Financial institutions should follow the PCAF guidance for calculating investment emissions (category 15) and take the following steps:

1) Define organisational and operating boundaries
2) Identify and segment assets into 1 of 7 asset classes
3) Determine attribution factors
4) Gather customer data OR estimate customer emissions if they’re not available
5) Disclose emissions

How can financial organisations look to manage third-party reporting?

Financial organisations should be cognisant of the many available guidelines, standards and regulations that should be considered when managing third-party reporting. Taking a common denominator approach, incorporating all requirements into one effort, and working to proactively engage with customers/investees is important. Often, as data becomes more complex, technology and software solutions can support in easing the burden of automating and providing auditable data.

Why is it important for financial institutions to understand the environmental impact of their supply chains?

Financial institutions should have a clear understanding of where their investments are going. This is important to mitigate financial risk, comply with regulations, meet stakeholder expectations, and influence and demonstrate environmental stewardship. According to the CDP, portfolio emissions of global financial institutions are, on average, 700x larger than direct emissions. Financial institutions have a fiduciary duty to shareholders, but most importantly our planet, to be funding sustainable activity that drives progress towards a low carbon and a positive natural environment.

What are the key differences between scope 1, 2 and 3?

Scope 3 data is more complex and can be challenging to collect. It involves many stakeholders and is more difficult to impact and act upon. Often, organisations do not disclose scope 3 emissions because of the lack of published emissions data from borrowers/investees and the lack of granularity of the data that is available. Data delays exist, having to wait on portfolio companies to publish their data, and lending and investing activity is in constant flux. Until recently, no standardised approach for measuring financed emissions was available.

 How can financial institutions effectively measure upstream and downstream emissions?

PCAF has created a data quality hierarchy which states that, where possible, look to use verified emissions data from investments/customers. However, where that is not available, unverified data collected is the next best approach. If that’s not available, calculations can be made from primary energy consumption data or primary production data to calculate emissions. Finally, if none of the primary emissions, energy or production data is available, company revenue, outstanding finance of asset units, or revenue and turnover could be used.