Financed emissions: What is PCAF and why is it the industry gold standard?

PCAF is a financial industry-led initiative and has emerged as the gold standard, providing guidelines for consistent and comparable assessment and calculation of financed emissions across the financial industry. Find out why it continues to be the framework of choice for financial institutions…

Ben Wrighton

25 Jan 2024 7 mins read time

PCAF (the Partnership for Carbon Accounting Financials) is a financial industry-led initiative and has emerged as the gold standard, providing guidelines for consistent and comparable assessment and calculation of financed emissions across the financial industry. As PCAF announces its proposed developments for 2024, EcoAct analyst Ben Wrighton outlines why it continues to be the framework of choice for financial institutions, and how it supports transparent emissions disclosures and enhanced climate transition planning.

What are financed emissions?

The Greenhouse Gas Protocol categorises emissions by direct and indirect emissions. Direct Green House Gas (GHG) emissions originate from sources owned or controlled by the reporting entity. Whereas indirect emissions are a consequence of the activities of the reporting entity but occur at sources owned or controlled by another entity.

Financed emissions are defined as indirect emissions attributed to financing activities – such as lending and investments – of financial institutions. These activities all contribute to providing capital or financing to a company that emits GHG emissions.

Why is it important to assess and track financed emissions?

Globally, concerted efforts have made to address climate change impacts, notably through financed-oriented alliances like the Glasgow Financial Alliance for Net Zero (GFANZ). Within this framework, the Net Zero Banking Alliance (NZBA), Net Zero Asset Owner Alliance (NZAOA), and Net Zero Insurance Alliance (NZIA) require specific commitments, including annual reporting of GHG emissions for NZBA and NZAOA, and broader support for disclosure frameworks like the Taskforce for Climate-Related Financial Disclosures (TCFD) for NZIA.

Financial institutions play a key role in helping investors and asset owners to understand climate risks and impacts in their portfolios. With increasing measurement and reporting of financed emissions, financial institutions can now engage directly on climate risks and opportunities with the companies they invest in and contribute overall to the transition to a net-zero economy.

What is PCAF?

PCAF is an industry-led partnership, formed of a coalition of industry organisations (such as ABN AMRO, Amalgamated Bank, ASN Bank, Global Alliance for Banking on Values (GABV), and Triodos Bank) and is the global standard for financial portfolio footprinting. In November 2020, PCAF, developed the Global GHG Accounting and Reporting Standard for the Financial Industry as a response to industry demand for a global, standardised approach to measure and report financed emissions.

While PCAF adopts the core accounting principles and conforms with the requirements of the GHG Protocol’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard, it provides further detail and guidance on specific investment asset classes. PCAF defines principles surrounding attribution, which explores an investor’s proportionality of investments and lending, and data quality.

PCAF’s methodologies for calculating financed emissions are dependent on the asset class of the lending or investment, and the level of client-specific emissions and financial data available to the financial institution. The inclusion of Scope 1 and Scope 2 emissions are mandatory for all asset classes, with the inclusion of Scope 3 varying for each. PCAF’s guidance focuses on the following seven asset classes:

Source: Partnership for Carbon Accounting Financials (PCAF).

Financial institutions are presented with four carbon metrics (both absolute and intensity) to quantify and respectively report their financed emissions, as set out in the table below:

All four metrics are presented in the table below:

Carbon Metric


Metric Benefit

Absolute Carbon Emissions



  • Communicate the carbon footprint of a portfolio consistent with the GHG protocol.
  • Track changes in GHG emissions in a portfolio.

Weighted Average Carbon Intensity


tCO2e /

$ revenue

  • Metric can be more easily applied across asset classes since it does not rely on equity ownership approach.
  • Measure’s investor exposure to transition risks (e.g. carbon pricing).

Weighted Carbon Emissions


tCO2e /

$ invested

  • Shows which portfolios are most carbon intensive and where focus should be given when managing carbon risk.
  • Allows comparison with benchmarks and other portfolios of different sizes.

Carbon Intensity


tCO2e /

$ revenue

  • Presents a company’s polluting efficiency or inefficiency relative to the level of its business output (e.g. revenue, sales)
  • Allows comparison with benchmarks and other portfolios of different sizes.

The ACE and WACI metrics are the most commonly reported metrics, with WACI being the core metric encouraged by TCFD. Different influencing factors may affect the results of the calculated metrics however, so it is important to carefully consider the choice of metric reported. Financial institutions can over- or under-estimate the climate impact of their portfolio, misinterpret key changes in metrics and consequently may fail to address the key risks or market drivers.

Why is PCAF the gold standard?

PCAF serves as the preferred option for calculating financed emissions, as it is not only aligned to the GHG Protocol, but also builds upon its recommendations by providing further methodology on metrics, asset classes and points of control.

In contrast to the top-down approach observed in the GHG protocol, PCAF enables a bottom-up approach in allowing the evaluation of the financed emissions at a client level, allowing for a more granular assessment of a portfolio’s environmental impact and climate-related risk. 

As an industry-led initiative, PCAF is continuously making updates and additions to its standards and guidelines, in response to the evolving needs of the financial industry.

Whilst PCAF’s guidance represents the most robust methodology and outline for quantifying and reporting financed emissions, some limitations to the standard arise from:

  • Challenges of market value fluctuations – particularly with increased adoption of carbon metric apportioning emissions based on Enterprise Value Including Cash (EVIC) impacting market values of company equity and debt.
  • Data requirements and limitations – data quality is a major limitation for financial institutions wanting to calculate their financed emissions, as entity- or investment-specific data is often not easily accessible.
  • Governance – extensive board-level oversight required due to the complexity of the accounting approaches, required data sources and the range of impacted stakeholders.
  • Timing of emissions – carbon accounting- and required databases for emission calculation and reporting – are often one year in arrears, as opposed to more frequent financial reporting.

What’s next in PCAF?

In 2023, it launched two new standards, namely the Accounting and Reporting Standard for Capital Markets which focuses on facilitated GHG  emissions associated with primary issuance of capital markets instruments and loan syndication, as well as the Accounting and Reporting Standard for Insurance-Associated Emissions, which focuses on GHG emissions associated with insurance and reinsurance underwriting portfolios.

Coming into 2024, PCAF has recently announced that it will concentrate its efforts in the following topics as a priority for methodology development. 

  • Transition finance and green finance
  • Fluctuations in absolute GHG inventory (resulting from changes over time to the financial attribution metrics, such as EVIC)
  • Additional insurance products
  • Securitised and structured products

EcoAct’s approach to financed emissions

At EcoAct, we work with a large portfolio of financial institutions including asset managers, banks, and insurers. We have extensive experience supporting financial institutions with their financed emissions calculations and advising them on the next steps of their net-zero journey.

EcoAct provides extensive coverage of client portfolio emissions data with our proprietary ClimFIT tool. ClimFIT calculates financed emissions for existing PCAF asset classes such as listed and private equity and debt as well as commercial real estate and mortgages.

ClimFIT is PCAF compliant and can generate all PCAF metrics. EcoAct provides support in data collection and estimation as well as data quality assessments to ensure a high portfolio coverage and as a result robust reporting disclosures.  

Get in contact with our team of sustainable finance experts here to get started with reporting financed emissions.

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