SBTi & PCAF – financed emissions

Financial institutions are held accountable for their decarbonization ambition and financed emissions reduction targets. The Science Based Targets initiative’s (SBTi) framework and the Partnership for Carbon Accounting Financials (PCAF) provide support for this process.

Identify the carbon footprint of your portfolio

Reducing carbon emissions and contributing to the economy’s decarbonization is what counts for your stakeholder and your business – now and in the future.

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What is PCAF?

PCAF stands for Partnership for Carbon Accounting Financials.

They developed a global standard for calculating financed emissions

(within Scope 3 emissions) for the following asset classes:

  • Listed equity and corporate bonds
  • Business loans and unlisted equity
  • Project finance
  • Commercial real estate
  • Mortgages
  • Motor vehicle loans
  • Sovereign bonds

In addition, PCAF developed the global standard for calculating insurance-associated emissions, which enables underwriters to assess the impact of their underwriting portfolio. In their latest publication, PCAF developed a standard for measuring and reporting the GHG emissions associated with capital market facilitation activities (facilitated emissions) such as:

  • Facilitated issuance of new public debt and equity
  • Facilitated debt and equity investments in private companies
  • Syndicated loans

In the future, there might be even more financial instruments or adaptions to come, as the PCAF methodology is evaluating and developing its methods continuously.

How is PCAF linked with the SBTi?

The identification of Scope 1 2 3 emissions has long since reached the financial sector. Both the PCAF and the SBTi framework are established and recognized methods that offer guidance for financial institutions in terms of CO2 reduction. This is because they can be used to assess the financed emissions and for setting science-based targets for a portfolio.

What are the benefits of a financed emissions assessment?

Knowing the CO2 impact of your portfolio offers great benefits as it not only becomes more important for customers and investors. It also opens significant steering and management possibilities for asset owners as well as asset managers. In addition, knowing your portfolio’s carbon footprint is the foundation for setting emission targets and your decarbonization pathway. Therefore, a financed emission assessment is important for your sustainability strategy as a financial institution.

The greatest benefits for you:

  • In-depth understanding of your portfolio’s CO2 impact
  • In-depth understanding of your data scores and usable pathways to increase the data quality
  • Additional steering possibilities and the possibility to integrate CO2 emissions into decision-making processes
  • Having the foundation for several commitments to emission reduction like NZAOA, GFA, or SBTi
  • Having the foundation or baseline for setting decarbonization targets and for developing the decarbonization pathways of the portfolio

Our PCAF and SBTi services

Our EY denkstatt experts support you with guidance on methodology and tools for calculating your financed emissions. To meet your needs ideally, we offer different services:

Basic package

In line with our coaching approach, we offer:

  • Basic PCAF and SBTi methodology workshops
  • Guidance on what information and data to gather from your portfolio for PCAF and SBTi
  • Guidance and best-practice examples on what databases to use
  • Deep-dive workshop for asset classes with the biggest exposure
  • Portfolio analysis for target-setting methodology
  • Critical review of calculations and data quality
  • Support in reporting the results of PCAF calculations
  • Support in submissions and validation process of SBTi

Additional services

For customers who wish for stronger and more intensive support, we additionally offer to:

  • Collect emission factors, physical activity data, temperature scores, and portfolio coverages from databases
  • Provide templates for information and data gathering on your portfolio
  • Take over the CO2 and science-based targets calculation
  • Prepare the results in a presentable manner
  • Manage the submission and validation process as well as the SBT audit
We support you in different stages of your processes and find a strategy that suits your company!
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FAQ

Frequently asked questions on financed emissions

Financed emissions are the greenhouse gas emissions that are financed by a financial institution. They cover carbon emissions and other greenhouse gases related to financial services and activities and are allocated within Scope 3 emissions. To be precise, they are indicated as scope 3.15.

There are different ways to calculate the financed emissions of your portfolio, also called CO2 emission intensity. According to PCAF, the ratio between the investment made by the financial institution in a company and the value of the company should be used.

So-called financed emissions for financial institutions fall under Scope 3 emissions. The details of this were published in the GHG Protocol, category 15, which deals exclusively with investments.

The SBTi provides an insightful framework for financial institutions on how targets shall be set. Besides the Scope 1 emissions as well as scope 2 emissions, which arise from their business activities, SBTi focuses on the financed emissions of a financial institution. Targets are generally calculated by taking an institution’s baseline financed emissions and reducing them over time following global decarbonization pathways.

PCAF complements other climate finance initiatives by addressing topics which were not resolved with these, such as:

  • Task Force on Climate-related Financial Disclosures (TCFD): providing a framework for financial institutions to disclose GHG Emissions, which is a recommendation of the TCFD
  • UN Principles on Responsible Investing and Banking (PRI and PRB): PCAF is fully aligned with PRI and PRB and helps to fulfill their principles.
  • Paris Agreement Capital Transition Assessment (PACTA): PCAF provides a broader range of asset classes that are not part of PACTA.

Science Based Targets initiative (SBTi): PCAF helps set the baseline for science-based targets by having developed methods to assess a portfolio’s emissions.

PCAF demands an annual fee from its participants, which is used to support its operations. In order to have access to the web-based emission factor database and the methodologies, being a signatory is required. PCAF aims to promote inclusive growth and is open to financial institutions of all sizes and regions. Therefore, the signatory fee is determined based on the size of the institution, making it possible for smaller financial institutions to join with lower fees or cost-free.

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