December 13, 2022

What is PCAF and how does it operate?

The Partnership for Carbon Accounting Financials (PCAF) is an initiative led by various industries. It was established in 2015 by Dutch financial institutions, later appearing in North America during 2018, and operating on a global scale by 2019. PCAF assists financial institutions with evaluating and revealing greenhouse gas (GHG) emissions from their loans and investments through carbon accounting methods.

Why monitor carbon emissions?

Carbon accounting constrains financial institutions to recognize these emissions over time and in compliance with accepted financial accounting principles. These communications are critical for permitting stakeholders to comprehend how a financial institution’s loans and investments might be hampering or furthering, the transformation to a low carbon economy.

Establishing a low carbon economy is vital to reach the goals set in the Paris Agreement and avoid drastic global temperature increase. There has been no past agreement on how financed emissions should be measured and reported, though it's an important step. Emissions disclosure among financial institutions have varied greatly, leading to very little adoption of carbon accounting principles.

In order to meet the industry's requirements for a worldwide, standardized carbon accounting approach, PCAF created the Global Carbon Accounting Standard specifically tailored for the finance sector. With the GHG Protocol Scope 3 Standard 2 serving as its foundation, the Standard builds on top of existing carbon accounting methods that PCAF has been developing and utilizing since 2015.

Tracking emissions of the 6 Asset Classes

These methods assist in the measurement and disclosure of GHG emissions associated with the following six asset classes:

  1. Listed equity and bonds
  2. Mortgages
  3. Business loans
  4. Motor vehicle loans
  5. Project finance
  6. Commercial real estate

The Standard provides comprehensive guidance for calculating the emissions resulting from activities in the real economy that are financed through lending and investment portfolios. Emissions are attributed to financial institutions based on robust, consistent accounting rules that are specific for each asset class.

Financial institutions can use the Standard to measure the greenhouse gas (GHG) emissions of each asset class and produce consistent, comparable, reliable, clear, and efficient disclosures.

Although a lack of data can be an obstacle in determining emissions from investments, this should not prevent financial organizations from starting to estimate and research their carbon output due to just how vital it is. Using estimated or proxy data can help identify which parts of lending and investment portfolios are most emissions-intensive.

The Standard helps assess the quality of data for each asset category and shows where there is room for improvement. The guidelines also provide suggestions and expectations for disclosure, such as a minimum amount of information that should be shared, with the option to share more if possible. Any omissions must be explained by those involved.

This Standard gives financial institutions standardised, reliable methods to measure the emissions they finance, so they can take the first step in aligning financial goals with the goals of the Paris Agreement. Measuring financed emissions allows institutions to assess climate-related risks and set science-based targets using TCFD recommendations, informing climate actions and progress reports.

Further reading on PCAF

You can read more on the Global Carbon Accounting Standard for the Financial Industry here:

Fred Stones
Passionate about sustainability and protecting our natural environment, Fred is responsible for leading's efforts to help businesses properly track and then reduce their carbon emissions.

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