As governments across the globe commit to reducing greenhouse gas (GHG) and carbon emissions by 2030, the impetus is on businesses to prove they are doing their part. It’s a vital step, but more often overlooked is the important role that financial institutions have to play in reducing emissions.
In fact, the investments they choose and the projects they finance have a significant impact on shaping the future and facilitating the net zero carbon transition.
To help the financial industry measure and disclose the emissions they finance, the Partnership for Carbon Accounting Financials (PCAF) and the CDP introduced the PCAF Global GHG Accounting and Reporting Standard for the Financial Industry.
If you’re responsible for your institution’s ESG reporting and carbon accounting, we explore what this means when calculating your financed emissions and how improving data accuracy can reduce your climate risk.
what is the PCAF?
The Partnership for Carbon Accounting Financials (PCAF) is an industry-led partnership designed specifically to increase transparency in the financial industry according to the Paris Climate Agreement.
Given that banks represent most of the available capital globally, it’s worrying that the largest banks have invested more than $4.6 trillion into the fossil fuel sector since the Paris Agreement. Against this background, the PCAF aims to bring much needed accountability to the sector through more accurate and thorough emissions reporting.
One of the challenges in improving carbon accounting, however, is that there has been a variety of methodologies used by industries all over the world. When assessing the emissions associated with a financial institution’s loans and investments, it can therefore be difficult to harmonize data and for those looking to review options, it’s hard to know if you are comparing apples to apples.
The PCAF Global GHG Accounting and Reporting Standard for the Financial Industry aims to harmonize the methodology for quantifying financed emissions. Being able to accurately measure these emissions is the first step for financial institutions to manage risk and identify opportunities for further GHG reductions.
what is the PCAF and CDP collaboration?
The CDP’s research shows that a financial institution’s financed emissions can be as much as 700 times greater than their operational emissions. In order for these institutions to fully understand the risk posed by potential or existing investments, they need to be able to quantify and compare emissions data.
Working together, PCAF and CDP will help close a critical gap in carbon accounting in the financial industry, ultimately helping financial institutions to better understand their climate risks and opportunities.
One of the key ways they do this is by providing a data quality score to reporting companies. Disclosures are scored based on both the level of transparency and the strength of environmental actions disclosed, in addition to identifying areas for improvement, so the quality of reports can improve year over year.
how will financial institutions benefit from the PCAF and CDP collaboration?
Financial institutions who have an established ESG program, or those looking to introduce carbon accounting into their decision making, will benefit from this collaboration in a number of ways. These include:
- Standardized accounting methodologies to better support risk analysis and areas for improvement
- Support from established partners to help implement these accounting methodologies
- A better understanding of how financed emissions impact the global climate crisis
- A ranking of data quality and improvement over time so investors can confidently select climate-conscious business partners
how to start assessing your financed emissions
Just as in any other investment decision, you are reliant on the quality of your data when assessing financed emissions.
You want to be able to report your carbon accounting confidently to understand the climate impact of your portfolio. At the same time, you want to be able to compile and update your emissions data easily using proven methodologies, resulting in high quality information that can be shared with investors.
As a leading provider of sustainability and ESG reporting software, and a CDP-accredited partner, AMCS can help. Our software uses published and verified emission factors so that financial institutions can confidently report their financed emissions.
Using the AMCS Sustainability Platform can streamline your reporting and support future audits with transparent and standardized methodologies.
If you’re looking to improve the quality of your ESG reporting, or meet new disclosure requirements in your financed emissions carbon accounting, reach out to AMCS today to speak with an expert today.