions, whereasa country output production is linked more closely to the generated emissions. Furthermore,financial institutions’ funds would typically spur economic growth and therefore GDP,180 implying
impact on production processes and therefore emissions.
Therefore, financial institutions shall use the attribution by PPP-adjusted GDP for sovereign debt
emissions.

Equations to calculate financed emissions
The financed emissions of sovereign debt are calculated by multiplying the attribution factor by
the emissions of the respective sovereign borrower.

Financed emissions =∑Attribution factors × Sovereign Emissionss∑

Outstanding amounts
× Sovereign Emissionss
PPP-adjusted GDPss(with s=sovereign borrower)

Attribution factor:

Financed emissions =s(with s=sovereign borrower)

Emissions intensities
In the course of the work of PCAF’s sovereign debt working group, the following intensity metrics
for normalization and comparison of sovereign production and consumption GHG emissions
intensity, respectively, have been defined as follows:• For sovereign production: Production Emissions / PPP-adjusted GDP• For consumption emission intensity: Consumption Emissions / Capita
For a comparison of production emissions intensity, using a GDP metric in the denominatorappears straightforward, given the link between a country’s production and industrial processes
causing emissions and the country’s output (GDP). The PPP adjustment of GDP allows forcomparing the real sizes of the economies and the output by subtracting the exchange rate
effect. This effect becomes relevant for countries with a relatively stronger exchange rate effectin particular and allows for a fairer comparison of the countries, as the table below illustrates(2019 data):

180 Admittedly, this relationship is valid up to a certain threshold because very large public debt might become unsustainable anddetrimental for growth. See The impact of high and growing government debt on economic growth: an empirical investigation for
the euro area (europa.eu).

116

Financed Emissions – Second Edition –Table 5-22: Example of difference between nominal and PPP-adjusted GDP
Country

Nominal GDP($ Millions USD)

PPP-adj. GDP($ Millions Int’l)

China

14,279,937

23,487,798

US

21,433,226

21,433,226

India

2,868,929

9,560,220Japan

5,081,770

5,345,808

Germany

3,861,124

4,644,166

Indonesia

1,119,191

3,338,144

France2,715,518

3,320,559

When comparing production emissions intensity, the PPP adjustment mitigates the negative
effect for countries where production and emissions are concentrated:
Table 5-23: Example of difference between nominal and PPP-adjusted GDP
by production emissions intensity
Country

Absolute
Nominal GDP
Production($ Millions
Emissions Mt USD)
CO2e

PPP-adj. GDP (Production($ Millions
Emissions/Int’l)
NominalGDP)*1,000(Production
Emissions/
PPP-adj.
GDP)*1,000

China

11,535

14,279,937

23,487,798

0.81

0.49

US

5,107

21,433,226

21,433,226

0.24

0.24

India

2,597

2,868,929

9,560,220

0.91

0.27

Japan

1,154

5,081,770

5,345,808

0.23

0.22

Germany703

3,861,124

4,644,166

0.18

0.15

Indonesia

626

1,119,191

3,338,144

0.56

0.19

France315

2,715,518

3,320,559

0.12

0.09

Emissions source: Edgar, 2019. Intensity KPIs are multiplied by 1,000 for better visualization of the comparison.

For consumption emissions, PCAF recommends using normalization per capita. Consumption
emissions reflect the demand side of the economy, and normalization per capita appears natural.
In line with the arguments stated above, PCAF recommends using the consumption emissions
intensity as an additional metric to obtain a holistic view of a country’s GHG emissions.
The table below illustrates that some countries tend to have higher consumption emissions
than production emissions, but the difference is not always significant (e.g., India), implying thatcountries with notable contributions to production emissions can be equally high consumers.
PCAF recommends considering both the production and consumption intensity metrics whencomparing, monitoring, and engaging with sovereigns.

117

Financed Emissions – Second Edition –Table 5-24: Example different intensity metrics Sovereign Debt
Country

Absolute
Absolute
Rank by
Production
Consumption
Production
Emissions MtCO2e Emissions MtCO2e Emissions/PPPadj. GDP

China

11,535

Rank by
Consumption
Emissions per
Capita

8,960

1

5

US

5,107

5,767

3

1

India

2,597

2,355

2

7

Japan

1,154

1,312

4

2

Germany

703

862

6

3

Indonesia

626

591

5

6

France

315

442

7

4

For all of the metrics, PCAF recommends that financial institutions review at least 5 years ofhistorical data for a better understanding of sovereigns’ overall emissions trends and underlying
patterns (e.g., production versus consumption).

Data required
PCAF has identified the following data required for accounting sovereign debt emissions andprovides a list of public data sources with the most current and comprehensive data coverageper data category. However, this list is not exhaustive, and financial institutions might prefer touse other data providers. Independently of the data used, PCAF recommends aligning with thedefinitions of the data categories and being aware of the possible data specifics indicated earlier(e.g., GHG versus CO2 emissions, inclusion or exclusion of land use (LULUCF) emissions in acountry’s production emissions).

118

Financed Emissions – Second Edition –Table 5-25: Overview required data and potential sources
Data
category

Scope 1
-Absoluteemissions

Description

Domestic
Emissions(UNFCCC)
Including
LULUCF /Excluding
LULUCF

Emissions ofExports ofGoods andServices

SourceScope

Limitations

UNFCC | Annex I
countries and NonAnnex I countries(https://di.unfccc.int)

GHG and CO2eemissions,
global country
coverage

No data available for thefollowing non-Annex 1
parties: Andorra, Equatorial
Guinea, Libya, Sierra Leone,
Somalia.

World | Total
including LUCF |Greenhouse Gas(GHG) Emissions| Climate Watch(climatewatchdata.
org)

CO2 emissions only
Global coverage(CO2)
Most recent GHG emissions
data available in 2018

EDGAR - The
Emissions
Database for
Global AtmosphericResearch(europa.eu)

Global coverage Time-lag of 4 years (GHG
(GHG)
emissions 1970-2018 series)

OECD – Carbon
dioxide emissions
embodied ininternational trade(2021 ed.)(https://stats.oecd.
org)

CO2 emissions only
Global coverage Time- and data lags
(CO2)
regarding non-Annex I
countries
CO2 emissions only

Scope 2 –Absolute
emissions

Grid-supplied
electricity,
steam andcooling
imports

OECD – Carbon
dioxide emissions
embodied ininternational trade(2021 ed.)(https://stats.oecd.
org)

Industry code: D35
Electricity, gas, steam, andair conditioning supply isdefined broader as scope 2
Global coverage definition(CO2)
Time-lag of 4 years (CO2emissions 1995-2018 series)
Data unavailable for somespecific countries (e.g. Cuba,
Egypt, Sierra Leone)
CO2 emissions only

Scope 3
-AbsoluteemissionsNon-energy
imports

OECD – Carbon
dioxide emissions
embodied ininternational trade(2021 ed.)(https://stats.oecd.
org)

PPPadjusted
GDP

GDP adjusted
by PPP

GDP, PPP (current
Globalinternational $) | Data coverage, 2020
(worldbank.org)
data

NominalGDP,
Population

Standard
macroeconomic
metrics

World Bank/International
Monetary Fund (IMF)(worldbank.org),(www.imf.org)

Time-lag of 4 years (CO2Global coverage emissions 1995-2018 series)(CO2)
Data unavailable for somespecific countries (e.g. Cuba,
Egypt, Sierra Leone)
Data unavailable for somespecific countries (i.e. Cuba,
Eritrea, Monaco)

Globalcoverage, 2020
data

119

Financed Emissions – Second Edition –Similar to other asset classes, PCAF distinguishes for sovereign debt also three options to
calculate the financed emissions:• Option 1: reported emissions• Option 2: physical activity-based emissions• Option 3: economic activity-based emissions
Table 5-26 provides data quality scores for each of these options and sub-options (ifapplicable) that can be used to calculate the financed emissions for sovereign debt.
Table 5-26: General description of the data quality score table for Sovereign Debt
(score 1 = highest data quality score 5 = lowest data quality)

Data Quality

Options to estimate thefinanced emissions

Score 1

Option 1: Reported
emissions

Score 2
Score 3

Option 2: Physicalactivity based
emissions

Score 4

Option 3: Economic
activity based
emissions

Score 5

When to use each option

1aVerified GHG emissions of the country are available.
These GHG emissions are reported by the country
itself and can be extracted from UNFCCC181

1bUnverified emissions of the country are available.

2aReported GHG emissions of the country are notknown. Emissions are calculated using primary
physical activity data of the country’s energy
consumption (domestic generated and imported) andemission factors specific to that primary data.

3a

Reported GHG emissions of the country are notknown. Emissions are calculated using sectoral
revenue data of the country’s production andemission factors specific to that revenue data.

3b

Country GHG emissions are estimated by taking
a proxy. GHG emissions from (a) similar (climate(zones), wealth, GDP) country are taken to estimate
the country GHG emissions.

A detailed summary of the data quality score table, including data needs and equations to
calculate financed emissions, is provided in Annex 10.1 (Table 10.1-7).

181 This refers to UNFCCC reporting requirements. For the purposes of verification, Annex I Parties should compare their national
estimates of CO2 emissions from fuel combustion with those estimates obtained using the IPCC reference approach, as containedin the 2006 IPCC Guidelines, and report the results of this comparison in the NIR.

120

Financed Emissions – Second Edition –Limitations
Emissions scope
The presented approach to classify scope 1, 2, and 3 emissions of sovereigns is an attempt tomirror the approach developed and adopted for corporates and cities and can’t be compared 1:1.
Double counting
Double counting occurs in two dimensions:
1. Double counting of emissions of non-sovereign sectors (e.g. corporates) due toaccounting of emissions at sovereign territorial level.
This represents a challenge for a financial institution with investment portfolios in multiple asset
classes. However, doubling counting within the GHG emissions reports of financial institutions is
not necessarily problematic as long as emission results of the different asset classes are clearlyreported separately. Accounting for all emissions indirectly involved with loans and investmentsof the different individual asset classes does ensure that the right considerations are taken when
making lending or investment decisions.
2. Double counting of emissions of other sovereigns when accounting for emissions
beyond scope
The issue is not different from the one with corporate emissions and should be resolved/treatedconsistently, i.e. double-counting accepted when accounting for emissions beyond scope 1.
Attribution Factor
PCAF acknowledges that PPP-adj. GDP has its limitations as the attribution factor: it is a flow
metric, and the relationship between investments and GDP are not 1:1. There are however reasons
as stated above that justify the usability of this attribution factor.
Alternative attribution factors might still emerge, and PCAF is ready to review these. For example,
Total capital stock (IMF)182 - a measure of total value of gross fixed capital formation in theeconomy - has also been briefly reviewed. The concept is comparable to total capital and EVIC
for corporates. Though a reasonable theoretical concept, the metric has multiple limitations. Most
importantly, this is not a readily available and reported metric, but the once calculated based on
IMF Methodology, which involves assumptions, exclusion of certain sources of investments, anddata availability limitations. PCAF does not recommend this metric at the current stage.

182 Estimating Public, Private, and PPP Capital Stocks, Annex to IMF Board Paper “Making Public Investment More Efficient”

121

6. Reporting
requirements and6.recommendations
Reportingrequirements andrecommendations

6
R

R

6

TE

R

AP

CH

AP

TE

CH

CH

AP

TE

TE
AP
CH

Reportemissions

Reportemissions
5

4

Review and apply
accounting
methodologies foreach asset class

R

3
R
CH

AP

TE
AP
CH

Reviewaccounting andreporting principles
and rules

TE

R

1
R
TE
AP
CH

Identify
businessgoals
2

Understandwhat GHG
accounting is

Introduction

Financed Emissions – Second Edition –To manage financial and reputational risk and steer in line with the Paris Agreement, it is crucial
that the financial sector reports GHG emissions of loans and investments for transparency andaccountability. The following reporting requirements and recommendations guide financial
institutions to disclose the GHG emissions associated with their loans and investments.
Rather than creating a new framework, PCAF developed these reporting requirements andrecommendations to complement existing frameworks such as TCFD, GRI, Sustainability
Accounting Standards Board (SASB), generally accepted accounting principles (GAAP), andInternational Financial Reporting Standards (IFRS). It adheres to and builds upon the reporting
requirements set out by the GHG Protocol Corporate Value Chain (Scope 3) Accounting andReporting Standard.
All financial institutions that commit to using this Financed Emissions Standard shall fulfil
certain requirements when disclosing their financed emissions publicly. However, they do havethe flexibility to decide where they want to start with measuring and disclosing their financed
emissions—for instance, at a specific asset class level or for a specific sector within a certain
asset class. Flexibility in reporting is allowed largely because of recognized limitations in data
availability and quality. PCAF recognizes that data for many asset classes may not be available
to financial institutions and that a financial institution may not be able to disclose 100% of its
portfolio. However, financial institutions shall be transparent in their coverage and justify any
exclusions.
The requirements for disclosure of financed emissions describe a minimum disclosure level withroom for financial institutions to report beyond this level. Any requirements not fulfilled must be
accompanied by an explanation. Minimum reporting requirements are described in this chapter
using the word “shall.” Where certain aspects of reporting are not required but encouraged as
best practice, the word “should” is used.

Report using the operational or financial control consolidation approach 183
The asset class methods in this Financed Emissions Standard are used to calculate the scope
3 category 15 emissions from financial investments. According to the GHG Protocol Corporate
Value Chain (Scope 3) Accounting and Reporting Standard,184 three consolidation approaches canbe applied by financial institutions to account for their scope 1, 2, and 3 emissions—namely equity
share, operational control, and financial control. For PCAF reporting, financial institutions shalluse the operational control approach or the financial control approach; as a result, all financed
emissions shall be accounted for in their scope 3 category 15 reporting.

183 Additional information on consolidation approaches can be found in Chapter 4.
184 (WRI and WBCSD, 2011)123

Financed Emissions – Second Edition –Overall Reporting Requirements and Recommendations• Principles: GHG accounting and reporting of financial institutions shall be based on thefollowing principles: relevance, completeness, consistency, transparency, and accuracy.
• Purpose: A financial institution’s reporting should align with its specific business goals;
for instance, for identifying and managing climate-related transition risks or for steering
toward a specific emissions reduction target.
• Frequency: Financial institutions shall disclose at least annually and at a fixed point intime in line with the financial accounting cycle. Financial institutions shall ensure that thechosen point in time provides a representative view on the emissions for that reporting
year and shall transparently disclose if large changes close to (before/after) the reporting
date affected the results.
• Recalculation and significance threshold: Financial institutions shall, in line with the
GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard
requirement (pg. 104185), establish a baseline recalculation policy to define under which
circumstances a recalculating of (base year) financed emissions is necessary to ensure theconsistency, comparability, and relevance of the reported GHG emissions data over time.
As part of this base year emissions recalculation policy, financial institutions shall establish
and disclose the significance threshold186 that triggers base year emissions recalculations.
• Form of reporting: Financial institutions shall disclose in publicly available reports suchas (semi) annual reports, website articles, or other publicly available sources as deemed
appropriate by the financial institution. Annex 10.2 provides an example template for how
financial institutions can disclose their financed emissions.
• Past performance: Where appropriate and relevant for their business goals, financial
institutions should disclose their financed emissions for multiple comparable time periods,
e.g., years.

Coverage• Financial institutions shall disclose all absolute emissions for all relevant asset classes or
sectors187 covered in Chapter 5 and justify any exclusions. Potential justification criteria for
exclusion include:- Data availability: Required data is not available to the financial institutions.
- Size: The activities are insignificant to the institution’s total anticipated financed
emissions.
- Methodology: There is no global methodology to quantify the financed emissionsof specific activities (i.e., asset classes not covered in this Financed Emissions
Standard).
• Financial institutions shall disclose the percentage of their total loans and investments
covered in their financed emissions inventories for the seven asset classes covered in
Chapter 5, e.g. a financial institution’s total outstanding loans and investments by asset
class noting any limitations and exclusions.

185 (WRI and WBCSD, 2011)
186 Definition according to the GHG Protocol: “A significance threshold is a qualitative and/or quantitative criterion used to define any
significant change to the data, inventory boundaries, methods, or any other relevant factors.”
187 Financial institutions can choose to report by sector rather than asset class.

124

Financed Emissions – Second Edition –Gases and units• Financial institutions shall account for the seven gases under the Kyoto Protocol thatare also mandated under the UNFCCC to be included in national inventories if they are
emitted in the value chain. These are carbon dioxide (CO2), methane (CH4), nitrous oxide(N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6), andnitrogen trifluoride (NF3).
• These seven gases shall be converted to carbon dioxide equivalents (CO2e) using the
100-year time horizon global warming potentials published by the IPCC—either the AR5values published by the GHG Protocol188 or the IPCC’s most recently published assessment
report.189• Financial institutions shall express their financed emissions in metric tonnes of carbon
dioxide equivalents (tCO2e) or another appropriate metric conversion—e.g., kilotonnes(ktCO2e), megatonnes (MtCO2e). When emissions from a specific GHG (e.g., methane
emissions) are material and relevant, financial institutions should consider a separate
disclosure of these emissions.
• Biogenic CO2 emissions that occur in the value chain shall not be included in the scopes
but shall be included and separately reported in the public report.

Absolute emissions• Institutions shall disclose the absolute emissions (scope 1 and 2 combined) of their loans
and investments. If it serves the business goals of the financial institutions, absolute scope
1 and scope 2 emissions of loans and investments should be reported separately from eachother.
• Beyond the reporting of scope 3 category 15 emissions covered by this Financed Emissions
Standard, financial institutions shall also measure and report their scope 1 and 2 emissions
and any other relevant scope 3 emissions categories in line with the GHG Protocol
Corporate Value Chain (Scope 3) Accounting and Reporting Standard (see Annex 10.2 foran example).
• Where required by the relevant methodology in Chapter 5, financial institutions shallseparately disclose the absolute scope 3 emissions of their loans and investments,
including the specific sectors covered. Financial institutions shall explain if they are notable to provide any required scope 3 information because of data availability or uncertainty.
• Financial institutions shall disaggregate and disclose absolute emissions data at the asset
class or at the sector level, particularly for the most emission-intensive sectors (e.g., energy,
power, cement, steel, automotive).
• When a financial institution is an initial sponsor or lender of a specific project, theinstitution should also assess and report the absolute lifetime scope 1 and 2 emissions of
the project that was financed during the reporting year.
• Absolute emissions shall be reported without taking into account carbon credits retired byclients to offset these emissions. Carbon credits retired by clients may be reported, and if
so, shall be reported separately.

188 (GHG Protocol, 2014)
189 The IPCC reports can be found at: https://www.ipcc.ch

125

Financed Emissions – Second Edition –Box 6. Double counting in reporting absolute emissions
Double counting—which occurs when GHG emissions are counted more than once in thefinanced emissions calculation of one or more institutions—should be avoided as much
possible. Double counting occurs between the different scopes of emissions from loans
and investments when a financial institution invests in stakeholders that are in the samevalue chain.190 This form of double counting cannot be avoided, but it can be made moretransparent by reporting the scope 1 and 2 emissions of loans and investments separatelyfrom their scope 3 emissions. Apart from this, double counting can take place at five levels:• Between financial institutions• In co-financing the same entity or activity• Between transactions within the same financial institutions• Across different asset classes• Within the same asset class
PCAF recognizes that double counting of GHG emissions cannot be avoided completely;
however, it should be minimized. Double counting between co-financing institutions andbetween transactions within the same asset class of a financial institution are avoided byusing the appropriate attribution rules defined by PCAF consistently.
By using the correct attribution method, double counting of emissions between institutions
can be minimized. Financial institutions using the methodologies in the Financed Emissions
Standard will be subject to the same exposure to double counting so that one financial
institution will not be more significantly burdened than another.

Avoided emissions and emission removals191• In addition to absolute emissions, financial institutions:- Should report emission removals where relevant to their loans and investments
when appropriate methodologies become available.
- May report avoided emissions of their renewable power projects.
• If financial institutions choose to disclose emission removals or avoided emissions, theyshall disclose absolute emission removals or avoided emissions separately from thefinancial institution’s scope 1, scope 2, and scope 3 inventories (see Annex 10.2 for an
example).
• Avoided emissions and emission removals shall be reported without taking into accountcarbon credits generated for these same emissions. Carbon credits generated by clientsshould be reported, and if so, shall be reported separately.

190 The scope 1 emissions of one company can be the upstream scope 2 or 3 emissions of its customer. For example, scope 1
emissions from a utility providing energy to a company would end up in the scope 2 inventory of that company. If both companies
are receiving funding from the same financial institution these emissions would be double counted within its inventory.
191 As defined in Chapter 3, removed emissions are those related to projects or technologies that can result in CO2 being sequesteredby trees or removed from the atmosphere and stored in solid or liquid form.

126

Financed Emissions – Second Edition –Emission intensity• Financial institutions should report economic emission intensities if these values are
relevant to their business goals.
• Economic emission intensities shall be expressed on a portfolio, asset class, or sector levelin metric tonnes of carbon dioxide equivalents per million euro or dollar invested or loaned:tCO2e/€M or tCO2e/$M• When relevant to their business goals, financial institutions should consider reporting
physical emission intensities per sector using sector-specific activity (e.g., tCO2e/m2 for realestate, tCO2e/MWh for power utilities, tCO2e/tonne of steel produced for steel companies,etc.).

Box 7. Financed emission metrics and comparability
Measuring financed emissions in absolute terms, i.e., absolute emissions, provides financial
institutions with the necessary baseline for climate action to align with the Paris Agreement.
When banks and investors aim to benchmark or compare companies, sectors, or portfolios
to each other, normalization is required. Absolute financed emissions at a portfolio level are
not a good metric to compare or benchmark financial institutions on their performance due
the potential differences between financial institutions in terms of size, product portfolio,
exposure to sectors and regions, etc. For comparability and benchmarking, the absolute
financed emissions need to be translated into an emission intensity metric (emissions per a
specific unit). 192
A wide array of intensity metrics is applied in the market and each has its own merits. The
table below includes a list of the most common metrics.
MetricPurposeDescription

Absolute emissions To understand the climate impactof loans and investments and set abaseline for climate action

The total GHG emissions of an asset
class or portfolio

Economic emission
intensity

To understand how the emission
intensities of different portfolios (orparts of portfolios) compare to eachother per monetary unit

Absolute emissions divided by theloan or investment volume in EUR
or USD, expressed as tCO2e/€M or
tCO2e/$M loaned invested

Physical emission
intensity

To understand the efficiency of aportfolio (or parts of a portfolio) interms of total GHG emissions perunit of a common output

Absolute emissions divided by avalue of physical activity or output,
expressed as, e.g., tCO2e/MWh,tCO2e/tonne product produced

Weighted averagecarbon intensity(WACI)193

To understand exposure toemission-intensive companies

Portfolio’s exposure to emissionintensive companies, expressed as
tCO2e/€M or $M company194 revenue

192 Actual performance benchmarking or target setting for financial institutions is not covered by this Standard. For this type ofassessment, other initiatives exist that build on the accounting requirements set forth in this Standard but that further rely on
their own methodologies and approaches. Examples include the SBTi or RMI’s Center for Climate-Aligned Finance.
193 (TCFD, 2017)
194 The word company refers to the financial institution’s borrower or investee.

127

Financed Emissions – Second Edition –Data and data quality• Financial institutions shall use the most recent or otherwise appropriate data available
to them. PCAF recognizes there is often a lag between financial reporting and required
emissions data, such as emission factors or emissions data from borrowers or investees. In
these instances, it is acceptable that the data represents different years.
• Financial institutions should provide a description of the types and sources of data—
including activity data, assumptions, emission factors, and all relevant publication dates—
used to calculate emissions. Descriptions should be written to create transparency.
• Financial institutions should publish a weighted score by outstanding amount of the data
quality of reported emissions data or should explain why they are unable to do so. An
example is provided in Box 8.
• Where financial institutions are reporting scope 3 emissions, the weighted data quality
score of these emissions shall be reported separately from that of scopes 1 and 2.
• The data hierarchy tables provided in each asset class method in Chapter 5 should be
used as a guide for disclosing data quality. Financial institutions should explain how data
quality is assessed, acknowledging that it will improve over time.
• Over time and where possible, data should be verified to at least a level of limited
assurance. Financial institutions should disclose whether data is verified and to what level.

128

Financed Emissions – Second Edition –Box 8. An illustrative example for calculating weighted data quality scores
It is likely that data quality will differ across asset classes, sectors, companies, and emission
scopes. To disclose the best representation of data quality, the Financed Emissions Standard
requires that financial institutions normalize the data quality scores for each asset class andsector to the total outstanding loan or investment amount.
The equation for calculating weighed averages for an asset class or sector is:∑ ni=1 Outstanding amounti × Data quality scorei=∑ ni=1 Outstanding amounti(with i=borrower or investee)

An illustrative example of a financial institution’s lending is provided below:

Asset class

SectorCompany

Outstanding
loan

Business loans Oil & Gas

Company A

522,425

Business loans Oil & Gas

Company B

Business loans Cattle farming

Company C

Business loans Cattle farming

Attributed
scope 1 and2 absoluteemissions(kton CO2e)

Dataqualityscore(1=high,5=low)
15

3

187,449

7

582,77881Company D

108,997

11

1

Business loans Cattle farming

Company E

67,556

7

2

Business loans Cattle farming

Company F

54,7625

5

Weighted data score for business loans scope 1 and 2 emissions:(522,425 ×3)+(187,449×5)+(82,778×1)+(108,997×1)+(67,556×2)+(54,762×5)(522,425+187,449+82,778+108,977+67,556+54,762)= 3.03Weighted data score for oil & gas sector scope 1 and 2 emissions:(522,425 ×3)+(187,449×5)(522,425+187,449)= 3.53129

7. Glossary
7. GlossaryFinanced Emissions – Second Edition –Absolute emissions

Emissions attributed to a financial institution’s lending and investing
activity. Expressed in tonnes CO2e. See financed emissions.

Asset class

A group of financial instruments that have similar financial
characteristics.

Attribution factor

The share of total greenhouse gas (GHG) emissions of the borrower
or investee that are allocated to the loan or investments.

Avoided emissions

Emission reductions that the financed project produces versus what
would have been emitted in the absence of the project (the baseline
emissions). In the context of the Financed Emissions Standard,
avoided emissions are only from renewable power projects.

Biogenic carbon dioxide (CO2) Emissions from a stationary source directly resulting from theemissionscombustion or decomposition of biologically based materials otherthan fossil fuels.
Borrower

A person or company that borrows money from a bank.

Business loan

On-balance sheet loans and lines of credit to businesses, nonprofits,
and any other structure of organization that are not traded on amarket and are for general corporate purposes (i.e., with unknown useof proceeds as defined by the GHG Protocol). For detail informationon this asset class, see subchapter 5.2.

Climate impact

In the context of this Financed Emissions Standard, climate impact
refers to the emissions financed by loans and investments.

Climate risk

The potential for adverse effects on lives, livelihoods, healthstatus, economic, social and cultural assets, services (including
environmental), and infrastructure due to climate change.

CO2-equivalent (CO2e)

The amount of CO2 that would cause the same integrated radiative
forcing (a measure for the strength of climate change drivers)
over a given time horizon as an emitted amount of another GHG or
mixture of GHGs. Conversion factors vary based on the underlying
assumptions and as the science advances. As a baseline, PCAF
recommends using 100-year Global Warming Potentials without
climate-carbon feedback from the most recent IPCC Assessment
report.

Commercial real estate (CRE)This asset class includes on-balance sheet loans for specificcorporate purposes, namely the purchase and refinance of CRE, andon-balance sheet investments in CRE. This definition implies thatthe property is used for commercial purposes, such as retail, hotels,
office space, industrial, or large multifamily rentals. In all cases, theowner of the building (the borrower or investor) uses the property
to conduct income-generating activities. This includes using theproperty for their own business as well as renting or leasing theproperty to tenants who use the property for either commercial orresidential purposes. For detailed information on this asset class see
subchapter 5.4.

Consolidation approach

Refers to how an organization sets boundaries for GHG accounting.
Types include equity share approach, financial control, andoperational control.

Consumer finance

Finance provided to individual and household consumers, such asmortgages and motor vehicle loans.

Corporate debt

Money that is owed by companies rather than by governments orindividual people.

Debt

A financing instrument that requires repayment by the borrower. In
the context of this Financed Emissions Standard, debt refers only tothe principal amount owed by the borrower and excludes interest.

Direct emissions

Emissions from sources that are owned or controlled by the reporting
entity or the borrower or investee.

Double counting

Occurs when GHG emissions (generated, avoided, or removed) arecounted more than once in a GHG inventory or toward attaining
mitigation pledges or financial pledges for the purpose of mitigatingclimate change.

131

Financed Emissions – Second Edition –Embodied emissions inbuildings

The GHG emissions associated with the non-operational phase of the
project. This includes emissions cause by extraction, manufacture,transportation, assembly, maintenance, replacement, deconstruction,
disposal and end of life aspects of the materials and systems thatmake up a building.

Emission intensity metric

Emissions per a specific unit, for example: tCO2e/€M or $M invested,
tCO2e/MWh, tCO2e/tonne product produced, tCO2e/MWh,tCO2e/ton product produced, tCO2e/€M or $M company revenue.

Emission removals

The action of removing GHG emissions from the atmosphere andstore it through various means, such as in soils, trees, undergroundreservoirs, rocks, the ocean, and even products like concrete andcarbon fiber.

Emission scopes

The GHG Protocol Corporate Accounting and Reporting Standard
classifies an organization’s GHG emissions into three scopes. Scope
1 emissions are direct emissions from owned or controlled sources.
Scope 2 emissions are indirect emissions from the generation ofpurchased energy. Scope 3 emissions are all indirect emissions (notincluded in scope 2) that occur in the value chain of the reportingorganization, including both upstream and downstream emissions.

Enterprise Value Including
Cash (EVIC)The sum of the market capitalization of ordinary shares at fiscal
year end, the market capitalization of preferred shares at fiscal
year-end, and the book values of total debt and minorities’ interests.
No deductions of cash or cash equivalents are made to avoid thepossibility of negative enterprise values.

Environmentally extended
input-output (EEIO) data

EEIO data refers to EEIO emission factors that can be used toestimate scope 1, 2, and upstream scope 3 GHG emissions for a given
industry or product category. EEIO data is particularly useful inscreening emissions sources when prioritizing data collection efforts.

EquityThe ownership of banks or investors in a company or project. There
are various types of equity, but equity typically refers to shareholder
equity, which represents the amount of money that would be returned
to a company’s shareholders if all company assets were liquidated
and all company debt were paid off.

EXIOBASE

A global, detailed multi-regional environmentally extended supplyuse table and input-output table. It was developed by harmonizing
and detailing supply use tables for a large number of countries,
estimating emissions, and resource extractions by industry.

Federal Test Procedure

The US Environmental Protection Agency’s Federal Test Procedures
are a series of drive cycle tests to measure the tailpipe emissions andfuel efficiency of passenger cars.

Financed emissions

Absolute emissions that banks and investors finance through theirloans and investments. See absolute emissions.

Financial institution

A company engaged in the business of dealing with financial andmonetary transactions such as deposits, loans, investments, andcurrency exchange. Financial institutions encompass a broad rangeof business operations within the financial services sector, includingcommercial banks, investment banks, development banks, asset
owners/managers (mutual funds, pension funds, close-end funds,
investment trusts), and insurance companies.

Greenhouse gas (GHG)
emissions

The seven gases mandated under the Kyoto Protocol and to be
included in national inventories under the United Nations Framework
Convention on Climate Change (UNFCCC)—carbon dioxide (CO2),methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs),
perfluorocarbons (PFCs), sulfur hexafluoride (SF�), and nitrogen
trifluoride (NF3).

GHG accounting

A means of measuring the direct and indirect emissions to the Earth’s
biosphere of CO2 and its equivalent gases from industrial activities.

GHG accounting of financial
portfolios

The annual accounting and disclosure of GHG emissions associatedwith loans and investments at a fixed point in time in line withfinancial accounting periods. This is also called portfolio GHG
accounting.

132

Financed Emissions – Second Edition –GHG Protocol

Comprehensive global standardized frameworks to measure andmanage GHG emissions from private and public sector operations,value chains, and mitigation actions. The GHG Protocol supplies theworld’s most widely used GHG accounting standards. The Corporate
Accounting and Reporting Standard provides the accounting platform
for virtually every corporate GHG reporting program in the world.

Global Trade Analysis Project(GTAP) database

GTAP is a global network of researchers and policy makers
conducting quantitative analysis of international policy issues. GTAP
is coordinated by the Center for Global Trade Analysis in Purdue
University’s Department of Agricultural Economics. The centerpieceof the GTAP is a global database describing bilateral trade patterns,
production, consumption, and intermediate use of commodities andservices

Home equity line of credit(HELOC)A revolving line of credit usually with an adjustable interest rate,
which allows homeowners to borrow up to a certain amount overa period of time. HELOCs work in a manner similar to credit cards,
where the homeowner can continuously borrow up to an approved
limit while paying off the balance.

Home equity loan (HEL)

Sometimes referred to as a second mortgage, usually allows
homeowners to borrow a lump sum against their current home equity
for a fixed rate over a fixed period of time. Usually, home equity loans
are used to finance large expenditures, such as home repairs orcollege tuition.

Indirect emissions

Emissions that are a consequence of the activities of the reporting
entity but occur at sources owned or controlled by another entity.

Investment

The term investment (unless explicitly stated otherwise) is usedin the broad sense: “Putting money into activities or organizations’with the expectation of making a profit.” Most forms of investment
involve some form of risk taking, such as investment in equities,
debt, property, projects, and even fixed interest securities which are
subject to inflation risk, among other risks.

Investee company or investee A company or project in which an investor makes a direct investment.
project
Known use of proceeds

Known use of proceeds relates to investments and loans for specific(corporate or consumer) purposes, i.e., the financial institution knows
for what activity the money is used.

Listed equity and corporate
bondsThis asset class includes all on-balance sheet listed corporate bonds
and all on-balance sheet listed equity that are traded on a market andare for general corporate purposes, i.e., unknown use of proceeds as
defined by the GHG Protocol. For detailed information on this asset
class see subchapter 5.1.

Mortgages

This asset class includes on-balance sheet loans for specificconsumer purposes—namely the purchase and refinance ofresidential property, including individual homes and multi-family
housing with a small number of units. This definition implies that theproperty is used only for residential purposes and not for commercial
activities. For detailed information on this asset class see subchapter
5.5.

Motor vehicle loans

This asset class refers to loans and lines of credit to businesses andconsumers for specific (corporate or consumer) purposes—namely
the finance of one or several motor vehicles. For detailed informationon this asset class see subchapter 5.6.

Paris Agreement

The Paris Agreement, adopted within the UNFCCC in December 2015,
commits participating countries to limit global temperature rise towell-below 2°C above preindustrial levels and pursue efforts to limit
warming to 1.5°C, adapt to changes already occurring, and regularly
increase efforts over time.

Project financeThis asset class includes all on-balance sheet loans or equities toprojects for specific purposes, i.e., with known use of proceeds as
defined by the GHG Protocol. The financing is designated for adefined activity or set of activities, such as the construction andoperation of a gas-fired power plant, a wind or solar project, or
energy efficiency projects. For detailed information on this asset classsee subchapter 5.2.

133

Financed Emissions – Second Edition –Scenario analysis

A process of analyzing future events by considering alternative
possible outcomes.

Science-based reduction
targets (SBTs)

Targets adopted by companies to reduce GHG emissions are
considered science-based if they are in line with what the latest
climate science says is necessary to meet the goals of the Paris
Agreement—to limit global warming to well-below 2°C above
preindustrial levels and pursue efforts to limit warming to 1.5°C.

Scope 1 emissions

Direct GHG emissions that occur from sources owned or controlled
by the reporting company—i.e., emissions from combustion in owned
or controlled boilers, furnaces, vehicles, etc.

Scope 2 emissions

Indirect GHG emissions from the generation of purchased or acquired
electricity, steam, heating, or cooling consumed by the reporting
company. Scope 2 emissions physically occur at the facility where theelectricity, steam, heating, or cooling is generated.

Scope 3 emissions

All other indirect GHG emissions (not included in Scope 2) that
occur in the value chain of the reporting company. Scope 3 can be
broken down into upstream emissions and downstream emissions:
Upstream emissions include all emissions that occur in the life
cycle of a material/product/service up to the point of sale by the
producer, such as from the production or extraction of purchasedmaterials.195 Downstream emissions include all emissions that occur
as a consequence of the distribution, storage, use, and end-of-life
treatment of the organization’s products or services.

Scope 3 category 15(investments) emissions

This category includes scope 3 emissions associated with thereporting company’s loans and investments in the reporting year, notalready included in scope 1 or scope 2.

Sequestered emissions

Refers to atmospheric CO2 emissions that are captured and stored insolid or liquid form, thereby removing their harmful global warming
effect.

Sovereign debt

This asset class includes sovereign bonds and sovereign loans of all
maturities issued in domestic or foreign currencies. Both sovereignloans and bonds lead to the transfer of funds to the country, which inturn creates a debt obligation to be repaid by the borrowing country.

Total balance sheet value

A balance sheet is a financial statement that reports a company’s
assets, liabilities, and shareholders’ equity. The balance sheet valuerefers to the sum of total equity and liabilities, which is equal to thecompany’s total assets.

Unknown use of proceeds

Unknown use of proceeds refers to investments and loans for general(corporate or consumer) purposes, i.e., the financial institution does
not know exactly for what activity the money is used, which holds forgeneral-purpose loans.

Unlisted equity

All on-balance sheet equity investments to businesses, nonprofits,
and any other structure of organization that are not traded on amarket and are for general corporate purposes, i.e., with unknown
use of proceeds as defined by the GHG Protocol. Unlisted equity isalso referred to as equity investments in private companies (i.e., thefinancial institution obtains shares of the company).

Vehicle makeThe name of the company that manufactures the vehicle.

Vehicle model

The product name of the vehicle.

World Input-Output Database(WIOD)

World Input-Output tables and underlying data, covering 43
countries, and a model for the rest of the world for 2000-2014. Data
for 56 sectors are classified according to the International Standard
Industrial Classification revision 4 (ISIC REV. 4).

World Harmonized Lightduty Vehicles Test Procedure(WLTP)The WLTP is a global, harmonized standard of drive cycle tests todetermine the tailpipe emissions and fuel efficiency of passenger
cars.

195 (WRI and WBCSD, 2013)

134

8. Acronyms
8. Acronyms

Financed Emissions – Second Edition –

CDP
CH4
CO2
CO2e
CRE
EEIO
EU
EU TEG
EV
EVIC
FAO
FSB
GAAP
GEMIS
GHG
GTAP
HFC
HEL
HELOC
ICCT
IEA
IFI
IFRS
IPCC
IPO
ISIC
ITF OECD
ktCO2eL2
MtCO2e
MWh
N2O
NACE
NDC
NEDC
NF3
NGO
PCAF
PFC
SASB
SBT
SBTi-FI
SDA
SF6Carbon Disclosure Project
MethaneCarbon dioxide
Carbon dioxide equivalent
Commercial real estate
Environmentally extended input-output
European Union
European Commission Technical Expert Group on Sustainable FinanceElectric vehicle
Enterprise value including cash
Food and Agriculture Organization of the United Nations
Financial Stability Board
Generally accepted accounting principles
Global Emissions Model for integrated Systems
Greenhouse gas
Global Trade Analysis ProjectHydrofluorocarbon
Home equity loan
Home equity line of credit
International Council on Clean Transportation
International Energy Agency
Internal Financial Institution
International Financial Reporting Standards
Intergovernmental Panel on Climate Change
Initial public offering
Industrial Classification of All Economic Activities
International Transport Forum at the Organisation for
Economic Co-operation and Development
kilotonnes of carbon dioxide equivalent
Level 2 (NACE)
megatonnes of carbon dioxide equivalent
Megawatt-hour
Nitrous oxide
Statistical Classification of Economic Activities in the European Community
Nationally determined contribution
New European Driving Cycle
Nitrogen trifluoride
Nongovernmental organization
Partnership for Carbon Accounting Financials
Perfluorocarbon
Sustainability Accounting Standards Board
Science-based targets
Science Based Targets initiative for Financial Institutions
Sectoral Decarbonization Approach
Sulfur hexafluoride
136

Financed Emissions – Second Edition –

TCFD
tCO2e
UNEP FIUNFCCC
US
WACI
WBCSD
WIOD
WLTP

Task Force on Climate-related Financial Disclosures
Metric tonnes of carbon dioxide equivalent
United Nations Environment Programme Finance Initiative
United Nations Framework Convention on Climate Change
United States
Weighted Average Carbon Intensity
World Business Council for Sustainable Development
World Input-Output Database
Worldwide Harmonized Light Vehicles Test Procedure1379. References
9. References

Financed Emissions – Second Edition –• CDP. (2020). CDP Climate Change 2020 Questionnaire.
Retrieved from CDP: https://bit.ly/39d9zoE• CRO Forum. (2020). Carbon Footprinting Methodology for Underwriting Portfolios.
Retrieved from The CRO
Forum: https://www.thecroforum.org/wp-content/uploads/2020/05/CRO-Carbon-FootPrinting-Methodology.pdf• ENCORD. (2012). Construction CO2e Measurement Protocol: A Guide to reporting against
the Green House Gas Protocol for construction companies. Retrieved from Greenhouse
Gas Protocol: https://ghgprotocol.org/sites/default/files/ENCORD-Construction-CO2Measurement-Protocol-Lo-Res_FINAL_0.pdf• EU Technical Expert Group on Sustainable Finance. (2019). Financing a Sustainable
European Economy: Report on Benchmarks: Handbook of Climate Transition Benchmarks,
Paris Aligned Benchmark, and Benchmarks’ ESG Disclosure. Retrieved from European
Commission: https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/192020-sustainable-finance-teg-benchmarks-handbook_en_0.pdf• GHG Protocol. (2014). Global Warming Potential Values. Retrieved from The Greenhouse
Gas Protocol: https://www.ghgprotocol.org/sites/default/files/ghgp/Global-WarmingPotential-Values%20%28Feb%2016%202016%29_1.pdf• IFI. (2020). Methodological Approach for the Common Default Grid Emission Factor
Dataset. Retrieved from United Nations Framework Convention on Climate Change: https://
unfccc.int/sites/default/files/resource/IFITWG_Methodological_approach_to_common_dataset.pdf• New Climate Institute and Climate Analytics. (2020). Climate Action Tracker. Retrieved
from https://climateactiontracker.org/global/cat-thermometer/• PCAF. (2019, December). Accounting for and Steering Carbon: Harmonised Approach for
the Financial Sector. Retrieved from Partnership for Carbon Accounting Financials: https://carbonaccountingfinancials.com/files/downloads/1911-pcaf-report-nl.pdf?6253ce57ac• PCAF. (2019, November). Harmonizing and Implementing a Carbon Accounting Approachfor the Financial Sector in North America. Retrieved from Partnership for Carbon
Accounting Financials: https://carbonaccountingfinancials.com/files/2019-10/20191028pcaf-report-2019.pdf• PCAF. (2019). Shaping the climate action journey for financial institutions: navigating
through the cluster of climate initiatives. Retrieved from Partnership for Carbon Accounting
Financials: https://carbonaccountingfinancials.com/files/2020-01/overview-initiativesshaping-climate-action-journey-for-fis.pdf?ae36ae7be6• SBTi. (2020). Financial Sector Science-Based Targets Guidance, Pilot Version. Retrieved
from https://sciencebasedtargets.org/wp-content/uploads/2020/10/Financial-SectorScience-Based-Targets-Guidance-Pilot-Version.pdf• TCFD. (2017). Final Report: Recommendations of the Task Force on Climate-related
Financial Disclosures. Retrieved from https://www.fsb-tcfd.org/publications/finalrecommendations-report/• TCFD. (2017). Implementing the Recommendations of the Task Force on Climate-related
Financial Disclosures. Section D: Supplemental Guidance for the Financial Sector. Retrieved
from Task Force on Climate-related Financial Disclosures: https://www.fsb-tcfd.org/wpcontent/uploads/2017/12/FINAL-TCFD-Annex-Amended-121517.pdf
139

Financed Emissions – Second Edition –• UNFCCC. (2015). International Financial Institution Framework for a Harmonised Approachto Greenhouse Gas Accounting. Retrieved from United Nations Framework Convention
on Climate Change: https://unfccc.int/sites/default/files/resource/International%20
Financial%20Institution%20Framework%20for%20a%20Harmonised_rev.pdf• World Bank Group. (2020). State and Trends of Carbon Pricing. Washington, D.C.
• WRI and WBCSD. (2004). GHG Protocol Corporate Accounting and Reporting Standard,
Revised Edition, Chapter 2. Retrieved from The Greenhouse Gas Protocol: https://
ghgprotocol.org/sites/default/files/standards/ghg-protocol-revised.pdf• WRI and WBCSD. (2011). GHG Protocol, Corporate Value Chain (Scope 3) Accounting andReporting Standard, Supplement to the GHG Protocol Corporate Accounting and ReportingStandard. Retrieved from Greenhouse Gas Protocol:
https://ghgprotocol.org/sites/default/files/standards/Corporate-Value-Chain-AccountingReporing-Standard_041613_2.pdf• WRI and WBCSD. (2013). Technical Guidance for Calculating Scope 3 Emissions. Retrieved
from Greenhouse Gas Protocol:
https://ghgprotocol.org/sites/default/files/standards/Scope3_Calculation_Guidance_0.pdf

14010. Annex
10. Annex

Financed Emissions – Second Edition –10. Annex
10.1. Detailed data quality score tables per asset class
L ISTED EQUITY AND CORPORATE BONDS – DETAILED SUMMARY OF DATA NEEDS AND EQUATIONS TO CALCULATE FINANCED EMISSIONS
Table 10.1-1. Detailed description of the data quality score table for listed equity and corporate bonds194

OptionDescription
Attribution
Financial data

Emission factor
Emission data

Verified GHG emissions data from thecompany in accordance with the GHG
ProtocolOption1aFinanced emissions calculation
Equations

For listed companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐∑
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐
𝑐𝑐

For bonds to private companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐∑
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐

Dataquality
Highest to
lowestScore 1𝑐𝑐

Option1b

Outstanding
amount inthecompany

EVIC for listedcompanies
and total
equity plus
debt for bonds
to privatecompanies

Option2a195

Option2b

Option3a

EVIC for listedcompanies
and total
equity plus
debt for bonds
to privatecompanies

Revenue ofthe company

Unverified GHG emissions data
calculated by the company inaccordance with the GHG Protocol𝑐𝑐

For bonds to private companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐∑
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐

Score 2𝑐𝑐Primary physicalactivity data for thecompany’s energy
consumption byenergy source (e.g.,
megawatt-hours ofelectricity) plus any
process emissions

Emission factors
specific to thatprimary data
(e.g., energy
source-specificemissionfactors)196

Primary physicalactivity data for thecompany’s
production (e.g.,tonnes of riceproduced)

Emission factors
specific to thatprimary data
(e.g., emission
factor per
tonne of rice)

GHG emissions per
sector

For listed companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐∑
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐

Revenue persector199

For listed companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
ͳͻ͹× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐∑
𝑐𝑐

For bonds to private companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
ͳͻͺ× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓∑
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐

Score 3𝑐𝑐

For listed companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑐𝑐 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓∑
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐
𝑐𝑐

For bonds to private companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑐𝑐 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓∑
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐

Score 3𝑐𝑐

For listed companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
𝐺𝐺𝐺𝐺𝐺𝐺 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠
× 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑐𝑐 ×∑
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠
𝑐𝑐

For bonds to private companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
𝐺𝐺𝐺𝐺𝐺𝐺 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠
× 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑐𝑐 ×∑
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠

Score 4𝑐𝑐

For listed companies and bonds to private companies:

Option3b

N/A

GHG emissions per
sectorAssets per
sector∑ 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐 ×𝑐𝑐

𝐺𝐺𝐺𝐺𝐺𝐺 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑠𝑠Score 5
Option3c

194

Asset turnoverratio persector

GHG emissions per
sectorRevenue persector

For listed companies and bonds to private companies:∑ 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐 × 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑠𝑠 ×𝑐𝑐

𝐺𝐺𝐺𝐺𝐺𝐺 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠

Where c = borrower or investee company and s = sector.

195
The quality scoring for Option 2a is only possible for/applicable to scope 1 and scope 2 emissions as scope 3 emissions cannot be estimated by this option. Other options can be used to estimate the scope 3
emissions, however.
196

Supplier-specific emission factors (e.g., from an electricity provider) for the respective primary activity data are always preferred over non-supplier-specific emission factors.

197

Where this option is used, process emissions must be added to the calculated energy consumption emissions before multiplying by the attribution factor.

198

Where this option is used, process emissions must be added to the calculated energy consumption emissions before multiplying by the attribution factor.

199

If revenue is not deemed a suitable financial indicator for estimating the emissions of a company in a certain sector, one can apply other suitable financial indicators as a proxy. If an alternative indicator is used,

the reasoning for the selection of this alternative indicator should be made transparent. The data quality score will not be affected.

142

Financed Emissions – Second Edition –BUSINESS LOANS AND UNLISTED EQUITY – DETAILED SUMMARY OF DATA NEEDS AND EQUATIONS TO CALCULATE FINANCED EMISSIONS
Table 10.1-2. Detailed description of the data quality score table for business loans and unlisted equity200

Description
OptionAttribution

Emission factor

Financial data

Emission data

Verified GHG emissions data fromthe company in accordance with
the GHG Protocol

Option1aFinanced emissions calculation
Equations
For business loans and equity investments to/in private companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐∑
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐
𝑐𝑐

For business loans to listed companies:∑
𝑐𝑐

Option1b

Option2a201

Outstanding
amount inthecompany

Total equity plus
debt for businessloans and equity
investments
to/in privatecompanies, and
EVIC for businessloans to listedcompanies

Option2b

Option3aTotal equity plus
debt for businessloans and equity
investments
to/in privatecompanies, and
EVIC for businessloans to listedcompanies

Unverified GHG emissions data
calculated by the company inaccordance with the GHG
ProtocolEmissionfactors specificto thatprimary data
(e.g., energy
source-specificemissionfactors)202

Primary
physical activity
data for thecompany’s
production(e.g., tonnes ofrice produced)

Emissionfactors specificto thatprimary data
(e.g., emission
factor per
tonne of rice)

Revenue persector205

N/A

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐

For business loans and equity investments to/in private companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 𝑐𝑐𝑐𝑐𝑐𝑐𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐∑
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐
𝑐𝑐

For business loans to listed companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐∑
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐

For business loans and equity investments to/in private companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
ʹͲ͵
× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓∑
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐

Score 2𝑐𝑐

For business loans to listed companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
ʹͲͶ
× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓∑
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐
𝑐𝑐

For business loans and equity investments to/in private companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑐𝑐 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓∑
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐
𝑐𝑐

For business loans to listed companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑐𝑐 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓∑
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐

Score 3𝑐𝑐

For business loans and equity investments to/in private companies:
𝐺𝐺𝐺𝐺𝐺𝐺 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑐𝑐 ×∑
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠
𝑐𝑐

For business loans to listed companies:
𝑂𝑂𝑂𝑂𝑂𝑂𝑠𝑠𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
𝐺𝐺𝐺𝐺𝐺𝐺 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠
× 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑐𝑐 ×∑
𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠

Score 4𝑐𝑐

Revenue of thecompany
Option3b

Score 1𝑐𝑐

Primary
physical activity
data for thecompany’s
energyconsumption byenergy source(e.g.,
megawatthours ofelectricity) plus
any process
emissions

GHG emissions
per sector

Dataquality
HighesttolowestGHG emissions
per sector

Assets per
sector∑ 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐 ×𝑐𝑐

𝐺𝐺𝐺𝐺𝐺𝐺 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑠𝑠Score 5
Option3c

200

Asset turnoverratio per sector

GHG emissions
per sector

Revenue persector𝐺𝐺𝐺𝐺𝐺𝐺 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠∑ 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐 × 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑠𝑠 ×
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠
𝑐𝑐

Where c = borrower or investee company and s = sector.

201
The quality scoring for Option 2a is only possible for/applicable to scope 1 and scope 2 emissions as scope 3 emissions cannot be estimated by this option. Other options can be used to estimate the scope 3
emissions, however.
202

Supplier-specific emission factors (e.g., from an electricity provider) for the respective primary activity data are always preferred over non-supplier-specific emission factors.

203

Where this option is used, process emissions must be added to the calculated energy consumption emissions before multiplying by the attribution factor.

204

Where this option is used, process emissions must be added to the calculated energy consumption emissions before multiplying by the attribution factor.

205

If revenue is not deemed a suitable financial indicator for estimating the emissions of a company in a certain sector, one can apply other suitable financial indicators as a proxy. If an alternative indicator is used,

the reasoning for the selection of this alternative indicator should be made transparent. The data quality score will not be affected.

143

Financed Emissions – Second Edition –PROJECT FINANCE – DETAILED SUMMARY OF DATA NEEDS AND EQUATIONS TO CALCULATE FINANCED EMISSIONS
Table 10.1-3. Detailed description of the data quality score table for project finance206

Description

OptionAttribution
Financial data

Emission factor
Emission data

Option1aVerified GHG emissions data of the project inaccordance with the GHG Protocol

Option1bUnverified GHG emissions data calculated by
the project in accordance with the GHG
ProtocolTotal
project
equityanddebt

Financed emissions calculation
Equations∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝
× 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑝𝑝
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑝𝑝∑

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝
× 𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑝𝑝
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑝𝑝

𝑝𝑝

𝑝𝑝

Primary physical activity
data for the project’s
energy consumption byenergy source (e.g.,
megawatt-hours ofelectricity) plus any
process emissions

Emission factors
specific to thatprimary data
(e.g., energy
source-specificemissionfactors)208

Primary physical activity
data for the project’s
production (e.g., tonnesof rice produced)

Emission factors
specific to thatprimary data
(e.g., emission
factor per tonneof rice)

Option3a

Total
project
equityanddebt
Revenueof theproject

GHG emissions per sector

Revenue persector210

Option3b

N/A

GHG emissions per sector

Assets per sector∑ 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝 ×

Option3cAssetturnoverratio persectorRevenue persector𝐺𝐺𝐺𝐺𝐺𝐺 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠∑ 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝 × 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑠𝑠 ×
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠

Option2a207

Option2b

206
207

Outstanding
amount inproject

Data
quality
Highest to
lowestScore 1

Score 2𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝ʹͲͻ× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑝𝑝∑
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑝𝑝
𝑝𝑝

× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓∑

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝
× 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑝𝑝 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑝𝑝∑

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝
𝐺𝐺𝐺𝐺𝐺𝐺 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠
× 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑝𝑝 ×
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 + 𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑝𝑝
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠

𝑝𝑝

𝑝𝑝

𝑝𝑝

Score 3

Score 4𝐺𝐺𝐺𝐺𝐺𝐺 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑠𝑠Score 5
GHG emissions per sector

𝑝𝑝

Where c = borrower or investee company and s = sector.
The quality scoring for Option 2a is only possible for/applicable to scope 1 and scope 2 emissions as scope 3 emissions cannot be estimated by this option. Other options can be used to estimate the scope 3

emissions, however.
208

Supplier-specific emission factors (e.g., from electricity provider) for the respective primary activity data are always preferred over non-supplier-specific emission factors.

209

Where this option is used, process emissions must be added to the calculated energy consumption emissions before multiplying by the attribution factor.

210

If revenue is not deemed a suitable financial indicator for estimating the emissions of a company in a certain sector, one can apply other suitable financial indicators as a proxy. If an alternative indicator is used,

the reasoning for the selection of this alternative indicator should be made transparent. The data quality score will not be affected.

144

Financed Emissions – Second Edition –COMMERCIAL REAL ESTATE – DETAILED SUMMARY OF DATA NEEDS AND EQUATIONS TO CALCULATE FINANCED EMISSIONS
Table 10.1-4. Detailed description of the data quality score table for commercial real estate211

OptionDescription
Attribution
Financial data

Option1aSupplierspecificemissionfactors
specific tothe energy
sourceOption1b

Option2a

Option2bOutstanding
amount andproperty
value atorigination

Averageemissionfactors
specific tothe energy
sourceOption3

211

Emission factor
Emissions data

Financed emissions calculation
Equations

Data
quality
Highest to
lowestPrimary data on
actual building
energy consumption∑

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏
× 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑏𝑏,𝑒𝑒
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏

Score 1Primary data on
actual building
energy consumption∑

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏
× 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑏𝑏,𝑒𝑒
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏

Score 2∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏
× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑏𝑏,𝑒𝑒
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏

Score 3∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏
× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑏𝑏,𝑒𝑒
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏

Score 4∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏
× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑏𝑏,𝑒𝑒
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏

Score 5

Estimated building
energy consumption
per floor area basedon official building
energy labels andfloor area financed
Estimated building
energy consumption
per floor area basedon building type andlocation-specificstatistical data andfloor area financed
Estimated building
energy consumption
per building based onbuilding type andlocation-specificstatistical data andnumber of buildings
financed

𝑏𝑏,𝑒𝑒

𝑏𝑏,𝑒𝑒

𝑏𝑏,𝑒𝑒

𝑏𝑏,𝑒𝑒

𝑏𝑏,𝑒𝑒

× 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒

× 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒

× 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏 × 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒

× 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏 × 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑓𝑓𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑒𝑒

× 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁 𝑜𝑜𝑜𝑜 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏 × 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒

Where b = building and e = energy source.

145

Financed Emissions – Second Edition –MORTGAGES – DETAILED SUMMARY OF DATA NEEDS AND EQUATIONS TO CALCULATE FINANCED EMISSIONS
Table 10.1-5. Detailed description of the data quality score table for mortgages212

OptionDescription
Attribution
Financial data

Option 1a

Emission factor
Emissions data

Supplierspecificemissionfactors
specific tothe energy
sourceOption 1b

Option 2a

Option 2b

Outstanding
amount andproperty value
at origination

Averageemissionfactors
specific tothe energy
sourceOption 3

212

Financed emissions calculation
Equations

Data
quality
Highest to
lowestPrimary data on
actual building
energy consumption∑

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏
𝑥𝑥 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑏𝑏,𝑒𝑒
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏

Score 1Primary data on
actual building
energy consumption∑

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏
× 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑏𝑏,𝑒𝑒
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏

Score 2∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏
× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑏𝑏,𝑒𝑒
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏

Score 3∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏
× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑏𝑏,𝑒𝑒
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏

Score 4∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏
× 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑏𝑏,𝑒𝑒
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏

Score 5

Estimated building
energy consumption
per floor area basedon official building
energy labels andfloor area financed
Estimated building
energy consumption
per floor area basedon building type andlocation-specificstatistical data andfloor area financed
Estimated building
energy consumption
per building based onbuilding type andlocation-specificstatistical data andnumber of buildings
financed

𝑏𝑏,𝑒𝑒

𝑏𝑏,𝑒𝑒

𝑏𝑏,𝑒𝑒

𝑏𝑏,𝑒𝑒

𝑏𝑏,𝑒𝑒

× 𝑆𝑆𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒

× 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒

× 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏 × 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒

× 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏 × 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒

× 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁 𝑜𝑜𝑜𝑜 𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏 × 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒

Where b=building and e=energy source.

146

Financed Emissions – Second Edition –MOTOR VEHICLE LOANS – DETAILED SUMMARY OF DATA NEEDS AND EQUATIONS TO CALCULATE FINANCED EMISSIONS
Table 10.1-6. Detailed description of the data quality score table for motor vehicle loans213

OptionAttribution
Financial data

Primary data on
actual vehicle fuelconsumption

Option 1a

Primary data on
actual vehicle
distance traveled
plus vehicle’s fuelefficiency and fueltype from known
vehicle make andmodel

Option 1b

Option 2a

Option 2b

Option 3a

Option 3b

213

Outstanding
amount andtotal value ofvehicle orvehicle fleet atorigination

Description

Emission factor
Emissions data

Emissionfactors214
specific to
the fuel
type

Local statistical datafor distance traveled
plus vehicle’s fuelefficiency and fueltype from known
vehicle make andmodel
Regional statistical
data for distancetraveled plus
vehicle’s fuelefficiency and fueltype from known
vehicle make andmodel
Local or regional
statistical data for
distance traveled
plus vehicle’s fuelefficiency and fueltype from known
vehicle type
Local or regional
statistical data for
distance traveled
plus vehicle fuel’s
efficiency and fueltype from averagevehicle∑𝑣𝑣,𝑓𝑓Financed emissions calculation
Equations

Data quality
Highest to
lowest𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑣𝑣
× 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑣𝑣 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑣𝑣

Score 1∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑣𝑣
× 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑣𝑣 𝑥𝑥 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑣𝑣,𝑓𝑓 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑣𝑣∑

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑣𝑣
× 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑙𝑙 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑣𝑣,𝑓𝑓 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑣𝑣∑

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑣𝑣
× 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑟𝑟 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑣𝑣,𝑓𝑓 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑣𝑣∑

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑣𝑣
× 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑠𝑠 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑡𝑡,𝑓𝑓 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑣𝑣∑

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑣𝑣
× 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑠𝑠 × 𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑎𝑎,𝑓𝑓 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 𝑎𝑎𝑎𝑎 𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑣𝑣

𝑣𝑣,𝑓𝑓

𝑣𝑣,𝑓𝑓

𝑣𝑣,𝑓𝑓

𝑡𝑡,𝑓𝑓

𝑎𝑎,𝑓𝑓

Score 2

Score 3

Score 4

Score 5

Where v = vehicle or vehicle fleet with known make and model for that vehicle, t = vehicle or vehicle fleet with known vehicle type, a = assumed average vehicle or vehicle fleet, l = local estimation of distancetraveled, r = regional estimation of distance traveled, s = local or regional estimation of distance traveled, f = fuel type (fuel type in the case of electric or hybrid vehicles can also refer to electricity).
214

Of all options shown in the table, supplier-specific emission factors (e.g., from an electricity provider) for the respective primary activity data are always preferred over non-supplier-specific emission factors.

147

Financed Emissions – Second Edition –SOVEREIGN DEBT – DETAILED SUMMARY OF DATA NEEDS AND EQUATIONS TO CALCULATE FINANCED EMISSIONS
Table 10.1-7. Detailed description of the data quality score table for sovereign debt

OptionDescription
Attribution
Financial data

Emission factor
Emission data

Financed emissions calculation
Equations

Data
quality
Highest to
lowestOption 1a

Verified GHG emissions of thecountry, reported by the country to
UNFCCC∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐
𝑃𝑃𝑃𝑃𝑃𝑃 − 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝐺𝐺𝐺𝐺𝐺𝐺𝑐𝑐

Score 1

Option 1b

Unverified GHG emissions of thecountry∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐
𝑃𝑃𝑃𝑃𝑃𝑃 − 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝐺𝐺𝐺𝐺𝐺𝐺𝑐𝑐

Score 2∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝐸𝐸𝐸𝐸𝐸𝐸𝑟𝑟𝑔𝑔𝑔𝑔 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 × 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓
𝑃𝑃𝑃𝑃𝑃𝑃 − 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝐺𝐺𝐺𝐺𝐺𝐺𝑐𝑐

PPP215adjusted
Gross
Domestic
Product
(GDP)

𝑐𝑐

𝑐𝑐

Primary physicalactivity data of
the country’s
energyconsumption(domestic
generated andimported) byenergy source(e.g., megawatthours ofelectricity) plus
any process
emissions

Emission factors
specific to thatprimary data
(e.g., energy
source-specificemissionfactors)

Option 3a

GHG emissions
per sector
revenue

Revenue persector216∑

𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
𝐺𝐺𝐺𝐺𝐺𝐺 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠,𝑐𝑐
× 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠,𝑐𝑐 ×
𝑃𝑃𝑃𝑃𝑃𝑃 − 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝐺𝐺𝐺𝐺𝐺𝐺𝑐𝑐
𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠,𝑐𝑐

Score 4

Option 3b

GHG emissions
per ppp-adjusted
GDP of proxycountry

PPP-adjusted
GDP of thecountry∑

𝐺𝐺𝐺𝐺𝐺𝐺 𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐
× 𝑃𝑃𝑃𝑃𝑃𝑃 − 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝐺𝐺𝐺𝐺𝐺𝐺𝑐𝑐 ×
𝑃𝑃𝑃𝑃𝑃𝑃 − 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝐺𝐺𝐺𝐺𝐺𝐺𝑐𝑐
𝑃𝑃𝑃𝑃𝑃𝑃 − 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎 𝐺𝐺𝐺𝐺𝐺𝐺𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝

Score 5

Option 2a

Outstanding
amount(loan orbond) to thesovereign

𝑐𝑐

𝑐𝑐

𝑐𝑐

Score 3215

Purchasing power parity (PPP)216

If revenue is not deemed a suitable financial indicator for estimating the emissions of a company in a certain sector, one can apply other suitable financial indicators as a proxy. If an alternative indicator is used,

the reasoning for the selection of this alternative indicator should be made transparent. The data quality score will not be affected.

148

Financed Emissions – Second Edition –10.2. Sample table templates displaying reported emissions
for a given fiscal year
Table 10.2-7. Example of a GHG accounting report for scopes 1, 2, and 3

Scopes and categories
Scope 1 emissions
Total scope 1
Scope 2 emissions
Total scope 2
Upstream scope 3 emissions
Category 1: Purchased goods
Category 2: Capital goods
Category 3: Fuel- and energy-related activities
Category 4: Upstream transportation and distribution
Category 5: Waste generated in operations
Category 6: Business travel
Category 7: Employee commuting
Category 8: Upstream leased assets
Downstream scope 3 emissions
Category 9: Downstream transportation and distribution
Category 10: Processing of sold products
Category 11: Use of sold products
Category 12: End-of-life treatment of sold products
Category 13: Downstream leased assets
Category 14: Franchises
Category 15: Investments**
Total emissions all scopes
Scope 1 total emissions
Scope 2 total emissions
Scope 3 total emissions
Overall total emissions

Baseline year emissions (tCO2e) (ifrelevant)

Current reporting year
emissions (tCO2e)

See Table 10.2-8 and Table 10.2-9 for examples how to report scope 3 category 15 (investments) emissions.
Table 10.2-8. Example reporting of absolute financed emissions—scope 3, category 15 (investments)

Activity

Total
outstanding loan Scope 1+ Scope 2
and investments
emissionscovered(tCO2e)(x € 1,000)
Absolute emissions per asset class (if reporting by asset class)
Listed Equity & Bonds
Business Loans-Sector 1, e.g., Cement-Sector 2, e.g., Cattle
Project FinanceMortgages
Commercial Real Estate
Motor Vehicle Loans
Sovereign Debt
Total
Absolute emissions per sector (if reporting by sector)
Oil & Gas
Agriculture
Total

Scope 3emissions(tCO2e)Emission
intensity(tCO2e/€M)

Weighted data
quality score(High Quality = 1
Low Quality = 5)149

Financed Emissions – Second Edition –Table 10.2-9. Example reporting of financed emission removals and avoided emissions—scope 3, category 15 (investments)

Activity

Total outstanding loan andinvestments covered(x € 1,000)
Avoided emissions from renewable power projects
Wind
Solar
Total
Emissions removals from forestry projects
Carbon credits generated
Total
Carbon credits retired
Total

Emissions (tCO2e)

Emission intensity(tCO2e/€M)

Weighted data quality
score (High Quality = 1
Low Quality = 5)150

Financed Emissions – Second Edition –Website:carbonaccountingfinancials.com
E-mail:info@carbonaccountingfinancials.com

MEASURING AND REPORTING

Financed Emissions
The

GLOBAL GHG
ACCOUNTING& REPORTING

Standard

PART

A

Photo credits: Unsplash and:1David Costa
2
Clint Adair
3
Franck V
4
Sandy Millar
5
Hugues De Buyer Mimeure
5.1 Sigmund
5.2 Marcin Jozwiak
5.3 Gonz Ddl
5.4 Jezael Melgoza Lay
5.5 Mika Baumeister
5.6 Ryan Searle
5.7 Darryl Low
6
Sam Dan Truong
7
Lysander Yuen
8
Kristian Strand
9
Michael Dziedzic
10 Ryan Searle151