Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
A global alliance of financial institutions in mid-November
launched a standard for measuring emissions related to the funds
they and their peers lend, hoping that it will increase
transparency and allow apples to be measured against other
apples.
The standard gives banks, asset owners and asset managers a tool
for measuring and reporting greenhouse gas (GHG) emissions
associated with loans and investments, according to the Partnership
for Carbon Accounting Financials (PCAF), using either the
operational or financial control approach, rather than an equity
alternative.
Previously, financial institutions used different approaches and
accounting methodologies to measure financed emissions and opted
for various reporting metrics, and the 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, it said.
Its backers are collaborating with some of the key stakeholders
in the sectors such as the Task Force on Climate-related Financial
Disclosures, Carbon Disclosure Project (CDP), and European
Commission Technical Expert Group on Sustainable Finance. PCAF says
its standard offers a methodology that aids transparency when it
comes to CDP disclosures.
The emissions measured are the seven gases included in national
inventories under the United Nations Framework Convention on
Climate Change (UNFCCC): carbon dioxide, methane, nitrous oxide,
hydrofluorocarbons, perfluorocarbons, sulfur hexafluoride and
nitrogen trifluoride. All are usually converted to and expressed as
tons of carbon dioxide equivalents.
"For a financial institution, scope 3 category 15 emissions
(i.e., financed emissions) are often the most significant part of
its GHG emissions inventory and special consideration must be made
regarding how these are measured," according to PCAF.
The approach being used makes a big difference, according to IHS
Markit Senior Research Analyst Sara Giordana. "I think this is
crucial because the choice of the approach (equity-based,
operational or financial control) affects which activities'
emissions in the company's chain are categorized as direct (scope 1
emissions) and indirect (scope 2 and scope 3 emissions), leading to
significant implications in terms of standardization and data
comparability," she said.
Specifically it builds on its predecessors by offering
additional guidance for different asset classes, according to PCAF,
which says the standard provides methods to measure financed
emissions of six asset classes: listed equity and corporate bonds,
business loans and unlisted equity, project finance, commercial
real estate, mortgages and motor vehicle loans.
"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, according to PCAF.
The standard has found support from both regulators and
investors.
The Dutch central bank's chief banking supervisor and a member
of the European Central Bank supervisory board, Frank Elderson,
said: "As a supervisory authority, we want institutions to
effectively identify and manage their climate risks. Measurement
and disclosure on their carbon emissions is a key aspect of this,"
he said, adding: "The PCAF global accounting and reporting standard
enables financial institutions worldwide to do this, and this is
key, to do this, in the same manner. And this will ensure
comparability of these reports, and therefore their usability by
other markets, will increase."
From the investor side, Boston Common Asset Management Director
of Shareowner Engagement Lauren Compere said: "While we looked at
different carbon methodologies, we thought this standard and the
PCAF approach was really the one that could be applied most
comprehensively for investors and banks across lending and
investing portfolios."
Meantime, Elderson's fellow Dutchman, Peter Blom, Triodos Bank
CEO, noted: "Financial institutions recognize that measuring
financed emissions is a catalyst for action, regardless of their
size, business model or where they are in the world. GHG accounting
provides crucial information to assess the resilience of portfolios
to climate-related risks and identifies opportunities to finance
the decarbonization that's so urgently needed for the
transformation to a net-zero emissions society."
The standard has received the "Built on GHG Protocol Mark" from
the GHG Protocol, the supplier of the world's most widely used
greenhouse gas accounting standards, PCAF said.
PCAF will continue to work with financial institutions providing
technical support to implement the standard globally, it said,
adding that in 2021, the organization will develop additional asset
class methods and publish case studies.
