In this 3-part series, we show how the finance sector moves from ambition to action on greenhouse gas emissions. Take a deep dive.
So, you’ve read our introduction to the PCAF industry standard, explored the benefits of PCAF reporting for your financial institution, and decided that maybe your organization too should assess its financed emissions. Still, there’s that one thing that is holding you back: how do you start measuring and reporting your financed emissions (FEs)? PCAF and Futureproofed have got you covered!
As a financial institution, you know all about figures, numbers, and financial reports. Calculating, assessing, and reporting the greenhouse gas (GHG) emissions related to your loans and investments, however, is a whole different ball game.
Fortunately, PCAF’s Global GHG Accounting and Reporting Standard for Financed Emissions guides you all the way. Developed in 2020 by 22 PCAF participants – with the help of many stakeholders – and updated in December 2022, the standard provides a clear accounting methodology. In this way, you can be sure that your measurements and reporting will be consistent, comparable, reliable, and clear.
Start to calculate your FEs in 3 steps
In practice, these are the steps to take:
1. Determine your asset classes
Let’s start with the basics. The PCAF standard helps measure and disclose emissions associated with seven different asset classes (with two more asset classes currently under development):
- listed equity and corporate bonds
- business loans and unlisted equity
- project finance
- commercial real estate
- motor vehicle loans
- sovereign debt
The emission scopes required for reporting differ for each asset class. Scope 1 emissions are mandatory for all asset classes, but the need to report on Scope 2 and 3 emissions varies. Sounds complex? Don’t worry, the standard provides information about how to measure and what types of data you need for every asset class - and Futureproofed can help you too (scroll down to read how).
➡︎ TIP #1:
Assess your company portfolio and decide what asset class(es) have the biggest impact on your business. Then prioritize the asset classes you want to focus on, e.g. based on the balace sheet. If your core activity is providing residential mortgages, these will make up a hefty chunk of your overall financed emissions. So, you might choose to concentrate on measuring and disclosing the emissions of that asset class in the first year(s).
2. Collect data (and don’t let data challenges hold you back)
Once you’ve defined the relevant asset classes, you can start collecting data. The better the data, the more reliable your reporting. Therefore, PCAF recommends using primary GHG data. Still, they realize that finding that data might be a bit of a challenge. To calculate the FEs of your mortgages, for example, you’ll need data from your borrower, like the building’s energy performance certificate (EPC) ratings, floor area, insulation properties, energy consumption, etc., – which are not always readily available.
Don’t let that hinder you from preparing your inventories. Use industry averages or estimates by using proxy data from accepted sources. In this way, you will already be able to identify hotspots in your portfolios. When disclosing your financed emissions, PCAF will expect you to be transparent about the data quality by scoring it from 1 to 5, with 5 being the lowest-quality, i.e. least accurate and reliable, data. In this way, you’ll be encouraged to improve the data quality over time.
➡︎ TIP #2:
If you’re looking for data to calculate the emissions of your mortgages or commercial real estate, then the PCAF European building emission factor database is the perfect starting point. It includes a specified set of emission factors by building type for all European countries.
3. Calculate the attribution factor and the financed emissions
Once you’ve determined your asset classes and collected the data, you can start measuring the financed emissions for each investment or loan. To help you with that, the PCAF standard provides a calculation formula. While that formula differs slightly per asset class, it applies a common principle: financed emissions are always calculated by multiplying an attribution factor (the share of the total GHG emissions that are associated with the loan or investment) by the emissions of the borrower or investee.
➡︎ TIP #3:
When calculating the FEs for a mortgage, the attribution factor is the ratio between the outstanding amount at the time of measuring and the property value at the moment when the borrower applied for the loan.
How Futureproofed can help
At Futureproofed, we believe that financial institutions have a key role to play in shaping our net zero future. Here’s how we can help you in your journey:
1. Our carbon accounting software includes templates to help you measure and report your financed emissions according to the PCAF standard. The mortgage template, for example, comprises relevant scopes and databases, predefined emission categories, as well as the attribution factor formula for mortgages - as a perfect starting point for your FE measurements. Collect the data, enter the details and the software will automatically calculate the emissions in line with the standard, using the most relevant emission factor from de building emission factor database. With just a few clicks, you can build clear reports. And based on the insights, it’ll be easy to define action points and KPIs to improve your performance.
2. Futureproofed is also a team of climate and business experts. Our carbon accounting tool always comes with strategic advice and guidance. From defining your data needs to calculating specific emissions or identifying targets and KPIs: we work closely together with your team to guide you on your journey.
The time is now
Last but not least: remember that measuring your financed emissions is not about compliance. By taking bold climate action you are sure to gain the trust of all your stakeholders, uncover new business opportunities, and, of course, support the world in its urgent race to net zero.
Re-read the 6 benefits of disclosing your financed emissions and kickstart your journey to PCAF.
Ready to start tracking your own financed emissions?