The PCAF Standard
What is the PCAF standard and Financed Emissions?
PCAF originated in 2019, where banks, investors and fund managers came together from 5 different continents to create PCAF. This industry led initiative has rapidly expanded in the Americas, Europe, Africa and the Asia Pacific. The aim of PCAF was to standardise how financial institutions measure and disclose financed emissions and increase the number of financial institutions that commit to measuring and disclosing financed emissions.
PCAF developed the Global GHG Accounting and Reporting Standard for the Financial Industry (Finance Emissions Standard), with the methodologies used being approved by the GHG protocol in 2020. PCAF has also collaborated with the CDP, STBi and the Task Force on Climate-related Financial Disclosures, indicating that this standard is trusted and utilised by industry professionals.
What are Financed Emissions?
Financed emissions result from the investing or lending activities of an organisation. The idea is that if an organisation has funded a business or project, it is then responsible for a portion of those emissions based on its overall contribution to funding.
Why is measuring Financed Emissions so important?
Capital flows are crucial in the transition to Net Zero. If financial institutions transparently measure and report their financed emissions, stakeholders can make informed decisions about how they interact with these institutions.
Reporting of financed emissions has largely been a voluntary exercise so far. However, as reporting requirements become mandatory in some jurisdictions, investors and their portfolio companies will face increasing pressure to reduce emissions in line with the Paris Agreement (find out more in our overview on the reporting landscape here). This will likely drive change within the financial ecosystem and the broader business community that interacts with it.
The Climate Disclosure Project (CDP) found in a report published in 2020 that the portfolios of global financial institutions emit over 700x that the institutions direct emissions. So by far the biggest impact that financial institutions can have is working with their borrowers and portfolio companies to help them reduce the emissions of their activities.