Financed Emissions (Scope 3)

As the world heads toward net-zero emissions by 2050, it is critical to understand the climate impact of the capital you allocate.

Financial institutions, particularly those with financed emissions, must account for these emissions to align with the Paris Agreement. The Global GHG Accounting and Reporting Standard provides a standardized approach to account for financed emissions, ensuring robustness, transparency, and comparability across asset classes.

This is crucial as it helps financial institutions assess climate-related risks and opportunities, set targets in line with the Paris Agreement, and develop strategies to support decarbonization. Therefore, GHG accounting is a crucial step in achieving these goals.

The Partnership for Carbon Accounting Financials (PCAF) developed the Global GHG Accounting & Reporting Standard for the Financed Emissions.

What Are Financed Emissions?

Financed emissions are GHG emissions associated with loans and investments made by financial institutions, often the largest part of a financial institution’s climate footprint.  The volume of GHG emissions emitted and financed by an institution is commonly referred to as its generated emissions. These emissions are classified as Scope 3 under the GHG Protocol and represent the climate impact of the real economy through financial intermediation.

How do these standards help?

– Inclusion of Sovereign Debt Methodology
– Guidance on GHG Emission Removals
– Improved data quality scoring across seven asset classes
– Standardized formulas for attribution based on EVIC, project values, and property origination values

The standard now covers 7 Asset classes:

– Listed equity and corporate bonds
– Business loans and unlisted equity
– Project finance
– Commercial real estate
– Mortgages
– Motor vehicle loans
– Sovereign debt (new)

Each class has tailored methodologies for attribution, estimation, and disclosure.

Why Is This Important?

Using this standard helps financial institutions:

✅ Establish a baseline for science-based targets
✅ Identify transition risks and carbon-intensive hotspots
✅ Align with global frameworks (TCFD, CDP, SBTi)
✅ Drive portfolio decarbonization in line with the Paris Agreement
✅ Enable climate-friendly product innovation – from green bonds to sustainability-linked loans

Beyond Disclosure: A Strategic Imperative

Financed emissions enable scenario analysis, risk management, and product development. The standard supports normalized metrics such as:

– Absolute emissions: To understand the climate impact of loans and investments and set a baseline for climate action
– Economic Emission Intensity (tCO₂e per $M invested)
– Physical Intensity (e.g., tCO₂e/MWh or per tonne product)
– Weighted Average Carbon Intensity (WACI)

The attached document is the Global GHG Accounting and Reporting Standard for the Financial Industry.

Source:

https://www.linkedin.com/feed/update/urn:li:activity:7348561553329139712