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MEASURING AND REPORTING

The GLOBAL GHG

ACCOUNTING

& REPORTING Standard PART A

Financed Emissions

Second edition

December 2022

Financed Emissions – Second Edition –

The first edition of this Financed Emissions Standard has been reviewed by

the GHG Protocol and is in conformance with the requirements set forth in

the Corporate Value Chain (Scope 3) Accounting and Reporting Standard,

for Category 15 investment activities. The newly added sovereign debt

methodology and guidance on emission removals in this second edition are

pending GHG Protocol review and approval.

Please cite this document as:

PCAF (2022). The Global GHG Accounting and Reporting

Standard Part A: Financed Emissions. Second Edition.

MEASURING AND REPORTING

The GLOBAL GHG

ACCOUNTING

& REPORTING Standard PART A

Financed Emissions

Financed Emissions – Second Edition –

Introduction

CHAPTER 1

CHAPTER 2

Understand

what GHG

accounting is

Identify

business

goals

CHAPTER 3

CHAPTER 4

Review

accounting and

reporting principles

and rules

CHAPTER 5

Review and apply

accounting

methodologies for

each asset class

Report

emissions

CHAPTER 6

Table of contents

Acknowledgements 4

Executive summary 7

1. Introduction 10

2. The importance of GHG accounting 17

3. Using GHG accounting to set and achieve business goals 23

4. Principles and requirements of GHG accounting for financials 34

4.1 GHG accounting requirements derived from the GHG Protocol’s principles 35

4.2 Additional requirements for accounting and reporting financed emissions 37

5. Methodology to measure financed emissions 43

5.1 Listed equity and corporate bonds 49

5.2 Business loans and unlisted equity 66

5.3 Project finance 79

5.4 Commercial real estate 88

5.5 Mortgages 94

5.6 Motor vehicle loans 101

5.7 Sovereign debt 109

6. Reporting requirements and recommendations 122

7. Glossary 130

8. Acronyms 135

9. References 138

10. Annex 141

19-12-2022

/151

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MEASURINGANDREPORTINGTheGLOBALGHGACCOUNTING&REPORTINGStandardPARTAFinancedEmissionsSecondeditionDecember20222FinancedEmissions–SecondEdition–ThefirsteditionofthisFinancedEmissionsStandardhasbeenreviewedbytheGHGProtocolandisinconformancewiththerequirementssetforthintheCorporateValueChain(Scope3)AccountingandReportingStandard,forCategory15investmentactivities.ThenewlyaddedsovereigndebtmethodologyandguidanceonemissionremovalsinthissecondeditionarependingGHGProtocolreviewandapproval.Pleasecitethisdocumentas:PCAF(2022).TheGlobalGHGAccountingandReportingStandardPartA:FinancedEmissions.SecondEdition.MEASURINGANDREPORTINGTheGLOBALGHGACCOUNTING&REPORTINGStandardPARTAFinancedEmissions3FinancedEmissions–SecondEdition–IntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6TableofcontentsAcknowledgements4Executivesummary71.Introduction102.TheimportanceofGHGaccounting173.UsingGHGaccountingtosetandachievebusinessgoals234.PrinciplesandrequirementsofGHGaccountingforfinancials344.1GHGaccountingrequirementsderivedfromtheGHGProtocol’sprinciples354.2Additionalrequirementsforaccountingandreportingfinancedemissions375.Methodologytomeasurefinancedemissions435.1Listedequityandcorporatebonds495.2Businessloansandunlistedequity665.3Projectfinance795.4Commercialrealestate885.5Mortgages945.6Motorvehicleloans1015.7Sovereigndebt1096.Reportingrequirementsandrecommendations1227.Glossary1308.Acronyms1359.References13810.Annex14119-12-20224FinancedEmissions–SecondEdition–AcknowledgementsThePartnershipforCarbonAccountingFinancials(PCAF)isanindustry-ledinitiative.Createdin2015byDutchfinancialinstitutions(FIs),PCAFextendedtoNorthAmericain2018andscaledupgloballyin2019.TheglobalizationofPCAFenablesFIsworldwidetoconsistentlymeasureanddisclosethegreenhousegas(GHG)emissionsoftheirfinancialactivities.Asanindustry-ledpartnership,PCAFisgovernedbyaSteeringCommitteewhichconsistsofABNAMRO,AmalgamatedBank,ASNBank,theGlobalAllianceforBankingonValues,MorganStanley,NMBBank,TriodosBank,andarepresentativefromtheUnitedNations(UN)-convenedNet-ZeroAssetOwnerAlliance.Atthetimeofpublishingthisdocument,morethan300banksandinvestorsparticipateinPCAF.1Respondingtoindustrydemandforaglobal,standardizedGHGaccountingandreportingapproach,PCAFdevelopedtheGlobalGHGAccountingandReportingStandardfortheFinancialIndustry,focusingonmeasuringandreportingfinancedemissions.PublishedinNovember2020,thestandardprovidesdetailedmethodologicalguidancetomeasureanddiscloseGHGemissionsassociatedwithsixassetclasses:listedequityandcorporatebonds,businessloansandunlistedequity,projectfinance,commercialrealestate,mortgages,andmotorvehicleloans.Sincethen,banksandinvestorshaveaskedtoexpandthestandardwithmoremethods,alsocoveringotheractivitiesofthefinancialindustry.From2021onwards,PCAFstartedtheworkonthreepartsundertheumbrellaoftheGlobalGHGAccountingandReportingStandardfortheFinancialIndustry:•PartA:updateofthefirstversionstandardonmeasuringandreportingfinancedemissions,byaddingamethodforsovereigndebtandguidancetoaccountforemissionremovals(“FinancedEmissionsStandard–secondversion”)•PartB:developmentofastandardformeasuringandreportingtheGHGemissionsassociatedtothecapitalmarketfacilitationactivities(“FacilitatedEmissionsStandard”)•PartC:developmentofastandardformeasuringandreportingtheGHGemissionsassociatedtore/insuranceunderwriting(“Insurance-AssociatedEmissionsStandard”)1ThefulllistofPCAFparticipantscanbefoundat:https://carbonaccountingfinancials.com/financial-institutions-taking-action#overview-of-institutions5FinancedEmissions–SecondEdition–TheGLOBALGHGACCOUNTING&REPORTINGStandardThePCAFglobalgreenhousegas&accountingStandardforfinancedemissionsTheGLOBALGHGACCOUNTING&REPORTINGStandardPARTAFinancedEmissionsThePCAFglobalgreenhousegas&accountingStandardforfinancedemissionsInsurance-AssociatedEmissionsTheGLOBALGHGACCOUNTING&REPORTINGStandardPARTCAFinancedEmissionsBFacilitatedEmissionsCInsurance-AssociatedEmissionsThePCAFglobalgreenhousegas&accountingStandardforfinancedemissionsFacilitatedEmissionsTheGLOBALGHGACCOUNTING&REPORTINGStandardPARTBForPartA,22PCAFparticipantsvolunteeredtodevelopamethodforsovereigndebtandguidancetoaccountforemissionremovals.Thisgroupofvolunteersislistedbelow:•ABNAMRO•AIMCo•AmalgamatedBank•BancoPichincha•BankofAmerica•Barclays•Blackrock•BostonCommonAssetManagement•CDC•CTBCHolding•DeutscheBank•FederatedHermes•FirstRand•FMO•HannonArmstrong•HSBC•Landsbankinn•MorganStanley•Produbanco•Robeco•TriodosBank•UN-convenedNet-ZeroAssetOwnerAllianceThisdocumentisanupdateoftheFinancedEmissionsStandardpublishedin2020,andincludes:•Anewmethodologyforsovereigndebt•GuidanceonhowtomeasurefinancedemissionsrelatedtoGHGemissionremovals•MinoreditorialchangestothefirstversionoftheStandardThePCAFSecretariatfacilitatedtheCoreTeam’sworkbymoderatingtheirtechnicaldiscussions,reviewingthecontent,andcompilingandeditingthisdocument.ThePCAFSecretariatisoperatedbyGuidehouse,aglobalconsultingfirmspecializedinenergy,sustainability,risk,andcomplianceforthefinancialindustry.Throughoutthedevelopmentofthenewmethods(February2021–April2022),PCAFengagedwithmultiplestakeholderstoconsidertheirideas,discussPCAFmethodologicalapproaches,andreceivefeedback.DuringNovemberandDecember2021,PCAFalsoheldapublicconsultationwithfinancialinstitutions,policymakers,dataproviders,consultants,andnongovernmentalorganizations(NGOs).In2020theGHGProtocolreviewedandapprovedthemethodologiesforlistedequityand6FinancedEmissions–SecondEdition–corporatebonds,businessloansandunlistedequity,projectfinance,commercialrealestate,mortgages,andmotorvehicleloans.ThesemethodologiesareinconformancewiththerequirementssetforthintheCorporateValueChain(Scope3)AccountingandReportingStandardforCategory15investmentactivities.ThesovereigndebtmethodologyandtheguidanceonemissionremovalsarependingGHGProtocolreviewandapproval.Pleasecitethisdocumentas:PCAF(2022).TheGlobalGHGAccountingandReportingStandardPartA:FinancedEmissions.SecondEdition.7FinancedEmissions–SecondEdition–ExecutivesummaryThePartnershipforCarbonAccountingFinancials(PCAF)isafinancialindustry-ledinitiative.Createdin2015byDutchfinancialinstitutions,PCAFextendedtoNorthAmericain2018andscaledupgloballyin2019.PCAFhelpsfinancialinstitutionsassessanddisclosethegreenhousegas(GHG)emissionsfromtheirloansandinvestmentsthroughGHGaccounting.GHGaccountingenablesfinancialinstitutionstodisclosetheseemissionsatafixedpointintimeandinlinewithfinancialaccountingperiods.MeasuringfinancedemissionsallowsfinancialinstitutionstomaketransparentclimatedisclosuresontheirGHGemissionsexposure,identifyclimate-relatedtransitionrisksandopportunities,andsetthebaselineemissionsfortarget-settinginalignmentwiththeParisAgreement.Respondingtoindustrydemandforaglobal,standardizedGHGaccountingapproach,PCAFdevelopedtheGlobalGHGAccountingandReportingStandardfortheFinancialIndustry(theversionoftheFinancedEmissionsStandard).In2020theGHGProtocolreviewedandapprovedthemethodologiesforlistedequityandcorporatebonds,businessloansandunlistedequity,projectfinance,commercialrealestate,mortgages,andmotorvehicleloans.ThesemethodologiesareinconformancewiththerequirementssetforthintheCorporateValueChain(Scope3)AccountingandReportingStandardforCategory15investmentactivities.ThesovereigndebtmethodologyandtheguidanceonemissionremovalsarependingGHGProtocolreviewandapproval.TheFinancedEmissionsStandardprovidesdetailedmethodologicalguidanceforspecificassetclasses.Widelytestedbybanksandinvestors,thesemethodsassistinthemeasurementanddisclosureofGHGemissionsassociatedwithsevenassetclasses:ListedequityandcorporatebondsMortgagesBusinessloansandunlistedequityMotorvehicleloansProjectﬁnanceCommercialrealestateSovereigndebt8FinancedEmissions–SecondEdition–TheFinancedEmissionsStandardalsoprovidesguidanceonthetreatmentofGHGemissionremovalsinthreeassetclasses:listedequityandcorporatebonds,businessloansandunlistedequity,andprojectfinance.TheFinancedEmissionsStandardprovidesdetailedguidanceforeachassetclasstocalculatethefinancedemissionsresultingfromactivitiesintherealeconomythatarefinancedthroughlendingandinvestmentportfolios.Emissionsareattributedtofinancialinstitutionsbasedonrobust,consistentaccountingrulesspecifictoeachassetclass.ByfollowingthemethodologiesoutlinedintheFinancedEmissionsStandard,financialinstitutionscanmeasureGHGemissionsforeachassetclassandproducedisclosuresthatareconsistent,comparable,reliable,andclear.Limiteddataisoftenthemainchallengeincalculatingfinancedemissions.However,datalimitationsshouldnotdeterfinancialinstitutionsfromstartingtheirGHGaccountingjourneys.Beginningwithestimatedorproxydatacanhelpfinancialinstitutionsidentifyemission-intensivehotspotsinlendingandinvestmentportfolios.TheFinancedEmissionsStandardprovidesguidanceondataqualityscoringperassetclass,facilitatingdatatransparencyandencouragingimprovementstodataqualityinthemediumandlongterm.TheFinancedEmissionsStandardalsoprovidesrecommendationsandrequirementsfordisclosures,whichincludeaminimumdisclosurethresholdwithflexibilitytoreportbeyondthislevel.Anyrequirementsnotfulfilledmustbeaccompaniedbyanexplanation.UsingthisFinancedEmissionsStandardequipsfinancialinstitutionswithstandardized,robustmethodstomeasurefinancedemissionsandenablesthemto:•Assessclimate-relatedrisksinlinewiththerecommendationoftheTaskForceonClimate-relatedFinancialDisclosures(TCFD).•Setscience-basedtargets(SBTs)usingmethodsdevelopedbytheScienceBasedTargetsinitiativeandotherscience-basedmethodologies.•ReporttostakeholdersliketheCDP.•Informclimatestrategiesandactionstodevelopinnovativeproductsthatsupportthetransitiontowardanet-zeroemissionseconomy.ThePartnershipforCarbonAccountingFinancials(PCAF)isanindustry-ledinitiativeenablingfinancialinstitutionstomeasureanddisclosegreenhousegas(GHG)emissionsofloansandinvestments.PCAFfoundedbyDutchfinancialinstitutions2015WRIandWBCSDpublishedCorporateValueChain(Scope3)AccountingandReportingStandard2011PCAFlaunchesGlobalGHGAccountingandReportingStandardfortheFinancialIndustry2020PCAFpublished2reportsonGHGaccountingmethods2019PCAFlaunchedglobally2019PCAFlaunchedinNorthAmerica2018HarmonizingandimplementingacarbonaccountingapproachfortheﬁnancialsectorinNorthAmericaAccountingGHGemissionsandtakingaction:harmonisedapproachfortheﬁnancialsectorintheNetherlandsPCAFTheNetherlands,report2019AccountingGHGemissionsandtakingaction:harmonisedapproachfortheﬁnancialsectorintheNetherlandsPCAFTheNetherlands,report2019Over340financialinstitutions,withover$85Trillioninfinancialassetscommitted(November2022).UsingtheStandardisthefirststepinthejourneytoalignwiththeParisAgreementCorporateValueChain(Scope3)AccountingandReportingStandardSupplementtotheGHGProtocolCorporateAccountingandReportingStandardCO2CH4SF6N2OHFCsPFCspurchasedelectricity,steam,heating&coolingforownusepurchasedgoodsandservicescapitalgoodsfuelandenergyrelatedactivitiestransportationanddistributionwastegeneratedinoperationsbusinesstraveltransportationanddistributionprocessingofsoldproductsuseofsoldproductsend-of-lifetreatmentofsoldproductsleasedassetsfranchisesemployeecommutingleasedassetsinvestmentscompanyfacilitiescompanyvehiclesGHGaccountingforsevenassetclassesTheGLOBALGHGACCOUNTING&REPORTINGFORTHEFINANCIALINDUSTRYStandardThisStandardwasreviewedbytheGHGProtocolandisinconformancewiththerequirementssetforthintheCorporateValueChain(Scope3)AccountingandReportingStandard,forCategory15investmentactivities.Measure&DiscloseSetTargetsDevelopStrategyTakeActionsSteeringMonitorProgressNet-zeroemissionsby2050ScenarioAnalysisCommercialRealEstateMotorVehicleLoansSovereignBondsBusinessLoansandUnlistedEquityMortgagesListedEquityandCorporateBondsProjectFinanceExposuretoSovereignBond(USD)PPP-adjustedGDP(internationalUSD)×SovereignEmissionsOutstandingamountEVICorTotalcompanyequity+debt×Companyemissions×Companyemissions×Projectemissions×Buildingemissions×Buildingemissions×VehicleemissionsEVIC=enterprisevalueincludingcashOutstandingamountEVICorTotalcompanyequity+debtOutstandingamountTotalprojectequity+debtEVIC=enterprisevalueincludingcashOutstandingamountTotalvalueatoriginationOutstandingamountPropertyvalueatoriginationOutstandingamountPropertyvalueatorigination1.Introduction11FAKEFOOTNOTETOSTARTAT21.IntroductionIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IntroductionCHAPTER111FinancedEmissions–SecondEdition–TheroleofthefinancialsectorUndercurrentnationalandinternationalpolicies,theplanetisonatrajectorytoreachaglobalincreaseintemperaturebetween2.1°Cand3.9°Cby2100comparedtopre-industriallevels.2Thereisanurgentneedtoactintheshorttermforourlong-termbenefit.Tolimitglobalwarmingto1.5°Cabovepreindustriallevels,allsectorsofsocietyneedtodecarbonizeandcollectivelyreachnet-zeroemissionsby2050.Thefinancialsectorcanhelpfacilitatethetransitioninlinewitha1.5°Cscenariobydirectingcapitaltosupportdecarbonization.Totriggerchangesincapitalflowsandsignalsforallsectors,thefinancialindustrymustacknowledgeandendorsetheneedforaswellasthepaceofdecarbonization.Thefinancialindustryshouldbeginbybetterunderstandingtheclimateriskstotheirportfolioandthegreenhousegas(GHG)emissions(orclimateimpact)associatedwiththeirloansandinvestments.Measuringfinancedemissionsiscrucialinprovidingthisunderstanding.Iffinancialinstitutionsknowtheemissionsfinancedbyloansandinvestments,theycanbetteridentifyandmanagerisks,navigateemissionreductiongoals,acttoreducetheirportfolioclimateimpact,anddiscloseprogress.Thisunderstandingthentriggersinternaldiscussionsandengagementswithstakeholderstoidentifyconcreteactionsthathelplowerfinancedemissions.TheroleofPCAFandGHGemissionsaccountinginreporting,managingrisksandopportunities,andaligningfinancialflowswiththeParisAgreementPriortotheestablishmentofthePartnershipforCarbonAccountingFinancials(PCAF),financialinstitutionsuseddifferentapproachesandaccountingmethodologiestomeasurefinancedemissionsandoptedforvariousreportingmetrics,whichledtoinconsistentassessmentsoftheindustry’sclimateimpact.Thislackofstandardizationhamperedtransparency,comparability,andaccountabilityofthefinancialsector.Therefore,in2019banks,investors,andfundmanagersfromfivecontinentspartneredtocreatethePartnershipforCarbonAccountingFinancials(PCAF).3CommittedtothemeasurementanddisclosureoftheabsoluteGHGemissionsoftheirportfolios(financedemissions),thisindustry-ledinitiativehasrapidlyexpandedinNorthAmerica,LatinAmerica,Europe,Africa,andAsiaPacific.4PCAFaimstostandardizethewayfinancialinstitutionsmeasureanddisclosefinancedemissionsandincreasethenumberoffinancialinstitutionsthatcommittomeasuringanddisclosingfinancedemissions.Standardizationincreasestransparency,comparability,andaccountabilityofthefinancialsector.Measuringfinancedemissionsiscriticalforfinancialinstitutionsthatwanttoimprovetheirclimatereporting.Measuringandtransparentlyreportingfinancedemissionshelpsfinancialinstitutionsandtheirstakeholdersunderstandtheclimateimpactoftheorganization’slendingandinvestmentactivities.2(NewClimateInstituteandClimateAnalytics,2020)3MoreinformationaboutPCAFisfoundat:https://carbonaccountingfinancials.com/4AfulllistofPCAFparticipantsisfoundat:https://carbonaccountingfinancials.com/financial-institutions-taking-action#overview-of-institutions12FinancedEmissions–SecondEdition–Additionally,financedemissionsprovideusefulinformationtoidentifyandmanageclimate-relatedtransitionrisksandopportunities.Forexample,financedemissionscanbeusedasametrictostresstesttheresilienceofportfoliosagainstclimatepoliciesthatcouldhaveamaterialeffectontheviabilityofanactivity(e.g.,carbonpricing).Thisinformationishelpfultodevelopriskmanagementstrategiesandtoidentifybusinessopportunitiesthatcouldsupportriskmanagementandthetransitiontoalowcarboneconomy.Lastly,accountingforfinancedemissionsisanimportantpartoftheprocessthatbanksandinvestorstakewhenaligningtheirlendingandinvestmentportfolioswiththegoalsoftheParisAgreement.Thisprocesshasfivenon-linearstages:•Measuringanddisclosingfinancedemissions•Settingscience-basedtargets(SBTs)•Scenarioanalysis•Designingstrategiestoreachthetargets•ImplementingconcreteactionstoachievethetargetsFinancialinstitutionsalsomeasurefinancedemissionstoevaluatetheirprogressagainsttheiremissions-basedtargets.RelationshipwithotherfinancialsectorclimateinitiativesMultipleclimateinitiativesforfinancialinstitutionshavebeenlaunchedwhichcloselyrelatetothemeasurementoffinancedemissionsincludinghigh-levelcommitments,scenarioanalysis,targetsetting,andconcreteclimateactionandreporting.High-levelcommitments,policiesandregulatoryrequirementsendorsedbyC-suiteexecutivesdrivefinancialinstitutionstoaddressclimatechange.Measuringfinancedemissionsprovidesthebaseyearemissionsforscenarioanalysisandtargetsetting,informsclimateactions,andenablesreporting(Figure1-1).13FinancedEmissions–SecondEdition–Figure1-1.MeasuringfinancedemissionsasthefoundationforotherinitiativesSource:(PCAF,2020)Figure1-2maps19ofthemostprominentopen,global,collaborativeclimateinitiativesforfinancialinstitutionsagainstthetechnicalelementsofPCAF’sStrategicFrameworkforParisAlignment.Thegraphicindicateswhereeachinitiativeisactive,theirrespectiveaudiences(banks,investors,orboth),andtheirareasoffocus.PCAFfocusesonmeasuringfinancedemissions,complementingtheworkandservicesthatotherinitiativesoffertofinancialinstitutions.BuildingsynergiesiscoretoPCAF’swork,whichhasledtocollaborationswithseveralinitiatives,asindicatedonthePCAFwebsite.Notablecollaborationswithotherinitiativesinclude:•UnitedNationsEnvironmentProgrammeFinanceInitiative(UNEPFI)PrinciplesforResponsibleBankinganditsCollectiveCommitmenttoClimateAction•UnitedNations-convenedNet-ZeroAssetOwnerAlliance•TaskForceonClimate-relatedFinancialDisclosures(TCFD)•ScienceBasedTargetsinitiativeforFinancialInstitutions(SBTi-FIs)•RMI’sCenterforClimate-AlignedFinance•CDP•EuropeanCommissionTechnicalExpertGrouponSustainableFinance(EUTEG)•TheInstitutionalInvestorsGrouponClimateChange(IIGCC)•ParisAlignedInvestmentInitiative(PAII)14FinancedEmissions–SecondEdition–Figure1-2.ClusterofclimateinitiativesUN-convenedNet-ZeroBankingAllianceClimateActioninFinancialInstitutionsInvestorAgenda:InvestorAgendaClimatePlan(IACP)UNGlobalCompact:BusinessAmbitionfor1.5°CPartnershipforCarbonAccountingFinancials(PCAF)SBTi-FinanceTransitionPathwayInitiativeCarbonRiskRealEstateMonitor(CRREM)RMICenterforClimate-AlignedFinanceUN-convenedNet-ZeroAssetOwnerAlliance2DIIParisAgreementCapitalTransitionAssessment(PACTA)NetZeroAssetManagersInitiativePoweringPastCoalAllianceFinancePrinciplesClimateSafeLearningLabClimateAction100+ClimateWiseBankersforClimate2DIIEvidenceforImpactCDPFinancialServicesQuestionnaireBBBIIBIBIIBIBBIBIIBanksForwhom?InvestorsIBanks&InvestorsFocusofInitiativeBBIBIIBIIBIBIIHigh-levelCommitmenttoActTakingActionsDisclosingTargetSettingStrategyDevelopmentMeasurementofFinancedEmissionsScenarioAnalysisExistingcollaborativeclimateinitiativessupportingFIsonclimateactionsasofApril2021Source:(PCAF,2021)StandardizingGHGaccountingforfinancialinstitutionsThisdocumentisthesecondeditionoftheGlobalGHGAccountingandReportingStandardfortheFinancialIndustry.Throughoutthisdocument,theGlobalGHGAccountingandReportingStandardiscommonlyreferredtoastheFinancedEmissionsStandard.ThepurposeoftheFinancedEmissionsStandardistoprovidefinancialinstitutionswithtransparent,harmonizedmethodologiestomeasureandreporttheemissionstheyfinancethroughloansandinvestmentsinconformancewiththerequirementsoftheGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandard.ThefirsteditionoftheGlobalGHGAccountingandReportingStandardwasdevelopedbyanoriginalPCAFglobalcoreteam,aheterogeneousgroupofbanksandinvestorsofvariedsizesandfromdifferentglobalregions,whichhassinceexpanded.ThislatestandlargerPCAFGlobalCoreTeamhaswideexperienceinGHGaccountingandconsistsof:ABNAMRO,AIMCo,AmalgamatedBank,BancoPichincha,BankofAmerica,Barclays,Blackrock,BostonCommonAssetManagement,CDC,CTBCHolding,DeutscheBank,FederatedHermes,FirstRandLtd.,FMO,HannonArmstrong,HSBC,Landsbankinn,MorganStanley,Produbanco,Robeco,TriodosBank,andtheUN-convenedNet-ZeroAssetOwnerAlliance.AttheendofOctober2019,theoriginalPCAFglobalcoreteamkickedoffitsactivitiesbyselectingasetofassetclassesthataretypicalforbanks,assetowners,andassetmanagersglobally.TheseassetclasseswerethefocusofthefirsteditionoftheGlobalGHGAccountingandReportingStandard.In2021,thenowexpandedPCAFGlobalCoreTeamcontinuedbydeveloping15FinancedEmissions–SecondEdition–additionalassetclassmethodsandguidance,whicharenowincludedinthissecondeditionoftheFinancedEmissionsStandard.AstheFinancedEmissionsStandardandPCAFevolve,additionalassetclasseswillbeadded.ThesecondversionoftheFinancedEmissionsStandardcoversthefollowingassetclasses:ListedequityandcorporatebondsMortgagesBusinessloansandunlistedequityMotorvehicleloansProjectﬁnanceCommercialrealestateSovereigndebtTheexactdefinitionsoftheseassetclassesareprovidedinChapter5,Figure5-1illustrateshowtochoosetherightmethodologyfordifferentassetclasses.TheFinancedEmissionsStandardalsocoversguidanceonmeasuringfinancedemissionsassociatedwithloansandinvestmentsinGHGemissionremovalactivities.ThroughoutthedevelopmentoftheFinancedEmissionsStandard,PCAFengagedwithmultiplestakeholderstoconsidertheirideas,discussPCAFmethodologicalapproaches,andreceivefeedback.DuringNovemberandDecember2021,PCAFalsoheldapublicconsultationwithfinancialinstitutions,policymakers,dataproviders,consultants,andnongovernmentalorganizations(NGOs)tosolicitfeedbackforthemethodsaddedtothissecondeditionoftheFinancedEmissionsStandard.Morethan200stakeholderswerereachedviatargetedwebinarsand50stakeholdersprovideddirectfeedbacktotheFinancedEmissionsStandard.BuiltontheGHGprotocolThemethodologiesforlistedequityandcorporatebonds,businessloansandunlistedequity,projectfinance,commercialrealestate,mortgages,andmotorvehicleloansbuildontheGHGProtocolstandardsforcorporatereportingsuchastheGHGProtocolCorporateAccountingandReportingStandard,5theCorporateValueChain(Scope3)6AccountingandReportingStandard,andthesupplementalTechnicalGuidanceforCalculatingScope3Emissions.7Specifically,thisFinancedEmissionsStandardsupplementstheGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandard8byprovidingadditionaldetailedguidanceperassetclass.In2020theGHGProtocolreviewedandapprovedthemethodologiesforlistedequityandcorporatebonds,businessloansandunlistedequity,projectfinance,commercialrealestate,mortgages,andmotorvehicleloans.ThesemethodologiesareinconformancewiththerequirementssetforthintheCorporateValueChain(Scope3)AccountingandReporting5(WRIandWBCSD,2004)6(WRIandWBCSD,2011)7(WRIandWBCSD,2011)and(WRIandWBCSD,2013)8(WRIandWBCSD,2011)16FinancedEmissions–SecondEdition–StandardforCategory15investmentactivities.ThesovereigndebtmethodologyandtheguidanceonemissionremovalsarependingGHGProtocolreviewandapproval.Beyondreportingthescope3category15emissionscoveredbythisFinancedEmissionsStandard,financialinstitutionsabidingbythisFinancedEmissionsStandardshallalsomeasureandreporttheirscope1and2emissionsaswellasanyotherrelevantscope3emissionscategoriesinlinewiththeGHGProtocol’sStandardsasmentionedabove.ExpectedusersofthisFinancedEmissionsStandardThisFinancedEmissionsStandardiswrittenprimarilyforfinancialinstitutionsthatwishtomeasureanddisclosetheGHGemissionsassociatedwiththeirloansandinvestments,includingbutnotlimitedto:•Commercialbanks•Investmentbanks•Developmentbanks•Assetowners/managers(mutualfunds,pensionfunds,closed-endfunds,investmenttrusts)•InsurancecompaniesHowtoreadthisFinancedEmissionsStandardTheGlobalGHGAccountingandReportingStandardusespreciselanguagetoindicatewhichprovisionsarerequirements,whicharerecommendations,andwhichareallowableoptionsthatfinancialinstitutionsmaychoosetofollow.ThefollowingtermsareusedthroughoutthisFinancedEmissionsStandard::•“Shall”or“required”:indicateswhatisrequiredforaGHGinventorytoconformwiththisFinancedEmissionsStandard•“Should”:indicatesarecommendationbutnotarequirement•“May”:indicatesanallowedoption•“Needs,”“can,”and“cannot”:maybeusedtoprovideguidanceonimplementingarequirementortoindicatewhenanactionisorisnotpossibleFigure1-3providesthestructureofthisFinancedEmissionsStandardandthestepsfordisclosingfinancedemissions.Figure1-3.OverviewoftheFinancedEmissionsStandardandstepsfordisclosingfinancedemissionsIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER62.TheimportanceofGHGaccounting2.TheimportanceofGHGaccountingIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6CHAPTER2UnderstandwhatGHGaccountingis18FinancedEmissions–SecondEdition–WhatisGHGaccounting?GHGaccountingreferstotheprocessesrequiredtoconsistentlymeasuretheamountofGHGsgenerated,avoided,orremovedbyanentity,allowingittotrackandreporttheseemissionsovertime.TheemissionsmeasuredarethesevengasesmandatedundertheKyotoProtocolandaretobeincludedinnationalinventoriesundertheUnitedNationsFrameworkConventiononClimateChange(UNFCCC):carbondioxide(CO2),methane(CH4),nitrousoxide(N2O),hydrofluorocarbons(HFCs),perfluorocarbons(PFCs),sulfurhexafluoride(SF6)andnitrogentrifluoride(NF3).Foreaseofaccounting,thesegasesareusuallyconvertedtoandexpressedascarbondioxideequivalents(CO2e).GHGaccountingismostcommonlyusedbygovernments,corporations,andotherentitiestomeasurethedirectandindirectemissionsthatoccurthroughouttheirvaluechainsasaresultoforganizationalandbusinessactivities.AccordingtotheGHGProtocolCorporateAccountingandReportingStandard,9directemissionsaregeneratedbysourcesownedorcontrolledbythereportingcompany.Indirectemissionsoccurasaconsequenceoftheoperationsofthereportingcompanybutthataregeneratedbysourcesownedorcontrolledbyanothercompany.Directandindirectemissionsarefurthercategorizedbyscopeanddistinguishedaccordingtothesourceoftheemissionsandtheactivityinanorganization’svaluechaininwhichtheemissionsoccur.ThethreescopesdefinedbytheGHGProtocol—scope1,scope2andscope3—arebrieflydescribedbelowandareillustratedinFigure21.•Scope1:DirectGHGemissionsthatoccurfromsourcesownedorcontrolledbythereportingcompany,i.e.,emissionsfromcombustioninownedorcontrolledboilers,furnaces,vehicles,etc.•Scope2:IndirectGHGemissionsfromthegenerationofpurchasedoracquiredelectricity,steam,heating,orcoolingconsumedbythereportingcompany.Scope2emissionsphysicallyoccuratthefacilitywheretheelectricity,steam,heating,orcoolingisgenerated.•Scope3:AllotherindirectGHGemissions(notincludedinScope2)thatoccurinthevaluechainofthereportingcompany.Scope3canbebrokendownintoupstreamemissionsanddownstreamemissions.Upstreamemissionsincludeallemissionsthatoccurinthelifecycleofamaterial/product/serviceuptothepointofsalebytheproducer,suchasfromtheproductionorextractionofpurchasedmaterials.10Downstreamemissionsincludeallemissionsthatoccurasaconsequenceofthedistribution,storage,use,andend-of-lifetreatmentoftheorganization’sproductsorservices.TheGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandard11categorizesscope3emissionsinto15categories,whicharelistedinFigure2-1.Asthefigureshows,theemissionsresultingfromareportingcompany’sloansandinvestmentsfallunderscope3downstreamemissions,specificallyunderscope3category15(investments).9(WRIandWBCSD,2004)10(WRIandWBCSD,2013)11(WRIandWBCSD,2011)19FinancedEmissions–SecondEdition–GHGaccountingoffinancialportfoliosistheannualaccountinganddisclosureofscope3category15emissionsatafixedpointintimeinlinewithfinancialaccountingperiods.Figure2-1.OverviewofGHGProtocolscopesandemissionsacrossthevaluechainScope3INDIRECTinvestmentsprocessingofsoldproductsend-of-lifetreatmentofsoldproductsuseofsoldproductsleasedassetsfranchisesReportingcompanyUpstreamactivitiesDownstreamactivitiescompanyfacilitiescompanyvehiclesScope1Scope2INDIRECTScope3INDIRECTpurchasedgoodsandservicescapitalgoodspurchasedelectricity,steam,heating&coolingforownusebusinesstravelwastegeneratedinoperationsfuelandenergyrelatedactivitiestransportationanddistributionemployeecommutingleasedassetsDIRECTtransportationanddistributionNO2SF6NF3HFCsPFCsCO2CH4Source:(WRIandWBCSD,2011)TheimportanceofGHGaccountingofloansandinvestmentsTolimitdangerousglobalwarmingandachievethegoalsoftheParisAgreement,globalGHGemissionsmustbecutdrastically.GHGaccountingisanecessarystepfororganizationstobettermanagetheiremissionsandalignwiththeParisAgreement.Forafinancialinstitution,scope3category15emissions,i.e.,financedemissions,areoftenthemostsignificantpartofitsGHGemissionsinventory.Asaresult,specialconsiderationmustbemaderegardinghowtheseemissionsaremeasured.TheGlobalGHGAccountingandReportingStandardaimstoprovideastandardizedapproachtoaccountforfinancedemissions,ensuringthattheapproachusedbyfinancialinstitutionsisrobust,transparent,andcomparableovertimeandacrossassetclasses.Thisiscrucialbecausemeasuringfinancedemissionsisanimportantstepfinancialinstitutionstaketoassessclimate-relatedrisksandopportunities,settargetsinlinewiththeParisAgreement,anddevelopeffectivestrategiestosupportthedecarbonizationofsociety.AsshowninFigure1-1,measuringfinancedemissionsiscentraltoactivitiesthatenablefinancialinstitutionstoembedclimateactionthroughouttheirlendingandinvestmentactivities.Reportingfinancedemissionsisimportantforshowingstakeholderstheclimateimpactofafinancialinstitution’sactivities.Furthermore,theactofmakingapublicdisclosureshowsthattheorganizationholdsitselfaccountablefortheseimpacts.Financedemissionsareanecessaryinputforclimatescenarioanalysis.Assuch,financedemissionsareakeymetricforfinancialinstitutionsthatwanttounderstandandmanageclimate-relatedtransitionrisksandopportunities.Ascountriesstrivetomeetthecommitmentsdefined20FinancedEmissions–SecondEdition–intheirnationallydeterminedcontributions(NDCs),12governmentswillstrengthentheirnationalclimatepolicies.Effortswillalsoincreasetodeveloppoliciesthatsupportdecarbonizationandpotentiallypriceemission-intensiveactivitiesthroughcarbonpricing.13Thesepoliciescouldhavematerialimpactsontheviabilityofcertainloansandinvestmentsinemission-intensiveindustries.Measuringfinancedemissionscanhelpfinancialinstitutionsuncoveremission-intensivehotspotsintheirportfolios.Thisenablesthemtotakethenecessaryactionstominimizetheirexposuretoriskierassetsandencouragesthemtodevelopclimate-friendlyproductssuchaslowcarbonfunds,greenbonds,sustainability-linkedbonds,greenmortgages,andmore.Figure2-2illustratesthefivestagesfinancialinstitutionsfollowtoalignwiththeParisAgreement,asexplainedinfurtherdetailinPCAF’sStrategicFrameworkforParisAlignment.Measuringfinancedemissionsallowsfinancialinstitutionstoestablishanemissionsbaselineforscenarioanalysisandtargetsetting.Withoutmeasuringaclearbaseline,financialinstitutionsdonothavetheknowledgenecessarytoassessscenariosanddefinetheirclimatetargets,letalonegaugetheirprogressinaligningwiththeParisAgreement.Arobust,transparent,andharmonizedapproachtomeasuringfinancedemissionshelpsfinancialinstitutionsmakeinformeddecisionsontargetsetting,strategydevelopment,andtheactionsrequiredtodecarbonizetheeconomy.Figure2-2.TheParisalignmentvaluechainforfinancialinstitutionsMeasure&DiscloseSetTargetsDevelopStrategyTakeActionsSteeringMonitorProgressNet-zeroemissionsby2050ScenarioAnalysisAsdescribedinChapter1,multipleclimateinitiativessupportthefinancialsectorindecarbonizingtheirportfolios.EachinitiativeplaysakeyroleintheParisAlignmentprocess.Forinstance:•PCAFfocusesonstandardizingthemeasurementandreportingofemissionsassociatedwithloans,investments,insuranceliabilitiesandotherfinancialproductsandservices.•TCFDandCDPprovideaframeworkfordisclosure.•SBTiguidestargetsettingthroughitsFinancialSectorScience-BasedTargetsGuidance.•Otherinitiatives,suchasClimateAction100+andClimateSafeLendingNetwork,supportfinancialinstitutionsondefiningconcreteclimatestrategiesandactions.12TheParisAgreement(Article4,paragraph2)requireseachPartytoprepare,communicateandmaintainsuccessiveNDCsthatitintendstoachieve.Partiesshallpursuedomesticmitigationmeasures,withtheaimofachievingtheobjectivesofsuchcontributions.13(WorldBankGroup,2020)21FinancedEmissions–SecondEdition–GHGaccountinghelpsmeasurethreetypesofclimateimpact:generatedemissions,emissionremovals,andavoidedemissionsGHGaccountingistheannualcorporateaccountinganddisclosureofGHGemissionsfinancedbyloansandinvestmentsintheportfolioofafinancialinstitutionatafixedpointintimeinlinewithfinancialaccountingperiods.FinancedemissionscanbemeasuredasamountsofGHGsgenerated,avoided,orremovedbyaninstitution.ThevolumeofGHGemissionsemittedandfinancedbyaninstitutioniscommonlyreferredtoasitsgeneratedemissions.TolimitclimatechangeandmeetthegoalsoftheParisAgreement,financiersmustactivelyseekoutactionsthatreducegeneratedemissionsinabsoluteterms,i.e.,absoluteemissions.14NotallloansandinvestmentsresultinGHGemissions.Somemayresultinmitigatingactivities.Forinstance,project-specificloansandinvestmentsintheforestryandlandusesector,directaircarboncaptureandstorage,orbioenergywithcarboncaptureandstoragecanresultinCO2beingsequesteredorremovedfromtheatmosphereandstoredinsolidorliquidform,removingitsharmfulglobalwarmingeffect.InvestmentsinafforestationprojectscandirectlyresultinnewlyplantedtreesabsorbingCO2fromtheair.ThevolumeofCO2absorbedisconsideredanemissionremovalthatcanalsobequantifiedandreported,demonstratingatypeofpositivecontributiontowarddecarbonization.Similarly,project-specificloansandinvestmentsinrenewableenergyprojectscanresultinemissionsbeingavoidedastheydisplacetheemissionsthatwouldhaveotherwiseoccurredwithouttheproject’simplementation.Theseemissionsarereferredtoasavoidedemissionsandreportingthemisawaytodemonstrateaquantifiablepositivecontributiontodecarbonization.Forthefinancialsector,whichfinancesprojectsthatleadtoavoidedemissions,quantifyingthiseffectisrelevant.Reportingonemissionremovalsandavoidedemissionsshallalwaysbedoneseparatelyfromthatofthefinancialinstitution’sscope1,2,and3GHGinventories.GHGaccountingenablesbenchmarkingMeasuringfinancedemissionsinabsoluteterms,i.e.,absoluteemissions,providesfinancialinstitutionswiththenecessarybaselineforclimateactiontoalignwiththeParisAgreement.However,normalizeddataisoftenusefulforbanksandinvestorstomanageclimatetransitionrisk,settargets,orcreatenewproducts.Normalizingthedatameanstranslatingtheabsolutefinancedemissionstoanemissionintensitymetric(emissionsperaspecificunit).Differentintensitymetricscanbeusedfordifferentpurposes:awidearrayofintensitymetricsisappliedinthemarket,eachwithitsownmerits.Table2-1liststhemostcommonemissionintensitymetrics.AlltheintensitymetricsshowninTable2-1canbeusefulforsteering.Asthetableshows,economicemissionintensityistheabsoluteemissionsofaloanorinvestmentdividedbytheloanandinvestmentvolumeinEURorUSD,expressedastCO2e/€MortCO2e/$Mloanedorinvested.Itcanbeusefulforcomparingdifferentportfoliosorpartsofportfoliosandformanagingclimate14TheGHGProtocoloftenreferstogeneratedemissionsasabsoluteemissions.InthisFinancedEmissionsStandard,wheretheterm“absoluteemissions”isused,itisreferringtogeneratedemissionsandnotvaluesrelatingtoavoidedemissionsoremissionremovals.22FinancedEmissions–SecondEdition–transitionrisks.Physicalemissionintensityistheabsoluteemissionsofaloanorinvestmentdividedbyavalueofphysicalactivityoroutput,expressedas,e.g.,tCO2e/MWhgeneratedorconsumedortCO2e/tonneproductproduced.Itcanbeusefulforsettingscience-basedtargetsandforcomparingtheemissionintensityofcompaniesoperatinginthesamesector.Theweightedaveragecarbonintensity(WACI)15isexpressedastCO2e/€Mor$Mcompanyrevenue16andcanbeusedtounderstandaportfolio’sexposuretoemission-intensivecompanies.Table2-1.Financedemissionsmetrics17MetricPurposeDescriptionAbsoluteemissionsTounderstandtheclimateimpactofloansandinvestmentsandsetabaselineforclimateactionThetotalGHGemissionsofanassetclassorportfolioEconomicemissionintensityTounderstandhowtheemissionintensitiesofdifferentportfolios(orpartsofportfolios)comparetoeachotherpermonetaryunitAbsoluteemissionsdividedbytheloanorinvestmentvolumeinEURorUSD,expressedastCO2e/€MortCO2e/$MloanedinvestedPhysicalemissionintensityTounderstandtheefficiencyofaportfolio(orpartsofaportfolio)intermsoftotalGHGemissionsperunitofacommonoutputAbsoluteemissionsdividedbyavalueofphysicalactivityoroutput,expressedas,e.g.,tCO2e/MWh,tCO2e/tonneproductproducedWeightedaveragecarbonintensity(WACI)18Tounderstandexposuretoemission-intensivecompaniesPortfolio’sexposuretoemission-intensivecompanies,expressedastCO2e/€Mor$Mcompany19revenue15(TCFD,2017)16Thewordcompanyreferstothefinancialinstitution’sborrowerorinvestee.17Adaptedfrom(CROForum,2020)18(TCFD,2017)19Thewordcompanyreferstothefinancialinstitution’sborrowerorinvestee.3.UsingGHGaccountingtosetandachievebusinessgoals3.UsingGHGaccountingtosetandachievebusinessgoalsIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IdentifybusinessgoalsCHAPTER324FinancedEmissions–SecondEdition–Understandingtheclimateimpactoffinancialportfoliosmakesgoodbusinesssenseforfinancialinstitutions.GHGaccountingcanhelpfinancialinstitutionsachievemultipleobjectives,suchascreatingtransparencyforstakeholders,managingfinancialrisksassociatedwithclimatepoliciesandregulations,creatingnewfinancialproductstofurtherthetransitiontonetzero,andaligningfinancialflowswiththegoalsoftheParisAgreement(Figure3-1).Financialinstitutionscitethesebusinessgoalsasthekeyreasonsforassessingfinancedemissions,butthislistisbynomeansexhaustive.Thischapterwillelaborateonthesegoalsingreaterdetail.Figure3-1.GHGaccountingcanhelpfinancialinstitutionsmeetmultiplebusinessgoalsBusinessGoal1CreatetransparencyforstakeholdersBusinessGoal2Manageclimate-relatedtransitionrisksBusinessGoal3Developclimate-friendlyﬁnancialproductsBusinessGoal4AlignﬁnancialﬂowswiththeParisAgreementMeasurementoffinancedemissionsThelevelofdetailcapturedintheassessmentoffinancedemissionscoulddictatehowwelltheinventorycanmeetthebusinessgoalsofthefinancialinstitution.Forexample,ifafinancialinstitutionwishestousetheinventorytomanagerisk,itmayconsidermeasuringandrecordingsector-levelemissionsfromitsborrowersorinvesteestoidentifyemission-intensiveindustryinvestmentsinitsportfolios.Otherfinancialinstitutionsmaywanttostructuretheirinventoryinawaythathelpsthemtracktheirfinancedemissionsreductiongoalsyearoveryear.Intheend,whatiscapturedintheGHGinventoryshouldservethebusinessgoalsofthefinancialinstitution.Businessgoal1:CreatetransparencyforstakeholdersFinancialinstitutionsmotivatedtobemoretransparentabouttheirclimateimpactcanuseGHGaccountingtomeasurethefinancedemissionsassociatedwiththeirloansandinvestments.Sincetheeconomiccrisisof2007-2009,awiderangeofstakeholdershasdemandedmoretransparencyaroundhowtheirmoneyisinvested.Inresponsetodemandandtheconsensusthatclimatechangeposesaconsiderablethreattotheglobaleconomy,theFinancialStabilityBoard(FSB)launchedtheindustry-ledTaskForceonClimate-relatedFinancialDisclosures(TCFD).TheremitoftheTCFDwastodeveloprecommendationsfor“consistent,comparable,reliable,clearandefficientclimate-relateddisclosuresbycompanies.”20TheTCFDframework21hasexpandedsincethefirstrecommendationswerelaunchedin2017tobetheglobalguidanceonhowcompaniesshoulddisclosetheirclimate-relatedrisksandopportunities.AtthetimeofthepublicationofthiseditionoftheFinancedEmissionsStandard,TCFD-recommendeddisclosuresarevoluntary.22However,withstrongbackingfromthecentralbanks,theSupervisorsNetworkforGreeningtheFinancialSystem,andtheindustryitself,companieswilllikelybefacedwithnewregulatoryrequirementsinthisarena.20MoreinformationaboutFSBcanbefoundat:https://www.fsb.org/work-of-the-fsb/policy-development/additional-policy-areas/climate-related-financial-disclosures/21(TCFD,2017)22ExceptinNewZealand,wherethegovernmentintroducedmandatoryTCFDdisclosuresinSeptember2020:https://bit.ly/2TWUxwm.TheUKalsohopestoenshrinemandatoryclimatedisclosuresinlinewithTCFDrecommendationsinanewlawwhichwouldtakeeffectassoonasApril2022,subjecttoParliamentaryapproval.https://bit.ly/35B0rwF25FinancedEmissions–SecondEdition–Forfinancialinstitutions,akeyfacetofTCFDdisclosurerelatestotheirlendingandinvestmentactivities.ThisfacetisrecognizedbyCDP,which—inaligningwiththeTCFDframework—adaptedits2020climatequestionnaireforthefinancialsectortoincludeasectiononthereportingofscope3category15(investment)emissions.Thefirststepofthisdisclosureismeasurement.InformationonhowthePCAFmethodologiessupportCDPincreatingtransparentreportingcanbefoundinBox1.Creatingtransparencyforinternalstakeholderscanalsobeabusinessgoalforfinancialinstitutions.Assessingfinancedemissionsallowstheboardmembersandseniormanagementoffinancialinstitutionstogetabetterpictureoftheirorganization’simpactontheclimateandhowtosteeractivitiestowardthegoalsoftheParisAgreement.Bymeasuringanddisclosingfinancedemissions,andtherebycreatingopportunitiesforclimatedisclosure,financialinstitutionscaninternallyalignontheirrole,aswellasthefinancialsector’sresponsibilityasawhole,inthetransitiontoanet-zeroeconomy.Box1.PCAFsupportsCDPincreatingtransparencyforstakeholdersSinceitsinceptionin2000,CDPhasevolvedtobecomethegloballyaccepteddisclosuresystemforinvestors,companies,cities,states,andregionstoreportandmanagetheirenvironmentalimpacts.InresponsetotheTCFD’srecommendationshighlightingtheimportanceofindirectfinancingimpacts(alongsidethedisclosedoperationalimpacts),CDPadapteditsclimatechangequestionnaireforthefinancialservicessectortoincludequestionsaboutfinancedemissions.From2020onward,CDPasksfinancialinstitutionstodisclosetheirscope3category15(investments)emissions,alongwiththebreakdownoftheseemissionsbyassetclass,sector,andgeography.TheGlobalGHGAccountingandReportingStandarddirectlysupportsfinancialinstitutionsinansweringthesequestionsbyprovidingassetclass-specificmethodologiesandguidanceforcalculatingfinancedemissionsthatallowfordisclosuresontheselevels.Initsquestionnaire,CDPnamesPCAFasakeystandardthatcanbeusedformeasuringandreporting.PCAFandCDPcollaboratecloselytoenablefinancialinstitutionstoprovidetransparentdisclosuresforstakeholders.Thesedisclosuresinturnhelpstakeholderstobetterunderstandfinancialinstitutions’portfolioalignmentwithglobalclimategoalsandtheirexposuretoemission-intensiveindustries.26FinancedEmissions–SecondEdition–Figure3‑2.ExtractfromtheCDPclimatechange2020questionnaireAreyouabletoprovideabreakdownofyourorganization'sScope3portfolioimpact?Doyouconductanalysistounderstandhowyourportfolioimpactstheclimate?(Scope3portfolioimpact)C-FS14.1‘Yes’‘No’Whatareyourorganization'sScope3portfolioemissions?(Category15"Investments"totalemissions)FS14.1bFS14.1bFS14.1cWhatisyourorganization'sScope3portfolioimpact?(Category15"Investments"alternativecarbonfootprintingand/orexposuremetrics)Whydoyounotconductanalysistounderstandhowyourportfolioimpactstheclimate?(Scope3Category15"Investments"emissionoralternativecarbonfootprintingand/orexposuremetrics)'Yes,byassetclass''Yes.byindustry''Yes.bycountry/region'FS14.2bFS14.2FS14.2bFS14.2cBreakdownyourorganization'sScope3portfolioimpactbyassetclass.Breakdownyourorganization'sScope3portfolioimpactbyindustry.Breakdownyourorganization'sScope3portfolioimpactbycountry/region.DISCLOSUREINSIGHTACTIONNote:Thisisasnapshotofthequestionnairefrom2020;thequestionnairemightbeupdatedinthefuture.ForthemostrecentinformationconsultwithCDP.Source:(CDP,2020)Businessgoal2:Manageclimate-relatedtransitionrisksFinancialinstitutionsareincreasinglyinclinedtounderstandtheexposureoftheirportfoliostorisksposedbyclimate-relatedpoliciesandregulations.GHGaccountinghelpstheseinstitutionsscreenandidentifyareasoftheirlendingandinvestmentactivitiesthatfallunderemission-intensiveassets.Suchlendingandinvestmentactivitiescouldsuffersetbacksresultingfromtheintroductionofcarbonpricesandpoliciesandregulationsthatarestrictonfossilfuels.UnderstandingtheexposuretoriskisattheheartofTCFD’smission.TCFD’sguidancenotesthatfinancialinstitutionsthatprovideloanstoorinvestincompanieswithdirectexposuretoclimate-relatedrisksmayaccumulateclimate-relatedrisksthroughtheircreditandequityholdings.23Examplesofsuchcompaniesincludefossilfuelproducers,fossilfuel-basedutilities,propertydevelopersandowners,oragriculturalandfoodcompanies.Additionally,financialinstitutionsthatdonotdisclosetheirclimate-relatedriskscouldfacereputationalrisk,especiallywhenpeersareincreasinglydoingso.MeasuringanddisclosingfinancedemissionsaccordingtotheFinancedEmissionsStandardandreportingaccordingtoTCFDrecommendationsisawayforfinancialinstitutionstomanagetheirclimate-relatedreputationalrisk.Inits2021Annex,whichupdatesandsupersedesits2017recommendations,the23(TCFD,2017)27FinancedEmissions–SecondEdition–TCFDofficiallyrecommendsthatbanks,assetownersandassetmanagersmeasureanddisclosefinancedemissionsinlinewiththePCAFFinancedEmissionsStandard.24ApplyingtheGHGaccountingmethodsinthisFinancedEmissionsStandard,financialinstitutionscanidentifyareasofsignificantexposuretoemission-intensiveassetsacrosstheirlendingandinvestmentportfoliosandusethisinformationasthebasistoassessclimateriskscenarios.BydisclosinginlinewiththerequirementsandrecommendationsinChapter6ofthisFinancedEmissionsStandardandtheTCFDframework,financialinstitutionscanshowthattheyareseriousaboutclimateaction.Box2describeshowtheFinancedEmissionsStandardalignswithandaddsvaluetotheTCFDframework.Box2.PCAFsupportstheTCFDframeworkinidentifyingandmanagingclimateriskOneofthegoalsoftheTCFDframeworkistomeasureanddisclosetherisksposedtoorganizationsbyclimate-relatedpoliciesandregulationsthatareimplementedtofurtherthetransitiontoanet-zeroeconomy.PCAFdirectlysupportsthisobjectivebyprovidingfinancialinstitutionswithmethodologiestomeasurefinancedemissions,resultinginatotalvaluefortheabsoluteemissionsassociatedwithassetclassesintheirloanandinvestmentportfolios.Asaresultofemissionassessments,financialinstitutionscanidentifyemission-intensivehotspotsthatcouldbesubjecttohighertransitionrisk.TCFDofficiallyrecommendsthatbanks,assetownersandassetmanagersmeasureanddisclosefinancedemissionsinlinewiththePCAFFinancedEmissionsStandard.Thequantificationoffinancedemissions,theexpectedtrajectoryoftheseemissions,andtheabilityofbanksandinvestorstoreduceemissionsovertimeareimportantmetricstoestimatetheimpactoftransitionrisks.Onceidentified,theserisksmaybemitigatedbysteeringportfoliosinlinewiththetransitiontoanet-zeroeconomy.Businessgoal3:Developclimate-friendlyfinancialproductsIncludedintheTCFDframeworkisdisclosurerelatedtobusinessopportunitiesassociatedwiththetransitiontoalowcarboneconomy.25Accordingtotheframework,opportunitiesarecategorizedasresourceefficiency,energysource,productsandservices,markets,andresilience.Forfinancialinstitutions,significantopportunitiesexistineachcategory,especiallyrelatingtosustainablefinanceproducts.Forexample,asFigure3-3shows,sustainablefinanceproductssuchasbondshaveevolved:fromgreenbondsissuedtofinanceaspecificcorporatepurpose,e.g.,green-eligibleprojectssuchaswindfarms,tobondsthataresolelyfocusedongeneralcorporatesustainabilitypurposes,suchassustainability-linkedbonds.Insuchsustainability-linkedbonds,thefullbusinessoftheissuercommitstoasustainabletarget,meaningthebondisconnectedtothesustainabletransitionofthebusiness.24(TCFD,2021)25(TCFD,2017)28FinancedEmissions–SecondEdition–Figure3-3.EvolutionofgreenproductsinthebondmarketSpecificcorporatepurposeGeneralcorporatepurposeFundingsupportsthegreenportionoftheincomestatementFundingisforspeciﬁcgreenexpendituresorprojectsFundingsupportssustainability-linkedKPIsFundingisforaggregatedgreenexpendituresorportfoliosFundingsupportsthegreenportionofthebalancesheetWiththetransitiontoalowcarboneconomy,financialinstitutionscandevelopinnovativeproductsandservicesthatenabletheirclientstodecarbonizetheirbusinessactivities.BymeasuringfinancedemissionsandusingtheintensitymetricslistedinTable2-1,financialinstitutionscanseewhichsectorsandbusinessesrequirethemosthelpintheirdecarbonizationeffortsandhowbesttosupportthemintheirtransitiontoanet-zerofuture.Businessgoal4:AlignfinancialflowswiththeParisAgreementFinancialinstitutions’commitmentstosetscience-basedtargets,26transitiontheirinvestmentportfoliostonet-zeroGHGemissionsby2050(e.g.,Net-ZeroAssetOwnerAlliance27),andaligntheirlendingwiththeobjectivesoftheParisAgreement(e.g.,Net-ZeroBankingAlliance28)areexamplesofthisbusinessgoal.FinancialinstitutionsthatwanttoaligntheirfinancialflowswiththegoalsoftheParisAgreementimplementportfolioGHGaccountingtounderstandtheabsoluteemissionstheyfinanceintherealeconomy.Theseinstitutionsusethisinformationasthebasisforanalyzingdecarbonizationscenariosandsettingemission-basedtargetsattheassetclassorsectorlevel.Whileotherclimateinitiativesfocusonscenarioanalysisandtargetsetting(seeChapter1),PCAFhasbeenestablishedtofocussolelyontheGHGaccountingoffinancialportfolios.UndertakingGHGaccountingequipsfinancialinstitutionswithametricthatcanhelptrackabsoluteemissionsyearoveryearandcompareitwiththeirfinancedemissionsgoals.Box3showshowthePCAFGHGaccountingmethodsofferedinthisFinancedEmissionsStandardalignwithSBTi’sframeworkforsettingscience-basedemissionreductiontargets.Version1.0ofSBTi’starget-settingguidanceforfinancialinstitutionswaspublishedinFebruary202229andincludescasestudiesofbanksandinvestorsusingPCAFGHGaccountingmethodsasaprecursortoscience-basedtargets.30Nexttosettingtargets,aligningfinancialflowswiththeParisAgreementmeansthatfinancialinstitutionstakeconcreteactionstotransitiontheirportfoliotonet-zerofinancedemissionsby2050.Inthisprocess,banksandinvestorscouldidentifyopportunitiestodevelopnewproductsthathelpborrowersandinvesteesreducetheirownemissions.26InformationaboutSBTsforfinancialinstitutionscanbefoundat:https://sciencebasedtargets.org/financial-institutions27InformationabouttheNetZeroAssetOwnerAlliancecanbefoundat:https://www.unepfi.org/net-zero-alliance28InformationabouttheNet-ZeroBankingAlliancecanbefoundathttps://www.unepfi.org/net-zero-banking29(SBTi,2020)30MoreinformationabouttheSBTiforfinancialinstitutionscanbefoundat:https://sciencebasedtargets.org/financial-institutions29FinancedEmissions–SecondEdition–Box3.Steeringdecarbonization:fromGHGaccountingtosettingscience-basedtargetsFinancialinstitutionsthatdecidetosetscience-basedtargetsusingSBTi’sSectoralDecarbonizationApproach(SDA)needtomeasuretheirfinancedemissionstoidentifythebaselinefromwhichtargetswouldbeestablishedandtomeasureprogressagainstthetargets.TheSBTiframeworkforthefinancialsectorenablesfinancialinstitutionstoalignlendingandinvestmentportfolioswiththegoalsoftheParisAgreement.Financialinstitutionsthatsetscience-basedtargetsandworktowardattainingthosetargetsactonopportunitiestofinancethenet-zeroemissiontransition.TheSDAisascience-basedtargetsettingmethodthatinvolvessettingemissions-basedtargets,inwhichGHGaccountingisafundamentalstepoftheprocess.TheassetclassescoveredintheGlobalGHGAccountingandReportingStandardmatchthefourassetclassesincludedintheSBTframework.Figure3-4.AssetclassescoveredbyPCAFandSBTiAssetclassescoveredbytheScienceBasedTargetsinitiativeAssetclassescoveredintheGlobalGHGAccountingandReportingStandardListedequityandcorporatebondsBusinessloansandunlistedequityProjectfinanceCommercialrealestateMortgagesMotorvehicleloansSovereigndebtCorporateinstruments(equity,bonds,loans)ElectricitygenerationprojectfinanceRealestate(commercial&residential)MortgagesFinancialinstitutionsmayuseGHGaccountingtoscreenandprioritizethepartsoftheportfoliothatwouldbethefocusfortargetsetting(i.e.,assetclassesandsectors).Additionally,financialinstitutionsmeasurefinancedemissionstodeterminetheemissionbaselinesfromwhichemission-basedscience-basedtargetsareset.Totrackprogressagainsttheemission-basedtarget,financialinstitutionsmustthereforemeasureanddisclosetheirfinancedemissionsannually.Determiningsector-specificemissionintensityattheassetclassorsectorlevelisthestartingpointtoapplytheSDAfortargetsetting.Sector-specificemissionintensityreferstofinancedemissionsperunitofactivitydata,e.g.,kgCO2e/m2,gCO2e/kWh,tonCO2e/tonnecement.Threestepsaretakentoderiveemissionintensities,asFigure3-5shows:30FinancedEmissions–SecondEdition–Figure3-5.FromGHGaccountingtosettingscience-basedtargetsCurrentemissionintensityisthebaselineforanemissions-basedSBTCalculateemissionintensityScope1&2emissionsperloanandinvestment(borrower'sandinvestee'semissionsintCO2e)Attributedemissionsperborrower/perinvestee(financedemissionsintCO2e)∑financedemissions∑totalattributedactivity(tCO2e/m2,tCO2e/kWh,tCO2e/tonneproducts)MeasureGHGemissionsperloanandinvestmentCalculateﬁnancialinstitution'sshareofemissionsSelectdecarbonisationpathwayandsetanemissions-basedSBTForthelatestFinancialSectorScience-BasedTargetsGuidance,consulttheScienceBasedTargetsinitiativeathttps://sciencebasedtargets.org/financial-institutionsInadditiontosettingtargets,aligningfinancialflowswiththeParisAgreementmeansthatfinancialinstitutionstakeconcreteactionstotransitiontheirportfoliotonet-zerofinancedemissionsby2050.Netzerofinancedemissionsby2050TheParisAgreementwasreachedin2015withtheexpressaimofpursuingeffortstolimittheglobaltemperatureincreaseto1.5°Cabovepre-industriallevels.31Achievingthisgoalrequiresglobalemissionstodeclinebyabout50%by2030relativeto2010levelsandtoreachnetzeroby2050.32Nonetheless,globalemissionscontinuetoincrease.ThelevelofambitiontoachievethegoalsoftheParisAgreementandsteerglobalemissionstowardnetzeroin2050issignificant.FIsplayacrucialroleinthistransitionbyfacilitatingtheallocationofcapitalflowstowardnet-zerogoals.Acriticalcomponentofnetzeroinitiativesinthefinancialsectorisdecarbonizinglendingandinvestmentportfoliosfollowinga1.5°Cscenariowithlowornoovershootintheglobalaveragetemperatureincrease.Recently,theInternationalEnergyAgency(IEA)launchedaclimatescenariothatmeetsthiscriterioninitsNetZeroby2050Roadmap.Thisscenarioclearlyshowstherapidtransitionandmilestonesthatarerequiredtolimitglobalwarmingto1.5°C(seechartbelow).31UnitedNationsFrameworkConventiononClimateChange,TheParisAgreement,2015.32IntergovernmentalPanelonClimateChange,2018:GlobalWarmingof1.5°C.AnIntergovernmentalPanelonClimateChangeSpecialReportontheimpactsofglobalwarmingof1.5°Cabovepre-industriallevelsandrelatedglobalGHGemissionspathways,inthecontextofstrengtheningtheglobalresponsetothethreatofclimatechange,sustainabledevelopment,andeffortstoeradicatepoverty[Masson-Delmotte,V.,P.Zhai,H.-O.Pörtner,D.Roberts,J.Skea,P.R.Shukla,A.Pirani,W.Moufouma-Okia,C.Péan,R.Pidcock,S.Connors,J.B.R.Matthews,Y.Chen,X.Zhou,M.I.Gomis,E.Lonnoy,T.Maycock,M.Tignor,andT.Waterfield(eds.)].InPress.31FinancedEmissions–SecondEdition–Figure3-6.KeyMilestonesonthePathwaytoNetZeroGtCO2HydrogenCarboncapture353025202020202520302035204020452050151050-5BuildingsTransportIndustryElectricity&HeatOther204550%ofheatingdemandmetbyheatpumps2021NonewunabatedcoalplantapprovedNonewoilandgasfieldsapprovedfordevelopment;nonewcoalminesormineextensions2030UniversalenergyaccessAllnewbuildingsarezero-carbon-ready60%ofglobalcarsalesareelectricMostnewcleantechnologiesinheavyindustrydemonstratedatscale1020GWannualsolarandwindadditionsPhase-outofun-abatedcoalinadvancedeconomies2035Mostappliancesandcoolingsystemssoldarebestinclass50,ofheavytrucksalesareelectricNonewICEcarsalesAllindustrialelectricmotorsalesarebestinclassOverallnet-zeroemissionselectricityinadvancedeconomies2050Morethan85%ofbuildingsarezero-carbonreadyMorethan90%ofheavyindustrialproductionislow-emissionsAlmost70%ofelectricitygenerationgloballyfromsolarPVandwind204050%ofbuildingsretrofittedtozero-carbon-readylevels50%offuelsusedinaviationarelow-emissionsAround90%ofexistingcapacityinheavyindustriesreachesendofinvestmentcycleNet-zeroemissionselectricitygloballyPhase-outofallunabatedcoalandoilpowerplants2025Nonewsalesoffossilfuelboilers4GtCO2captured150Mtlow-carbonhydrogen850GWelectrolysers435Mtlow-carbonhydrogen3.000GWelectrolysers7.6GtCO2capturedSource:IEA,“NetZeroby2050:ARoadmapfortheGlobalEnergySector,”July2021,3rdEditionNetzeroisreachedwhenanthropogenicemissionsintheatmospherearebalancedbyanthropogenicremovalsoveraspecifiedperiod.Climatesciencetellsusthatachievingnetzerowillhelphumanityavoidthemostcatastrophiceffectsofclimatechangeandhugefinancialrisks.Achievingnetzerorequirestwoprimarycomponents:1.Deepdecarbonizationinenergy,urbaninfrastructureandindustrialsystems,aswellasreversingemissionsgrowthfromlandusesystems2.PermanentlyremovingtheresidualGHGemissionsthatareunfeasibletoreduceoravoidFIscanhelpthistransitionbylendingandinvestingcapitalinbothmitigationsolutions(avoidedemissions)andcarbonremovalsolutions(emissionremovals).Theannualenergysectorinvestment,whichaveraged$2.3trillionUSDgloballyover2016-2020,needstonearlydoubleto$5trillionUSDby2030accordingtoIEA’sNetZeroby2050Roadmap.Examplesofmitigationsolutionscanincluderenewableenergyandcarboncaptureandstorage(CCS),bothofwhichavoidthereleaseofnewfossilfuelemissionsintotheairwhetherfromindustrialsitesorconventionalpowerplants.Examplesofemissionremovalssolutionscanincludetechnological32FinancedEmissions–SecondEdition–methodssuchasdirectaircaptureornature-basedmethodssuchasforestryandlandmanagement,bothofwhichsequesterexistingemissionsfromtheatmosphere.Thedistinctionbetweenavoidedemissionsandemissionremovalsisimportantfromanaccountingperspective.Thedifferencesareillustratedinthefigurebelow:Figure3-7:AvoidedemissionsandemissionremovalsEmissionremovalsCarbonoﬀsetsAvoidedemissionsNoYesYesCarbonremovalIscarbonstored?Iscarbonstored?Howiscarbonstored?Howiscarbonstored?Avoidedemissions,oremissionreductionwithoutstorageAvoidedemissionswithshort-livedstorageAvoidedemissionswithlong-livedstorageCarbonremovalwithshort-livedstorageCarbonremovalwithlong-livedstorageLesspermanentHigherriskofreversalMorepermanentLowerriskofreversalLesspermanentHigherriskofreversalMorepermanentLowerriskofreversalForward-looking,counterfactualbaseline:•Renewableenergy•CleanercookstovesClearretrospectiveemissionsdata:•N2Oabatement•Methaneabatement•Avoideddamagetoecosystems•Changestoagpracticesthatretainalready-storedcarbon•CCSonindustrialfacilities•CCSonfossil-fuelpowerplant•Aorestation&reforestation•Soilcarbonenhancement•Ecosystemrestoration•DACCS•BECCS•Mineralisation•EnhancedweatheringAvoidedemissionsFigureadaptedfromtheOxfordOffsettingPrinciples.33Theglobaltransitiontonet-zerorequiresincreasedlendingtoandinvestmentinactivitiesthatdrivedeepdecarbonization,aswellastechnologyandnature-basedemissionremovalssolutions.MeasuringandreportingbothgeneratedemissionsandemissionremovalsenablesFIstotrackprogresstowardnetzero.FIscanfinanceemissionremovalsviathreeways:•Creditpurchases:FIscanbuyandretirecarbonremovalcredits34basedinthevoluntarycarbonmarket.Becausethesepurchasesarenotpartoftheirlendingorinvestmentportfolio,thesecreditsarenotincorporatedintothePCAFFinancedEmissionsStandard.Formoreinformation,FIsshouldrefertotheGHGProtocolonhowtoincludecarboncreditsintheiraccounting.3533Oxfordoffsettingprinciples,accessedathttps://www.smithschool.ox.ac.uk/research/oxford-offsetting-principles34Reportingaroundtheuseofcarboncreditsmayneedtoevolvebecauseitdoesnotyetconsistentlydistinguishbetweenavoidanceandremovalcredits.35NotethatnewGHGProtocolguidanceisbeingdevelopedonaccountingforlandsectoractivitiesandCO2removalsincorporateGHGinventories,buildingontheCorporateStandardandScope3Standard.Draftguidanceforthisisexpectedin2022.33FinancedEmissions–SecondEdition–•BusinessLoansandUnlistedEquity:FIscanlendtoorinvestincompaniessuchasforestrycompaniesthathaveemissionremovalswithintheirorganizationalboundaries.Theycanalsolendtoorinvestincompaniesthatpurchaseandretirecarbonremovalcredits.Formoreinformationonthefinancedemissionsaccountingoftheselendingandinvestmentactivities,seethemethodologychapteronListedEquity&CorporateBondsandthemethodologychapteronBusinessLoans&UnlistedEquity.•ProjectFinance:FIscanlendtoorinvestinnature-basedortechnologicalprojectsthatremoveemissionsfromtheatmosphere.Theycanalsolendtoorinvestinprojectsthatpurchaseandretirecarbonremovalcredits.Formoreinformationonthefinancedemissionsaccountingoftheselendingandinvestmentactivities,seethemethodologychapteronProjectFinance.4.PrinciplesandrequirementsofGHGaccountingforfinancials4.PrinciplesandrequirementsofGHGaccountingforfinancialsIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6CHAPTER4Reviewaccountingandreportingprinciplesandrules35FinancedEmissions–SecondEdition–TocreatethisFinancedEmissionsStandard,PCAFharnessedtheGHGaccountingprinciplesfromtheGHGProtocolCorporateAccountingandReportingStandard36andtheGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandard.37Basedontheseprinciples,PCAFdevelopedanadditionalsetoffiveoverarchingrulestoguideaccountingandreportingforfinancialinstitutions.4.1GHGaccountingrequirementsderivedfromtheGHGProtocol’sprinciplesLikefinancialaccountingandreporting,GHGaccountingandreportingfollowsgenerallyacceptedprinciplestoensurethatanorganization’sdisclosurerepresentsanaccurate,veritable,andfairaccountofitsGHGemissions.ThecoreprinciplesofGHGaccountingaresetoutintheGHGProtocolCorporateAccountingandReportingStandard38andtheGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandard.39TheGHGProtocol’sfivecoreprinciplesarecompleteness,consistency,relevance,accuracy,andtransparency.TheGlobalGHGAccountingandReportingStandardfortheFinancialIndustryfollowsthesefivecoreprinciplesandprovidesadditionalrequirementsontheapplicationoftheseprinciplesthataredirectlyrelevantforfinancialinstitutionswishingtoassesstheirfinancedemissions(Figure4-1).36(WRIandWBCSD,2004)37(WRIandWBCSD,2011)38(WRIandWBCSD,2004)39(WRIandWBCSD,2011)36FinancedEmissions–SecondEdition–Figure4-1.AdditionalPCAFrequirementsofGHGaccountingandreportingarederivedfromtheGHGProtocol’sfiveprinciplesGHGProtocolprinciplesforscope3inventoriesCompletenessAccountforandreportonallGHGemissionsourcesandactivitieswithintheinventoryboundary.Discloseandjustifyanyspecificexclusions.ConsistencyUseconsistentmethodologiestoallowformeaningfulperformancetrackingofemissionsovertime.Transparentlydocumentanychangestothedata,inventoryboundary,methods,oranyotherrelevantfactorsinthetimeseries.RelevanceEnsuretheGHGinventoryappropriatelyreflectstheGHGemissionsofthecompanyandservesthedecision-makingneedsofusers—bothinternalandexternaltothecompanyAccuracyEnsurethatthequantificationofGHGemissionsissystematicallyneitherovernorunderactualemissions,asfarascanbejudged,andthatuncertaintiesarereducedasfaraspracticable.Achievesufficientaccuracytoenableuserstomakedecisionswithreasonableconfidenceastotheintegrityofthereportedinformation.TransparencyAddressallrelevantissuesinafactualandcoherentmanner,basedonaclearaudittrail.Discloseanyrelevantassumptionsandmakeappropriatereferencestotheaccountingandcalculationmethodologiesanddatasourcesused.AdditionalPCAFrequirementsRecognitionFinancialinstitutionsshallaccountforallfinancedemissionsunderScope3category15(Investment)emissions,asdefinedbytheGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandard.Anyexclusionsshallbedisclosedandjustified.MeasurementFinancialinstitutionsshallmeasureandreporttheirfinancedemissionsforeachassetclassby“followingthemoney”andusingthePCAFmethodologies.Asaminimum,absoluteemissionsshallbemeasured.However,avoidedandremovedemissionsmaybemeasuredifdataisavailableandmethodologiesallow.AttributionThefinancialinstitution’sshareofemissionsshallbeproportionaltotheshareofitsexposurerelativetothetotal(company,project,asset)valueoftheborrowerorinvestee.DataqualityFinancialinstitutionsshallusethehighestqualitydataavailableforeachassetclassandimprovethequalityofthedataovertime.DisclosurePublicdisclosureoftheresultsofPCAFassessmentsiscrucialforexternalstakeholdersandfinancialinstitutionsusingthemethodologytohaveaclear,comparableviewofhowtheinvestmentsoffinancialinstitutionscontributetotheParisclimategoals.37FinancedEmissions–SecondEdition–4.2AdditionalrequirementsforaccountingandreportingfinancedemissionsThissubchapterdescribestheadditionalrequirementsforGHGaccountingforfinancialsandhowtheserequirementsguidetheaccountingandreportingoffinancedemissionsregardlessofthetypeofloanandinvestment.Chapter6includesadditionaldetailsonreportingrequirementsandrecommendations.RecognitionAccordingtotheGHGProtocolCorporateAccountingandReportingStandard,40organizationscanchoosefromthreeapproacheswhendefiningtheirorganizationalboundariesandconsolidatingtheGHGemissionsmeasuredandreportedintheirinventories:•Equityshareapproach•Financialcontrolapproach•OperationalcontrolapproachTheselectionofoneoftheseapproachesaffectswhichactivitiesinthecompany’svaluechainarecategorizedasdirectemissions(i.e.,scope1emissions)andindirectemissions(i.e.,scope2andscope3emissions).41Forconsistencyinreportingacrossorganizationsandreportingperiods,thisFinancedEmissionsStandardrequiresfinancialinstitutionstomeasureandreporttheirGHGemissionsusingeithertheoperationalorfinancialcontrolapproach.AsexplainedinBox4,thismeansthatemissionsfromfinancialinstitutions’loansandinvestments(withoutoperationalorfinancialcontrol42)willbereportedundertheirscope3category15(investments)emissions,asdefinedbytheGHGProtocolValueChain(Scope3)AccountingandReportingStandard.43Thisrequirementeliminatesinconsistenciesinaccountingthatcouldarisefromusingtheequityshareapproach,whichwouldrequirescope1and2emissionsfromallequityinvestmentstobereportedunderthefinancialinstitution’sscope1and2emissions(accordingtoitsshareofequityintheoperation).Asaresult,theFinancedEmissionsStandardprovidesaharmonizedapproachthatcanbeusedbyfinancialinstitutionswishingtoaccountforanddisclosetheirscope3category15(investments)emissions(otherwiseknownastheirfinancedemissions),andthesearethesolefocusofthisFinancedEmissionsStandard.FinancialinstitutionsfollowingtheFinancedEmissionsStandardarerequiredtoreportallfinancedemissionsunderscope3category15anddiscloseandjustifyanyexclusions.40(WRIandWBCSD,2004)41(WRIandWBCSD,2004)42Onlyincasesthatafinancialinstitutionhascontrol(operationalorfinancial,dependingontheapproachchosen)overtheoperationsoftheborrower,orinvesteewill100%oftheiremissionsbeincludedwithintheorganizationalboundariesofthefinancialinstitution.Asaresult,theseemissionswillbeincludedunderthescope1and2emissionsofthefinancialinstitution.Thiscanoccurwhenafinancialinstitutionholdsacontrollingequityshareintheinvestee.Ingeneral,however,mostofthefinancialsector’sloansandinvestmentsarenotheldtogaincontrolovertheirborrowerorinvestee.43(WRIandWBCSD,2011)38FinancedEmissions–SecondEdition–Beyondreportingthescope3category15emissionscoveredbythisFinancedEmissionsStandard,financialinstitutionsshallalsomeasureandreporttheirownscope1and2emissionsandanyotherrelevantscope3emissionscategoriesinlinewiththeGHGProtocol’sstandards.Box4detailsconsolidationapproachesasappliedtothefinancialsector.Box4.WhytheGlobalGHGAccountingandReportingStandardrequiresfinancialinstitutionstomeasureandreportfinancedemissionsusingtheoperationalorfinancialcontrolapproachTheGHGProtocolCorporateAccountingandReportingStandard44presentsthreeconsolidationapproacheswhenpreparingGHGemissioninventories:theequityshareapproach,thefinancialcontrolapproach,andtheoperationalcontrolapproach.TheseconsolidationapproachesareintendedtodefinetheorganizationalboundariesofthecompanyforthepurposesofaccountingandreportingGHGemissions.Theselectionofoneoftheseapproachesaffectswhichactivitiesinthecompany’svaluechainarecategorizedasdirectemissions(i.e.,scope1emissions)andindirectemissions(i.e.,scope2andscope3emissions).Undertheequityshareapproach,anorganizationaccountsforGHGemissionsfromoperationsaccordingtoitsshareofequity—orownership—intheoperation.So,holdinga15%equityshareinanotherorganizationwouldrequireincluding15%ofitsemissionsacrossallitsemissionscopes:scope1,2,and3.Alternatively,anorganizationcanreportusingthecontrolapproach,wherebythecompanyreports100%oftheGHGemissionsoverwhichithascontrolasiftheseemissionswereitsown(i.e.,100%ofdirectemissionsarereportedunderscope1and100%ofindirectemissionsarereportedunderscope2or3,respectively).Wherethecompanyownsaninterestbutdoesnothavecontrol,itdoesnotaccountforGHGemissionsfromoperationsaspartofitsscope1and2emissions.However,emissionsfromsuchoperationswillbereportedunderscope3emissionsaccordingtoitsrelativeshareofownership.45Boxcontinuesonnextpage�>44(WRIandWBCSD,2004)45Inpractice,usingacontrolapproachmeansthatwhenacompanyhascontroloveranoperation100%ofthescope1and2emissionsofthisoperationarealsoreportedunderthecompanies’scope1and2footprint.39FinancedEmissions–SecondEdition–Acontrolapproachcanbesubclassifiedaseitherfinancialcontroloroperationalcontrol,andcompaniesusingthecontrolapproachmustpickbetweenthesetwooptionsforreporting.Usingthefinancialcontrolapproach,theorganizationshallreport100%ofemissionsforallactivitiesinthecompanywhereitcandirectlyinfluencefinancialandoperationalpoliciesandhasthepotentialtobenefiteconomicallyfromthecompany’sactivities.Usingtheoperationalcontrolapproach,anorganizationshallaccountfor100%ofemissionsfromoperationsoverwhichitoroneofitssubsidiarieshascontrolandtheauthoritytointroduceandimplementoperationalpolicies.Inmostcases,whetheranoperationiscontrolledbythecompanyornotdoesnotdifferbetweenthefinancialcontroloroperationalcontrolapproach.Theconsolidationapproachusedbyafinancialinstitutionhasasignificantimpactonhowitaccountsforitsfinancedemissions.Choosingtheequityshareapproachwouldrequirescope1and2emissionsfromallequityinvestmentstobereportedunderthefinancialinstitution’sscope1and2emissions(accordingtoitsshareofequityintheoperation),whereasfinancedemissionsfromotherassetclasseswouldendupinscope3.However,whenchoosingacontrolapproach,onlyemissionsfromthoseoperationswherethefinancialinstitution,throughitsinvestments,holdsacontrollinginterestwouldendupinitsscope1and2emissions.Inallothercasesfinancedemissionsendupinscope3category15.Asfinancialinstitutions’investmentsinequityordebtaretypicallynotintendedtoholdacontrollinginterest,thisFinancedEmissionsStandardrequiresfinancialinstitutionstomeasureandreporttheirGHGemissionsusingeithertheoperationalorfinancialcontrolapproach.Thisrequirementallowsforconsistentreportingoffinancedemissionsinscope3emissioncategory15.Measurement“Followthemoney”isakeytenetforGHGaccountingoffinancialassets,meaningthatthemoneyshouldbefollowedasfaraspossibletounderstandandaccountfortheclimateimpactintherealeconomy,i.e.,emissionscausedbythefinancialinstitution’sloansandinvestments.FinancialinstitutionsshallmeasureandreporttheirfinancedemissionsforeachassetclassusingthemethodologiessetoutinthisFinancedEmissionsStandardandcoveringthesevenGHGsrequiredundertheKyotoProtocol.Asaminimum,financialinstitutionsshallmeasuretheabsoluteGHGemissionsresultingfromloansandinvestments(scope3category15emissions)inthereportingyear.Whenrelevant,emissionremovalsshouldbemeasuredandreportedseparately.Avoidedemissionsfromrenewablepowerprojectsmayalsobemeasuredandreportedseparately.Asabasisforreportingemissions,financialinstitutionsshallchooseafixedpointintimetodeterminetheirlendingandinvestmentpositions,suchasthelastdayofitsfiscalyear(e.g.,June30orDecember31),tocalculateanattributionfactor.TheGHGaccountingperiodshallalignwiththefinancialaccountingperiod.40FinancedEmissions–SecondEdition–AttributionAccordingtotheGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandard,GHGemissionsfromloansandinvestmentsshouldbeallocatedtothereportingfinancialinstitutionsbasedontheproportionalshareoflendingorinvestmentintheborrowerorinvestee.46Attributionisbasedontheannualemissionsoftheborrowerandinvestee;asaresult,GHGemissionsarereportedonatleastanannualbasis.ThemethodologiesintheFinancedEmissionsStandardapplythesamegeneralattributionprinciplesacrossallassetclasses(Figure4-2):1.Financedemissionsarealwayscalculatedbymultiplyinganattributionfactor(specifictothatassetclass)bytheemissionsoftheborrowerorinvestee.2.2.TheattributionfactorisdefinedastheshareoftotalannualGHGemissionsoftheborrowerorinvesteethatisallocatedtotheloan(s)orinvestment(s).3.3.Theattributionfactoriscalculatedbydeterminingtheshareoftheoutstandingamountofloansandinvestmentsofafinancialinstitutionoverthetotalequityanddebtofthecompany,project,etc.towhichthefinancialinstitutionhaslentmoneyorinwhichithasinvestedcapital.Theuseofthiscommondenominator,includingbothequityanddebtfunding,isimportantforthreereasons:1.Itensurestheuseofonecommondenominatoracrossallassetclasses,whichisinlinewithleadingpracticesinthefinancialsector.2.Itdoesnotdifferentiatebetweenequityanddebt.Bothcontributetothetotalfinancingoftheborrowerorinvestee(andindirectlytheiremissions)andarethereforedeemedequallyimportant.3.Itensures100%attributionofemissionsoverequityanddebtprovidersandavoidsdoublecountingofemissionsbetweenequityanddebtprovidersasmuchaspossible.Thisisspecificallyimportantforfinancialinstitutionsthatholdbothequityanddebtpositionswithinthesamecompaniesorprojects.Figure4-2.ThegeneralapproachtocalculatefinancedemissionsFinancedemissionsAttributionfactorix=Emissionsi(withi=borrowerorinvestee)OutstandingamountiTotalequity+debti∑i46(WRIandWBCSD,2011)41FinancedEmissions–SecondEdition–Doublecounting,whichoccurswhenGHGemissionsarecountedmorethanonceinthefinancedemissionscalculationofoneormoreinstitutions,shouldbeminimizedasmuchaspossible.Doublecountingoccursbetweenthedifferentscopesofemissionsfromloansandinvestmentswhenafinancialinstitutionlendstoorinvestsincompaniesorprojectsinthesamevaluechain.47Thisformofdoublecountingcannotbeavoided,butitcanbemademoretransparentbyreportingthescope1and2,emissionsofloansandinvestmentsseparatelyfromtheirscope3emissions(seerequirementsonthisinChapter6ofthisFinancedEmissionsStandard).Doublecountingcantakeplaceatfivelevels:•Betweenfinancialinstitutions•Inco-financingthesameentityoractivity•Betweentransactionswithinthesamefinancialinstitutions•Acrossdifferentassetclasses•WithinthesameassetclassDoublecountingbetweenco-financinginstitutionsandbetweentransactionswithinthesameassetclassofafinancialinstitutioncanbeavoidedbyusingtheappropriateattributionrulesconsistently.PCAFdefinesattributionrulesforeachmethoddescribedinthisFinancedEmissionsStandard.Byusingthecorrectattributionmethod,doublecountingofemissionsbetweenfinancialinstitutionscanbeminimized.Additionalassetclass-specificinformationonattributioncanbefoundinChapter5.DataqualityFinancialinstitutionsshallensurethattheirGHGaccountingappropriatelyreflectstheGHGemissionsoftheirloansandinvestmentsandservesthedecision-makingneedsofinternalandexternalstakeholders.Tosafeguardtheseoutcomes,financialinstitutionsshouldusethehighestqualitydataavailableforeachassetclassforcalculationsand,whererelevant,improvethequalityofthedataovertime.PCAFrecognizesthathigh-qualitydatacanbedifficulttocomebywhencalculatingfinancedemissions,particularlyforcertainassetclasses.However,datalimitationsshouldnotdeterfinancialinstitutionsfromtakingthefirststepstowardpreparingtheirinventories.Evenestimatedorproxydatacanhelpthemidentifyemission-intensivehotspotsintheirportfolios,whichcaninformtheirclimatestrategies.Wheredataqualityislow,financialinstitutionscandevelopapproachestoimproveitovertime.Formeasuringfinancedemissionsineachassetclass,variousdatainputsareneededtocalculatethefinancialinstitution’sattributionfactorandtheborrower’sorinvestee’stotalemissions.Thedataneededtocalculateanattributionfactorcantypicallycomefromthefinancialinstitutionitselfanditsborrowerorinvestee.However,thedatarequiredtocalculatetheborrowerorinvestee.However,thedatarequiredtocalculatetheemissionsoftheborrowerorinvesteemightnotbereadilyavailableandmustbesoughtoutbythefinancialinstitution.Thequalityofthisdatacanvarydependingonassumptionsrelatingtoitsassuredness,specificity,andothervariables.47Thescope1emissionsofonecompanycanbetheupstreamscope2or3emissionsofitscustomer.Forexample,scope1emissionsfromautilityprovidingenergytoacompanywouldendupinthescope2inventoryofthatcompany.Ifbothcompaniesarereceivingfundingfromthesamefinancialinstitution,theseemissionswouldbedoublecountedwithinitsinventory.42FinancedEmissions–SecondEdition–High-qualitydataisoftennotavailabletothefinancialinstitutionforallassetclasses.Intheseinstances,theinstitutionshouldusethebestavailabledataperthedatahierarchyshowninFigure4-3.DataqualityscorecardsspecifictoeachassetclassarepresentedinChapter5andAnnex10.1.Figure4-3.GeneraldataqualityscorecardDataqualityscoringfrom1to5......enablesfinancialinstitutionstodevelopastrategytoimprovedataovertimeScore1Score2Score3Score4Score5CertainUncertainDataQualityScore12345GHGEmissionsPCAFrecognizesthatthereisoftenalagbetweenfinancialreportingandthereportingofrequiredemissions-relateddatafortheborrowerorinvestee.Intheseinstances,financialinstitutionsshouldusethemostrecentdataavailableevenifitisrepresentativeofdifferentyears,withtheintentionofaligningasmuchaspossible.Forexample,itwouldbeexpectedandappropriatethatafinancialinstitution’sreportingin2020forits2019financialyearwoulduse2019financialdataalongside2018(orothermostrecent)emissionsdata.Dataqualityscoringisspecifictoeachassetclass.MoreinformationonissuesrelatedtodataqualityandhowtoemploythehierarchyforeachassetclasscanbefoundinChapter5andAnnex10.1.DisclosureThepublicdisclosureofabsolutefinancedemissionsiscrucialforexternalstakeholdersandfinancialinstitutionsusingthemethodologytohaveananalogousviewoftheclimateimpactoffinancialinstitutions.Tothisend,financialinstitutionsshalldiscloseabsolutefinancedemissions.Tosupporttheirdisclosures,financialinstitutionsshallfollowtherequirementsandrecommendationslistedinChapter6onhowtoreportinformationrelatingtomethodology,calculations,timeframes,anddataquality(asscoredusingthehierarchiesprovidedinChapter5).5.Methodologytomeasurefinancedemissions5.MethodologytomeasurefinancedemissionsIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6CHAPTER5Reviewandapplyaccountingmethodologiesforeachassetclass44FinancedEmissions–SecondEdition–Thischapterdescribesthemethodstocalculatefinancedemissionsforsevenassetclasses.ListedequityandcorporatebondsMortgagesBusinessloansandunlistedequityMotorvehicleloansProjectﬁnanceCommercialrealestateSovereigndebtEachassetclasshasitsownsectioncoveringmethodologicalguidanceonthefollowingelements:48•Assetclassdefinition•Emissionscopescovered•Attributionofemissions•Equationstocalculatefinancedemissions•Datarequired•Otherconsiderations•LimitationsGuidanceforcalculatingabsoluteemissionsiscoveredineachassetclassmethod.Guidanceforcalculatingavoidedemissionsisprovidedintheprojectfinancemethodonly.Methodsforcalculatingemissionremovalsareprovidedinthreeassetclasses:listedequityandcorporatebonds,businessloansandunlistedequity,andprojectfinance.49ThisisaninitiallistofassetclassescoveredbyPCAF.Theinitiative,withguidancefromPCAFparticipantsandusers,intendstobothupdatethemethodologiesovertimeandaddadditionalones.Developinganaccurate,comparable,feasible,andbroad-basedstandardcoveringnumerousassetclasseswillbeaniterativeprocess.Howtochoosetherightassetclassmethod?Howfinancedemissionsaremeasuredmayvarybythetypeoffinancingprovidedtotheborrowerandinvesteeandwhatisknownabouttheflowofthemoney.FinancialinstitutionsshoulduseFigure5-1andtheguidancethatfollowstoselecttheappropriateassetclassmethod.48Thesearethecoreelementsineachassetclassmethod.Somechaptersincludeadditionalinformation,whererelevantandspecifictotheassetclass..49Definitionsofabsoluteemissions,avoidedemissions,andemissionremovalscanbefoundinChapter2andintheglossary(Chapter7).45FinancedEmissions–SecondEdition–Figure5-1intendstohelpfinancialinstitutionsselecttheappropriateassetclassmethodformeasuringfinancedemissions.Theflowchartshouldbereadfromlefttoright,witheachcolumnrepresentingachoicetobemadebythefinancialinstitutionbeforeultimatelydeterminingtheappropriateassetclassmethod.Beginningwiththefar-leftsideofthefigure,financialinstitutionsshouldselectthetypeandsourceoffinancingprovided.50Thechoicesare:•Corporatefinance:Financeprovidedtocompanies,suchaslistedequity,corporatebonds,andbusinessloansandequityinvestmentsinprivatecompanies(i.e.,unlistedequity).•Projectfinance:Financingprovidedtoprojects—suchasenergy,power,industrial,infrastructure,andagriculturalprojects—thatrelyprimarilyontheproject’scashflowforrepayment.•Consumerfinance:Financeprovidedtoindividualandhouseholdconsumers,suchasmortgagesandmotorvehicleloans.AsdescribedinChapter4,“followthemoney”isakeytenetforGHGaccountingoffinancialassets.Themoneyshouldbefollowedasfaraspossibletounderstandandaccountfortheclimateimpactoflendingandinvestments.ThenextcolumnsinFigure5-1relatetohowmuchisknownabouthowtheborrowerorinvesteeusedthemoneyandtheactivityforwhichthefinancingwasused.The“Useofproceeds”column,atermdefinedbytheGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandard,distinguishesbetweeninvestmentsandloanswithknownandunknownuseofproceeds.Knownuseofproceedsrelatestoinvestmentsandloansforspecific(corporateorconsumer)purposes,i.e.,thefinancialinstitutionknowsforwhatactivitythemoneyisused.Ontheotherhand,unknownuseofproceedsreferstoinvestmentsandloansforgeneral(corporateorconsumer)purposes,i.e.,thefinancialinstitutiondoesnotknowexactlyforwhatactivitythemoneyisused,whichholdsforgeneral-purposeloans.Bothtermswillbeusedthroughoutthefollowingsubchapters.Forthecolumnlabeled“Useofproceeds”thefinancialinstitutionshouldselect“Known”or“Unknown”dependingonwhetherinformationisheldonhowtheborrowerorinvesteeusesthemoneyprovided.Iftheuseofproceedsis“Unknown,”thetileoptioninthenextcolumn,“Activitysector,”willdefaultto“All.”Iftheuseofproceedsis“Known,”thefinancialinstitutionwillberequiredtoselectthespecificactivitysectortowhichtheloanorinvestmentwasprovided.Loansandinvestmentscanbeusedtofinancedifferentproductsandactivitiesinvarioussectors.Thespecificmethodologyforcalculatingfinancedemissionsinthesesectorscandiffer,asdescribedinthemethodsforcommercialrealestate(CRE),mortgages,andmotorvehicleloans.Financedemissionsinallothersectorsaretreatedthesameway-see“Allother”inFigure5-1.ThismaychangeovertimeiffinancialinstitutionssolicitPCAFtodevelopadditionalaccountingrulesandguidanceforothersectors,e.g.,financialproductsforshippingoraviation.50Equityisdefinedasownershipinthecompanyorproject.Debtisdefinedasafinancinginstrumentthatrequiresrepaymentbytheborrower.46FinancedEmissions–SecondEdition–ByfollowingtheguidanceinFigure5-1thusfar,financialinstitutionsshouldknowtheappropriateassetclassmethod(s)tousetostartestimatingthefinancedemissionsoftheirportfolio.Eachassetclassmethodcurrentlyonlycoversfinancialproductsthatareonthebalancesheetofthefinancialinstitutionandormanagedbyassetmanagersatthefiscalyear-end.Thismeansthatfinancedemissionsfromproductssuchasrevolvingcreditfacilities,bridgeloans,andlettersofcreditareonlyconsideredifthereisoutstandingfinanceonthebalancesheetofthefinancialinstitutionatfinancialyear-end.Inasimilarfashion,assetsheldforshortdurationsordesignatedasheldforsalearenotincludedintheFinancedEmissionsStandard.PCAFwilldiscussonhowtotreatsuchfinancinginthefutureandwillprovidemoreguidanceinlatereditionsoftheStandard.TheFinancedEmissionsStandardonlyprovidesguidanceonthesevenassetclassesmentionedbefore.Table5-1definestheseassetclasses,includinginformationonthefinancialproductsbeingcoveredbytherespectiveassetclassandthelocationinthedocumentwherespecificguidancecanbefound.TheFinancedEmissionsStandarddoesnotprovideexplicitguidanceonmethodstocalculatefinancedemissionsforeveryfinancialproductincludingthefollowing:privateequitythatreferstoinvestmentfunds,greenbonds,loansforsecuritization,exchangetradedfunds,derivatives(e.g.,futures,options,swaps),initialpublicoffering(IPO)underwriting,andmore.MoredetailedguidanceonsuchfinancialproductswillbeconsideredandpotentiallypublishedinlatereditionsoftheFinancedEmissionsStandard.47FinancedEmissions–SecondEdition–Table5-1.ListofassetclassesAssetclassDefinitionFurtherguidanceListedequityandcorporatebondsThisassetclassincludesallon-balancesheetlistedcorporatebondsandallon-balancesheetlistedequity51thataretradedonamarketandareforgeneralcorporatepurposes,i.e.,unknownuseofproceedsasdefinedbytheGHGProtocol.Subchapter5.1BusinessloansandunlistedequityThisassetclasscomprisesbusinessloansandequityinvestmentsinprivatecompanies,alsoreferredtoasunlistedequity.Businessloansincludeallon-balancesheetloansandlinesofcredittobusinesses,nonprofits,andanyotherstructureoforganization52thatarenottradedonamarketandareforgeneralcorporatepurposes,i.e.,withunknownuseofproceedsasdefinedbytheGHGProtocol.Unlistedequityincludesallon-balancesheetequityinvestmentstobusinesses,nonprofits,andanyotherstructureoforganizationthatarenottradedonamarketandareforgeneralcorporatepurposes,i.e.,withunknownuseofproceedsasdefinedbytheGHGProtocol.Subchapter5.2ProjectfinanceThisassetclassincludesallon-balancesheetloansorequitiestoprojectsoractivitiesthataredesignatedforspecificpurposes,i.e.,withknownuseofproceedsasdefinedbytheGHGProtocol.Thefinancingisdesignatedforadefinedactivityorsetofactivities,suchastheconstructionandoperationofagas-firedpowerplant,awindorsolarproject,orenergyefficiencyprojects.Subchapter5.3CommercialrealestateThisassetclassincludeson-balancesheetloansforspecificcorporatepurposes,namelythepurchaseandrefinanceofcommercialrealestate(CRE),andon-balancesheetinvestmentsinCREwhenthefinancialinstitutionhasnooperationalcontrolovertheproperty.Thisdefinitionimpliesthatthepropertyisusedforcommercialpurposes,suchasretail,hotels,officespace,industrial,orlargemultifamilyrentals.Inallcases,theownerofthebuildingusesthepropertytoconductincome-generatingactivities.Subchapter5.4MortgagesThisassetclassincludeson-balancesheetloansforspecificconsumerpurposes-namelythepurchaseandrefinanceofresidentialproperty,includingindividualhomesandmulti-familyhousingwithasmallnumberofunits.Thisdefinitionimpliesthatthepropertyisusedonlyforresidentialpurposesandnotforcommercialactivities.Subchapter5.5MotorvehicleloansThisassetclassreferstoon-balancesheetloansandlinesofcredittobusinessesandconsumersforspecific(corporateorconsumer)purposes-namelythefinanceoneorseveral53motorvehicles.Subchapter5.6SovereigndebtThisassetclassincludessovereignbondsandsovereignloansofallmaturitiesissuedindomesticorforeigncurrencies.Bothsovereignloansandbondsleadtothetransferoffundstothecountry,whichinturncreatesadebtobligationtoberepaidbytheborrowingcountry.Subchapter5.751Listedequityreferstoequitythatistradedonastockexchangeoranothersecuritiesexchange.52Thisalsoincludesgovernmental-ownedenterprises(e.g.,state-ownedcompaniessuchasmunicipalenergyorpublictransportproviders),whileloanstogovernmentsthemselvesareexcluded.LoanstogovernmentswillbecoveredinalatereditionoftheStandard.53Asingleloanmightcoverthepurchaseofseveralvehiclesorfleets.Inanycase,themethodologypresentedinthischaptershouldbeused.48FinancedEmissions–SecondEdition–Figure5-1.GuidanceforchoosinganapproachtocalculatefinancedemissionsAllAllAllAllRealestateAllAllAllotherAllAllAllotherMotorVehicleMotorVehicleRealestateRealestateUnknownUnknownKnownKnownUnknownUnknownUnknownUnknownKnownKnownKnownCorporateﬁnanceProjectﬁnanceConsumerﬁnanceListedequity(equity)Equity&loans(equity&debt)Equityinprivatecompanies(equity)Corporatebonds(debt)Loans(debt)SovereigndebtLoans(debt)Assetclass(asdefinedbyPCAF)ActivitysectorUseofproceedsFinancingtype&sourceListedequityandcorporatebondsBusinessloansandunlistedequityCommercialrealestateSovereigndebtMotorvehicleloansProjectﬁnanceNotyetdevelopedbyPCAFMortgages5.1Listedequityandcorporatebonds5.1ListedequityandcorporatebondsIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6CHAPTER5Reviewandapplyaccountingmethodologiesforeachassetclass50FinancedEmissions–SecondEdition–AssetclassdefinitionThisassetclassincludesallon-balancesheetlistedcorporatebondsandallon-balancesheetlistedequity54thataretradedonamarketandareforgeneralcorporatepurposes(i.e.,unknownuseofproceedsasdefinedbytheGHGProtocol).Theseinclude:•Alltypesofcorporatebondsforgeneralcorporatepurposes•Commonstock•PreferredstockForindirectinvestments(e.g.,investmentsinfunds)thatincorporatelistedequityandbonds,themethodologicalapproachisthesameprovidedtheinformationontheindividualholdingsisavailable.Greenbonds,sovereigndebt,andderivativefinancialproducts(e.g.,futures,options,swaps)arenotcoveredbythisassetclass.ThesameholdsforshortandlongpositionsorspecialcasesofunderwritingsuchasIPOunderwriting.GuidanceonsuchfinancialproductsarestillunderdevelopmentandwillbepublishedinlatereditionsoftheFinancedEmissionsStandard.Assetsheldforshortdurationsanddesignatedasheldforsalearenotinscope.Theseassetsmayinclude,butnotbelimitedto,tradingaccountassetsanddebtsecuritiescarriedatfairvalue.Equityinvestmentsinprivatecompaniesarenotcoveredbythisassetclassbecausethatisfinancenottradedonamarket.Formoreinformationonequityinvestmentsinprivatecompanies,pleaserefertothebusinessloansandunlistedequityassetclass.EmissionscopescoveredFinancialinstitutionsshallreporttheabsolutescope1andscope2emissionsofborrowersandinvesteesacrossallsectors.Forreportingthescope3emissionsofborrowersandinvestees,PCAFfollowsaphase-inapproachwhichrequiresscope3reportingforlendingtoandmakinginvestmentsincompaniesdependingonthesectorinwhichtheyareactive,i.e.,wheretheyearnrevenues.Forsectorswherescope3emissionsreportingisrequired,thefinancialinstitutionsshallseparatelydisclosetheseabsolutescope3emissions,includingthespecificsectorscovered.Separatereportingallowsforfulltransparencywhileacknowledgingpotentialdoublecountingissueswhenaddingthesetothescope1and2emissionsofborrowersandinvestees.PCAFacknowledgesthat,todate,thecomparability,coverage,transparency,andreliabilityofscope3datastillvariesgreatlypersectoranddatasource.Byrequiringscope3reportingforselectedsectorsovertime,PCAFseekstomakescope3emissionsreportingmorecommonbyimprovingdataavailabilityandqualityovertime.54Listedequityreferstoequitythatistradedonastockexchangeoranothersecuritiesexchange.51FinancedEmissions–SecondEdition–Financialinstitutionsshallexplainiftheyarenotabletoreporttherequiredscope3emissionsbecauseofdataavailabilityoruncertainty.ForallsectorswherePCAFdoesnotyetrequirescope3emissionsreporting,financialinstitutionsshouldfollowtheGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandardandonlyaccountforscope3emissionswhererelevant.PCAFprovidesasectorlistdetailingwherescope3emissionsofborrowersandinvesteesarerequiredtobereported(seeTable5-2).ThesectorlistofPCAFalignswiththescope3phase-inapproachasdefinedbytheEUTEG,whichwasincludedinArticle5oftheCommissionDelegatedRegulation(EU)2020/1818of17July2020SupplementingtheRegulation(EU)2016/1011oftheEuropeanParliamentandoftheCouncilasregardsminimumstandardsforEUClimateTransitionBenchmarksandEUParis-alignedBenchmarks.Inpractice,thismeansthatfinancialinstitutionsshallstartreportingscope3emissionsfortheoil,gas,andminingsectorsfrom2021onwardandadditionalsectorswillbeaddedfrom2023.Intheyearstoward2023,PCAFwillmonitorthedataavailabilityandimpactfortheseadditionalsectorsandwillprovideadditionalguidanceonthereportingrequirements.TheaboverequirementforallFIstostartreportingonthescope3emissionsofborrowersorinvesteesinthereferencedsectorsisaPCAFrequirement.Thelegislationonwhichthisphase-inapproachisbasedcurrentlyapplieslegallyonlytothemethodologyofEUclimatebenchmarks.Table5-2.Listofsectorswithrequiredscope3emissionsinclusionasdefinedbytheEUTEG55Phase-inperiodNACELevel2(L2)sectorsconsideredForreportspublishedin2021onwardsAtleastenergy(oil&gas)andmining(i.e.,NACEL2:05-09,19,20)Forreportspublishedin2023onwardsAtleasttransportation,construction,buildings,materials,andindustrialactivities(i.e.,NACEL2:10-18,21-33,41-43,49-53,81)Forreportspublishedin2025onwardsEverysectorAttributionofemissionsAsabasicattributionprinciple,thefinancialinstitutionaccountsforaportionoftheannualemissionsofthefinancedcompanydeterminedbytheratiobetweentheinstitution’soutstandingamount(numerator)andthevalueofthefinancedcompany(denominator).Thisratioiscalledtheattributionfactor.5655NACEistheabbreviationfortheStatisticalClassificationofEconomicActivitiesintheEuropeanCommunity.TheNACEsectorcodesprovidedinthetableareidenticaltothecodesofthelnternationalStandardIndustrialClassificationofAllEconomicActivities(ISIC)oftheUN(seeISICREV.4).Non-EuropeanfinancialinstitutionsarereferredtotheISICclassificationifthisclassificationbetterservestheirneeds.56Theattributionfactorcalculationis,inprinciple,onlypossibleforlistedequityandcorporatebondswherefinancialdataspecifictotheborrowerorinvesteeisavailable.Forlistedequityandcorporatebondswheresuchdataisunavailable,theattributionfactorcannotbecalculated,butroughestimationsonattributioncanstillbemadebasedonregion-andsector-specificaveragefinancialdataandtheoutstandingamount.ThisisexplainedinmoredetailintheEquationstocalculatefinancedemissionsandDatarequiredsectionsbelow(seeOption3bandOption3c).52FinancedEmissions–SecondEdition–1.Outstandingamount(numerator):Thisistheactualoutstandingamountinlistedequityorcorporatebonds.Itshouldbedefinedinlinewiththedenominator.Therefore,thevalueofoutstandinglistedequityisdefinedbasedonitsmarketvalue(i.e.,marketpricetimesnumberofshares),andthevalueofoutstandingcorporatebondsisdefinedbasedonthebookvalueofthedebtthattheborrowerowestothelender.Financialinstitutionsshouldeitherusethecalendarorfinancialyear-endoutstandingamount,providedtheapproachiscommunicatedclearlyandusedconsistently.2.Companyvalue(denominator):Foralllistedcompanies,thisistheenterprisevalueincludingcash(EVIC)oftherespectivecompany.Onlyfortradedbondstoprivatecompaniesisthisthesumoftotalcompanyequity57anddebt,58whichcanbefoundontheclient’sbalancesheet,asnomarketvalueforequityisavailable.59Forlistedcompanies:𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓!=𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎!𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶ℎ!Forbondstoprivatecompanies:𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓!=𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎!𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑!(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑐𝑐=𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑜𝑜𝑜𝑜𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐)57Incaseswherethetotalcompanyequityvalueaccordingtotheclient’sbalancesheetisnegative,thefinancialinstitutionshallsettotalequityto0;thismeansthatallemissionsareattributedtodebtonly,whilenoemissionsareattributedtoequityinvestments.Suchcasescanhappenwhentheretainedearningsarenegativewhileatthesametimebeinghigherthantheotherequitycomponentsonthebalancesheetoftheclient—e.g.,thisoftenholdsforstartupsthathavehighnegativeprofitsduringtheirfirstyearsofoperation.Bythisapproach,forthosecompaniesthataredoingwell(i.e.,theyhavehighretainedearnings),financialinstitutionsattributemoreemissionstoequityproviders;forthosecompaniesdoingpoorly(i.e.,theyhavehighretainedlosses),financialinstitutionsattributemoreemissionstodebtproviders.Thisisinlinewiththeattributionfactorrationaleforlistedcompanies,wheretheequitypartofEVIC(i.e.,marketcapitalization)alsoimplicitlyreflectsretainedearningsandlosses(e.g.,ifretainedearningsincrease,thesharepriceandmarketcapitalizationgenerallyalsoincrease).58Totaldebtincludesbothcurrentandlong-termdebtonthebalancesheet.59Iftotaldebtortotalequitycannotbeobtainedfromaclient’sbalancesheetforwhateverreason(e.g.,forsomeitmightbedifficulttoobtainthesevalues),financialinstitutionsareallowedtofallbacktothetotalbalancesheetvalue(i.e.,thesumoftotalequityandliabilities,whichisequaltotheclient’stotalassets)withtheintentionofimprovingthisdataqualityinthefuture.53FinancedEmissions–SecondEdition–EVICisdefinedas:Thesumofthemarketcapitalizationofordinarysharesatfiscalyear-end,themarketcapitalizationofpreferredsharesatfiscalyear-end,andthebookvaluesoftotaldebt60andminorities’interests.Nodeductionsofcashorcashequivalentsaremadetoavoidthepossibilityofnegativeenterprisevalues.61PCAFchosetoalignthedefinitionofEVICwiththedefinitionprovidedbythe:1.EUTEGinitsHandbookofClimateTransitionBenchmarks,Paris-AlignedBenchmarkandBenchmarks’ESGDisclosure622.CommissionDelegatedRegulation(EU)2020/1818of17July2020SupplementingRegulation(EU)2016/1011oftheEuropeanParliamentandoftheCouncilasregardsminimumstandardsforEUClimateTransitionBenchmarksandEUParis-alignedBenchmarks,whichsaysEVICshouldbeusedtodeterminetheGHGintensitiesforthebenchmarks.Box5furtherclarifiestherationaleforusingEVICintheattributionfactoroflistedequityandcorporatebonds.60InitsEVICdefinition,theEUTEGrefersto“thebookvaluesoftotaldebt,”includingalldebtaslistedonthecompanybalancesheet.Thisisdifferentfromsomeaccountingdefinitionsofbookvalueofdebt,whichexcludesomeelementslikenon-interest-bearingdebt(alsoseenextfootnoteonprecautionaryprinciple).61ThisisthestandarddefinitionofEVICasprovidedbytheEUTEG.Forconsistencyreasons,PCAFdecidedtoalignwiththisdefinitiontoensuremaximumalignmentonmetricsinthemarket,whichalsoenablesdataproviderstocollectdatainaconsistentway.Inreality,specificelementsofEVICmightnotbereadilyavailablebecausedataprovidersarestillworkingonaligningtheirdatawiththisdefinition.Forcaseswheredataismissing,theEUTEG(pg.16initshandbookofclimate-relatedbenchmarks)recommendsconductingcorporateGHGdataestimationsbasedontheUN’s(1992)precautionaryprinciple:“Ifindoubt,erronthesideoftheplanetnotthesideofthecompany.”FollowingthisprecautionaryapproachforEVICcalculations,financialinstitutionscandecidetoexcludeelementsoftheEVIC(e.g.,minorityinterestsorcertainelementsofthebookvalueofdebt)asthiswouldleadtoaslightlylowerEVICandhigherattributionoffinancedemissionstotheirownoutstandingamount.TheseslightdeviationsfromthestandardEVICdefinitionareallowedaslongas:(1)theyareinlinewiththisprecautionaryprinciple,and(2)thebasisoftheEVICdefinitionstillincludesthemarketvalueofequity(marketcapitalization)plusthetotalbookvalueofdebtofanygivencompany.62(EUTechnicalExpertGrouponSustainableFinance,2019)54FinancedEmissions–SecondEdition–Box5.RationaleforEVICasdenominatorintheattributionfactorAsdescribedinsubchapter4.2oftheStandard,PCAFappliesthesamegeneralattributionprinciplesacrossallassetclasseseventhoughtheactualequationsandunderlying(financial)datasourcesmightdifferperassetclass.Thisprincipledefinesthattheattributionfactorforallassetclassesiscalculatedbydeterminingtheattributionfactoroftheoutstandingamountofafinancialinstitutionoverthetotalequityanddebtofthecompany,project,property,etc.inwhichthefinancialinstitutionisinvested.Applyingthisprinciplemeansthat,fortheattributionoflistedcompanies,ametricneededtobedefinedthatincludesboththeequityanddebtofalistedcompany.EVICwasselectedastheattributionmetricforlistedequityandcorporatebondsbecauseit:•IncludesbothequityanddebtinlinewithPCAFattributionprinciplesandotherassetclasses,ensuringalignmentwithsimilarassetclasses(e.g.,businessloans).•Isacommonmetricinthefinancialsectorofacompany’stotalvalueandisexpectedtogainmoredominancebecauseofitsadoptionbytheEUTEGandthebenchmarkregulation.•Isbasedoncompanydata(marketvalueofequityandtotalbookvalueofdebt),whichisgenerallyavailabletofinancialinstitutionsanddataproviders.TheavailabilityofthisdataisexpectedtobefurtherimprovedduetotheEUclimatebenchmarksregulation,whichwillstimulatedataproviderstocollectEVICdata.•Includesmarketvaluationofequity,whichisthemostcommonapproachinthefinancialsectortodeterminecompanyownership.•Avoidsissueswithnegativeenterprisevaluesduetotheinclusionofcash(notdeductingcashasintheregularenterprisevaluedefinition)aswellasissueswithattributingmorethan100%ofacompany’semissionstofinancialinstitutions.ThesimplifiedexamplebelowhighlightshowEVICensures100%attributionofcompanyemissionsbynotdeductingcash.ExampleCompany:Equity=50,Debt=50,Cash=20ApproachesEnterprisevalueAttributiontoequityAttributiontodebtTotalEVexcl.cash(standard)50+50-20=8050/80=63%50/80=63%>100%EVincl.cash50+50=10050/100=50%50/100=50%100%ExceptionsIfafinancialinstitutiononlyinvestsinequityandundertakesGHGaccountingfromariskperspective,emissionscouldalsobeattributedtothetotalmarketcapitalization(marketvalueofacompany’soutstandingshares)ofthecompany.Pleasenote,however,thattheFinancedEmissionsStandardisaimingtostandardizeandharmonizeGHGaccountingacrossfinancialinstitutionsandhasaclearpreferenceforusingEVIC.ToenableasmoothtransitionfrommarketcapitalizationtousingEVIC,theexceptiontousetotalmarketcapitalizationwillremainpossibleforamaximumof2years(endingin2023).55FinancedEmissions–SecondEdition–EquationstocalculatefinancedemissionsThefinancedemissionsofaloanorinvestmentinacompanyarecalculatedbymultiplyingtheattributionfactorbytheemissionsoftherespectiveborrowerorinvesteecompany.Thetotalfinancedemissionsofalistedequityandcorporatebondsportfolioarecalculatedasfollows:63𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒=@𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓!×𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒!!(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑐𝑐=𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑜𝑜𝑜𝑜𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐)Theattributionfactorrepresentstheproportionalshareofagivencompany—thatis,theratiooftheoutstandingamounttoEVICforlistedcompaniesandthetotalequityanddebtforbondstoprivatecompanies:Forlistedcompanies:𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒=@𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎!𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶ℎ!×𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒!!Forbondstoprivatecompanies:𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑑𝑑𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒=@𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎!𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑!×𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒!!(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑐𝑐=𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑜𝑜𝑜𝑜𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐)Thefinancedemissionsfromlistedequityandcorporatebondscanbecalculatedindifferentwaysdependingontheavailabilityoffinancialandemissionsdataspecifictotheborrowerandinvestee.Overall,PCAFdistinguishesthreedifferentoptionstocalculatethefinancedemissionsfromlistedequityandcorporatebondsdependingontheemissionsdataused:63Whereinafinancialinstitutionislendingtoorinvestinginasubsidiaryofalargerentity,theattributionshouldbeaccountedatthesubsidiarylevelaccordingtothe“followthemoney”principle,ifthefinancialinstitutionhasbalancesheetinformationonthesubsidiary.Ifthesubsidiary’sbalancesheetisunavailable,thefinancialinstitutionshouldcalculatetheattributionfactorbasedonthetotalbalancesheetoftheentitytowhomthefinancialinstitutionhasrecourseforrepaymentoftheloan.56FinancedEmissions–SecondEdition–•Option1:reportedemissions,whereverified64orunverified65emissionsarecollectedfromtheborrowerorinvesteecompanydirectly(e.g.,companysustainabilityreport)orindirectlyviaverifiedthird-partydataproviders(e.g.,CDP)andthenallocatedtothereportingfinancialinstitutionsusingtheattributionfactor.•Option2:physicalactivity-basedemissions,whereemissionsareestimatedbythereportingfinancialinstitutionbasedonprimaryphysicalactivitydatacollectedfromtheborrowerorinvesteecompany(e.g.,megawatt-hoursofnaturalgasconsumedortonsofsteelproduced)andthenallocatedtothereportingfinancialinstitutionusingtheattributionfactor.Theemissionsdatashouldbeestimatedusinganappropriatecalculationmethodologyortoolwithverifiedemissionfactorsexpressedperphysicalactivity(e.g.,tCO2e/MWhortCO2e/tofsteel)issuedorapprovedbyacredibleindependentbody.•Option3:economicactivity-basedemissions,whereemissionsareestimatedbythereportingfinancialinstitutionbasedoneconomicactivitydatacollectedfromtheborrowerorinvesteecompany(e.g.,euro/dollarofrevenueoreuro/dollarofsectoralassets)andthenallocatedtothereportingfinancialinstitutionusingtheattributionfactor.Theemissionsdatashouldbeestimatedusingofficialstatisticaldataoracknowledgedenvironmentallyextendedinput-output(EEIO)tablesprovidingregion-orsector-specificaverageemissionfactorsexpressedpereconomicactivity(e.g.,tCO2e/€or$ofrevenueortCO2e/€or$ofsectoralassets).66DatarequiredPCAFdistinguishesthreeoptionstocalculatethefinancedemissionsfromlistedequityandcorporatebondsdependingontheemissionsdataused:•Option1:reportedemissions•Option2:physicalactivity-basedemissions•Option3:economicactivity-basedemissionsWhileOptions1and2arebasedoncompany-specificreportedemissionsorprimaryphysicalactivitydataprovidedbytheborrowerorinvesteeorthird-partydataproviders,Option3isbasedonregion-orsector-specificaverageemissionsorfinancialdataobtainedfrompublicdatasourcessuchasstatisticsordatafromotherthird-partyproviders.67Options1and2arepreferredoverOption3fromadataqualityperspectivebecausetheyprovidemoreaccurateemissionsresultstoafinancialinstitution.Duetodatalimitations,financialinstitutionsmightuseOptions1or2forcertaincompaniesandOption3forothers.Thedataqualitymixshallbereflectedintheaveragedataqualityscore,asChapter6illustrates.64ThisreferstoreportedemissionsbeingcalculatedinlinewiththeGHGProtocolandverifiedbyathird-partyauditor.65ThisreferstoreportedemissionsbeingcalculatedinlinewiththeGHGProtocolwithoutverificationbyathird-partyauditor.Unverifiedreportedemissionscanbecalculatedbyeitheranexternalpartyorbytheborrowerorinvesteecompanyitself.66SamplingtestsbasedonactualdataonthecompanylevelextrapolatedtotheportfoliolevelcanhelptotesttheaccuracyofcalculationsbasedonthisdatafromstatisticsorEEIOtables.Thismayalsobeusedtorefinethedataforspecificsectorsorregionsifthereportingfinancialinstitutionhasastrongpresenceinandspecificknowledgeoftherespectivesectororregion.Nationalagenciesandregionaldataprovidersorstatisticalofficesinindividualregionsmayassistreportingfinancialinstitutionsandinvesteecompaniesinvariousregionsinfindingregionalandmorerelevantfinancialoremissionsdatainformation.67Option1andOption2werecalled“Approach1:companyspecificapproach”andOption3wascalled“Approach2:Sector/regionaverageapproximation”inthereportproducedbythePCAFDutchteam:(PCAF,2019).57FinancedEmissions–SecondEdition–Table5-3providesdataqualityscoresforeachofthedescribedoptionsandsub-options(ifapplicable)thatcanbeusedtocalculatethefinancedemissionsforlistedequityandcorporatebonds.Table5-3.Generaldescriptionofthedataqualityscoretableforlistedequityandcorporatebonds68(score1=highestdataquality;score5=lowestdataquality)DataQualityOptionstoestimatethefinancedemissionsWhentouseeachoptionScore1Option1:Reportedemissions1aOutstandingamountinthecompanyandEVICareknown.Verifiedemissionsofthecompanyareavailable.Score21bOutstandingamountinthecompanyandEVICareknown.Unverifiedemissionscalculatedbythecompanyareavailable.Option2:Physicalactivity-basedemissions2a69OutstandingamountinthecompanyandEVICareknown.Reportedcompanyemissionsarenotknown.Emissionsarecalculatedusingprimaryphysicalactivitydataofthecompany’senergyconsumptionandemissionfactors70specifictothatprimarydata.Relevantprocessemissionsareadded.Score32bOutstandingamountinthecompanyandEVICareknown.Reportedcompanyemissionsarenotknown.Emissionsarecalculatedusingprimaryphysicalactivitydataofthecompany’sproductionandemissionfactorsspecifictothatprimarydata.Score4Option3:Economicactivity-basedemissions3aOutstandingamountinthecompany,EVIC,andthecompany’srevenue71areknown.Emissionfactorsforthesectorperunitofrevenueareknown(e.g.,tCO2epereuroordollarofrevenueearnedinasector).Score53bOutstandingamountinthecompanyisknown.Emissionfactorsforthesectorperunitofasset(e.g.,tCO2epereuroordollarofassetinasector)areknown.3cOutstandingamountinthecompanyisknown.Emissionfactorsforthesectorperunitofrevenue(e.g.,tCO2epereuroordollarofrevenueearnedinasector)andassetturnoverratiosforthesectorareknown.Adetailedsummaryofthedataqualityscoretable,includingdataneedsandequationstocalculatefinancedemissions,isprovidedinAnnex10.1(Table10.1-1).DataforallthreeoptionsinTable5-3canbederivedfromdifferentdatasources.68Forbondstoprivatecompanies,EVICisdefinedasthetotalequityanddebtoftherespectivecompany.69ThequalityscoringfortheOption2aisonlypossiblefor/applicabletoscope1andscope2emissionsasscope3emissionscannotbeestimatedbythisoption.Otheroptionscanbeusedtoestimatethescope3emissions,however.70Supplier-specificemissionfactors(e.g.,fromelectricityprovider)fortherespectiveprimaryactivitydataarealwayspreferredovernon-supplier-specificemissionfactors.71Ifrevenueisnotdeemedasuitablefinancialindicatorforestimatingtheemissionsofacompanyinacertainsector,onecanapplyothersuitablefinancialindicatorsasaproxy.Ifanalternativeindicatorisused,thereasoningfortheselectionofthisalternativeindicatorshouldbemadetransparent.Thedataqualityscorewillnotbeaffected.58FinancedEmissions–SecondEdition–OfficialcompanyfilingsWhereavailable,PCAFrecommendsusingemissionsdatareportedbycompanies,giventhedatafullycoversacompany’semissions-generatingactivitiesdisclosedinofficialfilingsandenvironmentalreports.Themostrecentavailabledatashouldbeusedwithmentiontothedatasource,reportingperiod,orpublicationdate.UsingthisdataisinlinewithOption1.Dataproviders(Option1)ForOption1(reportedemissions),PCAFrecommendseithercollectingemissionsfromtheborrowerorinvesteecompanydirectly(e.g.,companysustainabilityreport)orthird-partydataproviders,suchasCDP,Bloomberg,MSCI,Sustainalytics,S&P/Trucost,andISSESG.Dataproviderstypicallymakescope1and2emissionsdataavailable.PCAFencouragesusingthemostrecentavailabledataandtomentionthedatasource,reportingperiod,orpublicationdate.Dataproviderscollectemissionsdataasreportedbythecompaniesthemselves,eitherthroughastandardizedframeworksuchasCDPorthroughacompany’sowndisclosuresinofficialfilingsandenvironmentalreports.Theyoftenhavetheirownmethodologiestoestimate/calculatecompanies’emissions,especiallyifthisdataisnotreported.Inthiscase,thecalculationwouldbeinlinewithOptions2or3,assumingthemethodologyusedisinlinewiththeGHGProtocol.Financialinstitutionsshouldaskdataproviderstobetransparent,disclosethecalculationmethodtheyuse,andconfirmalignmentwiththeGHGProtocol.Thiswillenablefinancialinstitutionstoapplytheproperscoretothedata.PCAFalsoencouragesdataproviderstoapplythePCAFscoringmethodtotheirowndata,whichwouldallowthemtosharethedataqualityscoresdirectlywiththeirclients.PCAFdoesnotrecommendapreferreddatavendor.PCAFrecommendsusingdataprovidersthatusethestandardizedCDPframeworkandsuggestsdataprovidersdisclosethedataqualityscoreaccordingtothescoringhierarchyinTable5-3.72Whenusingdataproviders,PCAFrecommendsusingthesameproviderforallequityandbondsduetovariabilityofscope1and2emissionsobservedbyproviders.Estimationmodels(Option2and3)Notallcompaniesdisclosetheiremissionsdatainofficialfilingsorthroughdataproviders.Reportinginemergingmarketsoftenlagsthatofdevelopedmarkets.Tomaximizethecoverageofemissionsdata,theremaininggapsareoftenfilledwithestimates.Ifnodataisavailable,estimationmodelsconsistentwiththeemissionsfromtheprimarybusinessactivitymaybeused.Emissionfactorsfromproduction-basedmodels(i.e.,emissionintensityperphysicalactivity)arepreferredoveremissionfactorsfromrevenue-basedmodels(i.e.,emissionintensityperrevenue)becausetheformerarelesssensitivetofluctuationsinexchangeratesorcommodityprices.Emissionfactorsfromproduction-basedmodelsinlinewithOption2areespeciallyusefulforemission-intensiveindustrieslikeutilities,materials,energy,andindustrials.Emissionfactorsfromrevenue-basedmodelsinlinewithOption3(e.g.,intensity-basedorenvironmentalinput-outputmodels)havetheadvantageofrequiringlessdetaileddatafromthefinancialinstitution.72MoreinformationaboutCDPcanbefoundat:https://www.cdp.net/en59FinancedEmissions–SecondEdition–ForOption2(physicalactivity-basedemissions),PCAFrecommendsusingactualenergyconsumption(e.g.,megawatt-hoursofnaturalgasconsumed)orproduction(e.g.,tonsofsteelproduced)datareportedbycompanies,giventhedatafullycoversthecompany’semissions-generatingactivities.Theemissionfactorsexpressedperphysicalactivityusedshouldbebasedonappropriateandverifiedcalculationmethodologiesortoolsissuedorapprovedbyacredibleindependentinstitution.Exampledatasourcesforretrievingemissionfactorsareecoinvent,73Defra,74IntergovernmentalPanelonClimateChange(IPCC),75GEMIS(GlobalEmissionsModelforintegratedSystems),76andFoodandAgricultureOrganizationoftheUnitedNations(FAO).77Themostrecentavailabledatashouldbeused,includingamentionofthedatasource,reportingperiod,orpublicationdate.ForOption3(economicactivity-basedemissions),PCAFrecommendsusingofficialstatisticaldataoracknowledgedEEIOtablesprovidingregion-orsector-specificaverageemissionfactorsexpressedpereconomicactivity(e.g.,tCO2e/€or$ofrevenueortCO2e/€or$ofsectoralassets).Financialinstitutionsshoulduseemissionfactorsthatareasconsistentaspossiblewiththeprimarybusinessactivityfinanced.Forexample,forabusinessloantoapaddyricefarmer,thefinancialinstitutionshouldseektofindanduseasector-specificaverageemissionfactorforthepaddyricefarmer,thefinancialinstitutionshouldseektofindanduseasector-specificaverageemissionfactorforthepaddyricesectorandnotanemissionfactorfortheagriculturalsectoringeneral.ExampleEEIOdatabasesthatcanbeusedtoobtainsuchemissionfactorsareEXIOBASE,78GlobalTradeAnalysisProject(GTAP),79orWorldInput-OutputDatabase(WIOD).80PCAF’sweb-basedemissionfactordatabaseprovidesalargesetofemissionfactorsforOptions2and3.Thedatabase,whichiscurrentlyavailableonlytoPCAFsignatories,canhelpfinancialinstitutionsgetstartedwithestimatingthefinancedemissionsoftheirinvestments.PCAFexpectsthatthefinancedemissionsformostlistedequityandcorporatebondscanbederivedthrougheitherreportedemissions(Option1),physicalactivitydata(Option2),oreconomicactivitydata(Option3).However,PCAFallowstheuseofalternativeoptionstocalculateemissionsifnoneofthespecifiedoptionscanbeusedorinthecasethatnewoptionsaredeveloped.Thereportingfinancialinstitutionshallalwaysexplainthereasonsforusinganalternativeoptionifitdeviatesfromthethreeoptionsdefinedabove.73Moreinformationcanbefoundat:https://www.ecoinvent.org/74Moreinformationcanbefoundat:https://www.gov.uk/government/publications/greenhouse-gas-reporting-conedition-factors-201975Moreinformationcanbefoundat:https://www.ipcc-nggip.iges.or.jp/EFDB/find_ef.php76Moreinformationcanbefoundat:http://iinas.org/gemis-download.html77Moreinformationcanbefoundat:http://www.fao.org/partnerships/leap/database/ghg-crops/en78Moreinformationcanbefoundat:https://www.exiobase.eu79Moreinformationcanbefoundat:https://www.gtap.agecon.purdue.edu80Moreinformationcanbefoundat:http://www.wiod.org60FinancedEmissions–SecondEdition–EmissionremovalsCompaniesinanFI’sportfolioshouldreportonemissionremovals,whethernature-ortechnology-based,81aspartoftheirGHGreporting.ReportingshouldfollowexistingGHGProtocolguidance,andemissionremovalsshallbereportedseparatelyfrombothabsoluteemissionsandanycarboncreditsretiredandgenerated.Carboncreditsgeneratedbycompaniesshouldbereportedandcarboncreditsretiredmaybereported.Thesefigurescanprovidetransparencyandcontextforthefinancedemissionsandremovals.Ultimately,thegoalofthePCAFFinancedEmissionsStandardistotransparentlyreportthetotalemissionsimpactsoflendingandinvestments,notdilutedbycreditsretiredorgenerated.FIscancalculateattributionofcompanies’reportedemissionremovalsusingtheexistingattributionlogicsetoutinthischapter(seeformulabelow);thissamelogicappliestoanyattributionofcompanies’reportedcreditsretiredorgenerated.OutstandinginvestmentcEVICorTotalcompanyequity+debt)Emissionremovalsc∑×Companyemissionremovalsc(withc=borrowerorinvesteecompany)Exampleaccounting–aportfolioofdifferentcompaniesAnFIinvestsintomultiplecompanieswithdifferentemissionsprofilesasillustratedinthefollowingtable.AllnumbersareintCO2eforthereportingyear2020andaredummydataforthepurposeofthisexample.Table5-4:ExampleofdatainputforcalculatingaportfolioofdifferentcompaniesScope1Scope2Scope3EmissionremovalsCarboncreditsretiredCarboncreditsgeneratedAttributionfactorForestrycompany1,0001005,00020,00005,00010%Industrialcompany20,0005,00030,000025,000025%Energycompany5,000010,0001,0005,00050020%Theportfoliocontainsaforestrycompanythatsellscarboncreditsbasedonitsforestryactivities,anindustrialcompanythatbuyscarboncreditsbasedonforestryactivities,andagreenenergycompanythatbuildsrenewableenergyplantscombinedwithafforestationactivities.TheFIwouldreportaggregatednumbersforthisportfolioperthetablebelow.Thistablesumstheattributedemissionsandcreditsoftheforestry,industrial,andenergycompaniesfromthetableabove.Notethatreportingcarboncreditsretiredbyclientsisoptional.81NotethatnewGHGProtocolguidanceisbeingdevelopedonaccountingforlandsectoractivitiesandCO2removalsincorporateGHGinventories,buildingontheCorporateStandardandScope3Standard.Draftguidanceforthisisexpectedin2022.Wherenecessary,thePCAFGlobalStandardwillbeupdatedinlinewiththefinalversionofthenewGHGProtocolguidance.61FinancedEmissions–SecondEdition–Table5-5:CalculationexampleportfolioofdifferentcompaniesBasedoncompaniesinabovetableCalculationTotalportfolionumberScope1–Absoluteemissions1,000x10%+20,000x25%+5,000x20%6,100Scope2–Absoluteemissions100x10%+5,000x25%1,260Scope3–Absoluteemissions5,000x10%+30,000x25%+10,000x20%10,000Emissionremovals20,000x10%+1,000x20%2,200Carboncreditsretired25,000x25%+5,000x20%7,250Carboncreditsgenerated5,000x10%+500x20%600FIsmayfurthersubdividetheseoverallreportingcategoriesintosubcategories.Forexample,carboncreditsretiredmaybefurtherreportedseparatelybyspecifictypeofcredit(e.g.,emissions“avoidance”versus“removal”)82orclassifiedbasedonthecreditstandard(e.g.,VerifiedCarbonStandard(VCS)orGoldStandard).TheFImaychoosetoseparatelyreport‘net’numbersthatdisplaytotalabsoluteemissionsminustotalemissionremovals,forexample.Nonetheless,forthepurposesofthisFinancedEmissionsStandard,thefundamentalrequirementisthatreportingshouldataminimumincludeseparatenumbersforabsoluteemissionsandemissionremovals,inadditiontoany‘net’numbers.Exampletooltocalculateemissionremovals–theFoREStCarbonSequestration(FRESCOS)ToolFMOhasbeenworkingwiththreeotherEuropeandevelopmentfinanceinstitutions(CDC,Finnfund,andSwedfund)andFinnishforestryexpertSimosoltobuildanonlinetooltoestimatetheamountofcarbonsequesteredthroughplantationandagroforestryoperations,calledtheFRESCOSTool.ThetoolisbuiltupontheIPCCGuidelinesforNationalGHGInventoriesandcanbefoundathttps://www.frescos.earth.WhilePCAFdoesnotendorsetheuseofthistoolspecifically,theFRESCOSToolisanexampleofatoolthatcanbeusedbyFIsasabasisforcalculatingfinancedemissionremovals.TheFRESCOStoolisopenforotherFIsandinterestedpartiestouse.LimitationsMarketvaluefluctuationsWhenusingEVICasthedenominator,calculatedfinancedemissionsmightchangeasaresultoffluctuatingmarketprices.ApplyingcorrectionstoEVICcouldaddressthisissue;however,theapplicationofinconsistentapproachescaninfluenceandreducethecomparabilityofresultsbetweendifferentfinancialinstitutions.Inaddition,correctionscouldtheoreticallybeappliedtomanyothervariables,likeexchangerates,inflation,andemergingversusdevelopedmarkets,furtherreducingcomparability.Forthatreason,allfinancialinstitutionsshallreporttheirunadjustedabsolutefinancedemissionsinaccordancewiththecalculationsrequiredbythePCAFstandard.However,financialinstitutionsmayoptionallyreporttheiradjustedabsolutefinancedemissionswiththerequirementthatsuchamountsmustbedisclosedseparatelyalongwithadescriptionofthemethodology,inputsandmodelsutilizedtocalculatethecorrectionstoEVIC.Bothunadjustedandadjustedabsolutefinanceemissionswillberequiredforallperiodsdisclosedinthefinancialreportsbeingpresented.82Reportingaroundtheuseofcarbonoffsetsmayneedtoevolvebecauseitdoesnotyetconsistentlydistinguishbetweenavoidanceandremovaloffsets.62FinancedEmissions–SecondEdition–Whenassetownersandassetmanagersconvertabsolutefinancedemissionsintoeconomicemissionsintensitybyassetsundermanagement,marketpricefluctuationsalsoinfluencethedenominator.Correctingthisfluctuationcanbeapproachedasillustratedintheexamplebelow.Thisapproachwastestedbyassetownersandassetmanagers.Furtherresearchisneededtoevaluatewhetherthisadjustmentfactorisalsoapplicableforbankswhenusinganeconomicemissionsintensitiesovertotalloanexposure.63FinancedEmissions–SecondEdition–AnapproachforassetownersandmanagerstocorrecteconomicemissionsintensityForassetownersandmanagers,theeconomicemissionintensityisacommonlyusedmetricforreportingandtargetsettingpurposes.Theeconomicemissionintensityisshownintheequationbelowandreflectsabsoluteemissionsassociatedwithinvestmentsnormalizedforthetotalsizeoftheportfolioorassetsundermanagement.OutstandingamountiInvesteecompany'sEVICiEconomicemissionintensityi∑×Investeecompany'semissionsiTotaloutstandingamountorassetsundermanagement(AuM)Whenusingthismetric,especiallythedenominatorisinfluencedbymarketvaluefluctuations.Inabullmarketwherevaluationwouldincrease,allelsekeptequal(GHGemissionsandownershipunchanged),thedenominatorwouldincreaseandasaresulttheeconomicemissionintensitywoulddecrease.Undertheinfluenceofthesefluctuations,anobjectivetoreducetheeconomicemissionintensitybyacertainpercentagebecomesamovingtarget.Thisunderminestheutilityofthemetrictomakecomparisonsfromonetimeperiodtothenext.Toaddressthislimitationregardingtheeconomicemissionintensity,theEUTEGandEUregulationonbenchmarkssuggestthatassetowners/managerscorrectEVICovertimebyapplyinganinflationcorrection.BuildingontheEUinflationcorrection,PCAFrecommendsthatassetowners/managersadjusttheeconomicemissionintensitywiththefollowingadjustmentfactor.Theadjustmentfactorshouldbecalculatedas:ADJb,Ti∑(Withb=baseyearandT=currentyearandWT=benchmarksweightsattimeT)EVICbEVICTwT×Therearetwooptionsforadjustingtheeconomicemissionintensity(backwardorcurrent):1.Theeconomicemissionintensitycanbeadjustedinthebaseyear(backward).Benefitsofadjustingthebaseyeararethatcurrentreportedcarbonfiguresremainunadjusted.Moreover,EVICinflationcorrectionappliedtothebaselinecanbecombinedwithotheradjustmentsthatmayberequired,forexamplefordataimprovementsorachanginguniversecomposition.Tocalculateadjustedeconomicemissionintensityinthebaseyear(b):Economicemissionintensityadjusted(b)=Economicemissionintensity(b)×ADJb,T2.Theeconomicemissionintensitycanalsobeadjustedforthecurrentreportingyear.Benefitsofadjustingthecurrentyearareintuitivenessforannualreporting,wherethefocusisusuallyonthemetricsassociatedwiththecurrentyear.Similarly,whenassessingprogressagainstanobjectivetoreducetheeconomicemissionintensitybyacertainpercentage,itisintuitivetokeepthebaseemissionintensityconsistent.64FinancedEmissions–SecondEdition–Tocalculateadjustedeconomicemissionintensityincurrentreportingyear(T):Economicemissionintensityadjusted(T)=Economicemissionintensity(T)×ADJb,TIfassetowners/managersdecidetoapplythisadjustmentfactor,PCAFrequiresthemtoreportboththeunadjustedasadjustedeconomicemissionsintensityseparately.Fortransparency,ideallytheadjustmentfactorusedandanexplanationofhowthiswasconstructedandappliedwouldalsobeincluded.CalculationexampleofapplyingtheadjustmentfactorBaseyearbCompanyEmissions(tCO2eq)Marketcap(M$)Debt(M$)EVIC(M$)WeightEmissions/EVIC(tCO2eq/M$)A60,000800400120040%50B100,000600400100030%100C120,00040040080020%150D120,00020040060010%200CurrentyearTCompanyEmissions(tCO2eq)Marketcap(M$)Debt(M$)EVIC(M$)WeightEmissions/EVIC(tCO2eq/M$)A60,000960400136040%44B100,000720400112030%89C120,00048040088020%136D120,00024040064010%188Backward/baseyearadjustmentPlain(tCO2eq/M$)Adjusted(tCO2/M$)EVIC_b/EVIC_TAdjustmentCarbonfootprintb10089.60.880.896CarbonfootprintT900.890.910.94CurrentyearadjustmentPlain(tCO2eq/M$)Adjusted(tCO2/M$)EVIC_b/EVIC_TAdjustmentCarbonfootprintb1000.880.896CarbonfootprintT90100.90.890.910.94DecarbonizationAdjustT0.914%DecarbonizationAdjustb0.914%65FinancedEmissions–SecondEdition–OrganizationidentifiersForlargerlistedequityandcorporatebondportfolios,organizationidentifiersshouldbeinplacetocombineinformationfromvarioussources.ExamplesofsuchidentifiersincludetheStockExchangeDailyOfficialList,LegalEntityIdentifier(LEI),InternationalSecuritiesIdentificationNumber(ISIN),andCommitteeonUniformSecurityIdentificationProceduresnumbers(CUSIP).Forlargeportfolios,matchingexternaldatasourcescanbeachallengewhentwocompaniesmerge;theorganizationidentifierswillbeadjustedimmediatelywhileemissionsdataprovidersmightonlyupdatesuchinformationonanannualbasis.5.2Businessloansandunlistedequity5.2BusinessloansandunlistedequityIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6CHAPTER5Reviewandapplyaccountingmethodologiesforeachassetclass67FinancedEmissions–SecondEdition–AssetclassdefinitionThisPCAFassetclasscomprises:•Businessloans•Equityinvestmentsinprivatecompanies,alsoreferredtoasunlistedequityBusinessloansBusinessloansincludeallon-balancesheetloansandlinesofcredittobusinesses,nonprofits,andanyotherstructureoforganization83thatarenottradedonamarketandareforgeneralcorporatepurposes,i.e.,withunknownuseofproceedsasdefinedbytheGHGProtocol.84Revolvingcreditfacilities,overdraftfacilities,andbusinessloanssecuredbyrealestatesuchasCRE-securedlinesofcreditarealsoincluded.Anyoff-balancesheetloansandlinesofcreditareexcluded.Forfinancingproductssuchasrevolvingcreditfacilities,bridgeloans,andlettersofcredit,whicharecommonlyprovidedbyfinancialinstitutions,onlythoseloansoutstandingontheyear-endbalancesheetofthefinancialinstitutionarecoveredbythisassetclass.85Methodsforfinancedemissionsfrombusinessloansforspecificcorporatepurposes(i.e.,withknownuseofproceeds)arenotincludedinthisassetclassbutareinsteadcoveredbytheprojectfinanceassetclass,eveniftheymaynotbestructuredasprojectfinanceperse(seesubchapter5.3).Businessloanstofinancecommercialrealestateormotorvehiclesarealsoconsideredseparateassetclasses—i.e.,CRE(seesubchapter5.4)andmotorvehicleloans(seesubchapter5.6),respectively.86UnlistedequityUnlistedequityincludesallon-balancesheetequityinvestmentstobusinesses,nonprofits,andanyotherstructureoforganizationthatarenottradedonamarketandareforgeneralcorporatepurposes,i.e.,withunknownuseofproceedsasdefinedbytheGHGProtocol.Unlistedequityisalsoreferredtoasequityinvestmentsinprivatecompanies(i.e.,thefinancialinstitutionobtainssharesofthecompany)throughouttheFinancedEmissionsStandard.Privateequitythatreferstoinvestmentfundsisnotincludedinthisassetclass;guidanceonsuchprivateequitywillfollowinlatereditionsoftheFinancedEmissionsStandard.83Thisalsoincludesgovernmental-ownedenterprises(e.g.,state-ownedcompaniessuchasmunicipalenergyorpublictransportproviders),whileloanstogovernmentsthemselvesareexcluded.Loanstogovernments(i.e.,governmentallending)willbecoveredinalatereditionoftheStandard.84Theterm“company”isusedthroughoutthissubchapterbutcanrefertoanytypeoforganization,includingnonprofits.85MoredetailedguidanceonsuchfinancingisunderdevelopmentandwillbepublishedinlatereditionsoftheStandard;thisguidancewillelaboratefurtheronhowtoaccountforthesignificantinterannualfluctuationsofsuchfinancialproductsthatmaynotbecapturedappropriatelywhenonlyconsideringtheyear-endbalancesheetofafinancialinstitution.Fornow,financialinstitutionsshouldbetransparentonanymajorlastminuteincreasesordecreasesatfiscalyear-endbecausethiscanincreaseordecreasethefinancedemissionsfrombusinessloanssignificantly.86Financialinstitutionscanstillreporttheirfinancedemissionsfromsuchbusinessloansforspecificcorporatepurposes(i.e.,withknownuseofproceeds)underanassetclasscalled“businessloans”ifthatisthenamecommonlyusedorpreferredbythefinancialinstitution(e.g.,whenreportinginternallyorexternally).68FinancedEmissions–SecondEdition–EmissionscopescoveredFinancialinstitutionsshallreporttheabsolutescope1andscope2emissionsofborrowersandinvesteesacrossallsectors.Forreportingthescope3emissionsofborrowersandinvestees,PCAFfollowsaphase-inapproachwhichrequiresscope3reportingforlendingtoandmakinginvestmentsincompaniesdependingonthesectorinwhichtheyareactive,i.e.,wheretheyearnrevenues.Forsectorswherescope3emissionsreportingisrequired,thefinancialinstitutionsshallseparatelydisclosetheseabsolutescope3emissions,includingthespecificsectorscovered.Separatereportingallowsforfulltransparencywhileacknowledgingpotentialdoublecountingissueswhenaddingthesetothescope1and2emissionsofborrowersandinvestees.PCAFacknowledgesthat,todate,thecomparability,coverage,transparency,andreliabilityofscope3datastillvariesgreatlypersectoranddatasource.Byrequiringscope3reportingforselectedsectorsovertime,PCAFseekstomakescope3emissionsreportingmorecommonbyimprovingdataavailabilityandqualityovertime.Financialinstitutionsshallexplainiftheyarenotabletoreporttherequiredscope3emissionsbecauseofdataavailabilityoruncertainty.ForallsectorswherePCAFdoesnotyetrequirescope3emissionsreporting,financialinstitutionsshouldfollowtheGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandardandonlyaccountforscope3emissionswhererelevant.PCAFprovidesasectorlistdetailingwherescope3emissionsofborrowersandinvesteesarerequiredtobereported(seeTable5-6).ThesectorlistofPCAFalignswiththescope3phase-inapproachasdefinedbytheEUTEG,whichwasincludedinArticle5oftheCommissionDelegatedRegulation(EU)2020/1818of17July2020,SupplementstheRegulation(EU)2016/1011oftheEuropeanParliamentandoftheCouncilasregardsminimumstandardsforEUClimateTransitionBenchmarksandEUParis-alignedBenchmarks.Inpractice,thismeansthatfinancialinstitutionsshallstartreportingscope3emissionsfortheoil,gas,andminingsectorsfrom2021onwardandadditionalsectorswillbeaddedfrom2023.Intheyearstoward2023,PCAFwillmonitorthedataavailabilityandimpactfortheseadditionalsectorsandwillprovideadditionalguidanceonthereportingrequirements.TheaboverequirementforallFIstostartreportingonthescope3emissionsofborrower/investeecompaniesinthereferencedsectorsisaPCAFrequirement.Thelegislationonwhichthisphase-inapproachisbasedcurrentlyapplieslegallyonlytothemethodologyofEUclimatebenchmarks.69FinancedEmissions–SecondEdition–Table5-6.Listofsectorswithrequiredscope3emissionsinclusionasdefinedbytheEUTEG87PhaseinperiodNACEL2sectorsconsideredForreportspublishedin2021onwardsAtleastenergy(oil&gas)andmining(i.e.,NACEL2:05-09,19,20)Forreportspublishedin2023onwardsAtleasttransportation,construction,buildings,materials,andindustrialactivities(i.e.,NACEL2:10-18,21-33,41-43,49-53,81)Forreportspublishedin2025onwardsEverysectorAttributionofemissionsAsabasicattributionprinciple,thefinancialinstitutionaccountsforaportionoftheannualemissionsoftheborrowerandinvestee,asdeterminedbytheratiobetweentheoutstandingamount(numerator)andthevalueofthefinancedcompany(denominator).Thisratioiscalledtheattributionfactor.881.Outstandingamount(numerator):Thisistheactualoutstandingloanamount.aForbusinessloans,thisisdefinedasthevalueofthedebtthattheborrowerowestothelender(i.e.,disburseddebtminusanyrepayments).Itwillbeadjustedannuallytoreflectthecorrectexposure,resultingintheattributiontodeclineto0attheendofthelifetimeoftheloan(i.e.,whenitisfullyrepaid).bForunlistedequity(i.e.,equityinvestmentsinprivatecompanies),theoutstandingamountistheoutstandingvalueofequitythatthefinancialinstitutionholdsintheprivatecompany.Itiscalculatedbymultiplyingtherelativeshareofthefinancialinstitutionintherespectiveinvestee89bythetotalequityoftherespectiveinvesteeaccordingtoitsbalancesheet.Financialinstitutionsshouldeitherusethecalendarorfinancialyear-endoutstandingamount,providedtheapproachiscommunicatedandusedconsistently.87NACEistheabbreviationfortheStatisticalClassificationofEconomicActivitiesintheEuropeanCommunity.TheNACEsectorcodesprovidedinthetableareidenticaltothecodesoftheISICoftheUN(seeISICREV.4).Non-EuropeanfinancialinstitutionsarereferredtotheISICclassificationifthisclassificationbetterservestheirneeds.88Theattributionfactorcalculationis,inprinciple,onlypossibleforbusinessloansandunlistedequitywhereclient-specificfinancialdataisavailable.Forbusinessloansandunlistedequitywheresuchdataisunavailable,theattributionfactorcannotbecalculatedbutroughestimationsonattributioncanstillbemadebasedonregion-andsector-specificaveragefinancialdataandtheactualoutstandingamount.ThisisexplainedinmoredetailintheEquationstocalculatefinancedemissionsandDatarequiredsectionsbelow(seeOption3bandOption3c).89Therelativeshareofthefinancialinstitutionintherespectiveinvesteeiscalculatedbydividingthenumberofsharesthatthefinancialinstitutionholdsintherespectiveinvesteebythetotalnumberofsharesoftheinvestee.70FinancedEmissions–SecondEdition–2.Companyvalue(denominator):a.Forbusinessloansandequityinvestmentsto/inprivatecompanies,thisisthesumoftotalcompanyequity90anddebt,91whichcanbefoundontheclient’sbalancesheet.92b.Forbusinessloanstolistedcompanies,thisisthecompanyenterprisevalueincludingcash(EVIC)oftherespectiveclient.Forbusinessloansandequityinvestmentsto/inprivatecompanies:Attributionfactorc=OutstandingamountcTotalequity+debtcForunlistedequity,theoutstandingamountiscalculatedasfollows:×#sharesoffinancialinstitutionc#totalsharescTotalequitycForbusinessloanstolistedcompanies:Attributionfactorc=(withc=borrowerorinvesteecompany)OutstandingamountcEnterpriseValueIncludingCashcEVICisdefinedas:Thesumofthemarketcapitalizationofordinarysharesatfiscalyear-end,themarketcapitalizationofpreferredsharesatfiscalyear-end,andthebookvaluesoftotaldebt93andminorities’interests.Nodeductionsofcashorcashequivalentsaremadetoavoidthepossibilityofnegativeenterprisevalues.9490Incaseswherethetotalcompanyequityvalueaccordingtotheclient’sbalancesheetisnegative,thefinancialinstitutionshallsettotalequityto0;thismeansthatallemissionsareattributedtodebtonly,whilenoemissionsareattributedtoequityinvestments.Suchcasescanhappenwhentheretainedearningsarenegativewhileatthesametimebeinghigherthantheotherequitycomponentsonthebalancesheetoftheclient—e.g.,thisoftenholdsforstartupsthathavehighnegativeprofitsduringtheirfirstyearsofoperation.Bythisapproach,orthosecompaniesthataredoingwell(i.e.,theyhavehighretainedearnings),financialinstitutionsattributemoreemissionstoequityproviders;forthosecompaniesdoingpoorly(i.e.,theyhavehighretainedlosses),financialinstitutionsattributemoreemissionstodebtproviders.Thisisinlinewiththeattributionfactorrationaleforlistedcompanies,wheretheequitypartofEVIC(i.e.,marketcapitalization)alsoimplicitlyreflectsretainedearningsandlosses(e.g.,ifretainedearningsincrease,thesharepriceandthusthemarketcapitalizationgenerallyalsoincrease).91Totaldebtincludesbothcurrentandlong-termdebtonthebalancesheet.92Iftotaldebtortotalequitycannotbeobtainedfromaclient’sbalancesheetforwhateverreason(e.g.,forsomeitmightbedifficulttoobtainthesevalues),financialinstitutionsareallowedtofallbacktothetotalbalancesheetvalue(i.e.,thesumoftotalequityandliabilities,whichisequaltotheclient’stotalassets)withtheintentionofimprovingthisdataqualityinthefuture.93InitsEVICdefinition,theEUTEGrefersto“thebookvaluesoftotaldebt,”includingalldebtaslistedonthecompanybalancesheet.Thisisdifferentfromsomeaccountingdefinitionsofbookvalueofdebt,whichexcludesomeelementslikenon-interest-bearingdebt(alsoseenextfootnoteonprecautionaryprinciple).94ThisisthestandarddefinitionofEVICasprovidedbytheEUTEG.Forconsistencyreasons,PCAFdecidedtoalignwiththisdefinitiontoensuremaximumalignmentonmetricsinthemarket,whichalsoenablesdataproviderstocollectdatainaconsistentway.Inreality,specificelementsofEVICmightnotbereadilyavailablebecausedataprovidersarestillworkingonaligningtheirdatawiththisdefinition.Forcaseswheredataismissing,theEUTEG(pg.16initshandbookofclimate-relatedbenchmarks)recommendsconductingcorporateGHGdataestimationsbasedontheUN’s(1992)precautionaryprinciple:“Ifindoubt,erronthesideoftheplanetnotthesideofthecompany.”FollowingthisprecautionaryapproachforEVICcalculations,financialinstitutionscandecidetoexcludeelementsoftheEVIC(e.g.,minorityinterestsorcertainelementsofthebookvalueofdebt)asthiswouldleadtoaslightlylowerEVICandhigherattributionoffinancedemissionstotheirownoutstandingamount.TheseslightdeviationsfromthestandardEVICdefinitionareallowedaslongastheyare:(1)inlinewiththisprecautionaryprinciple,and(2)thebasisoftheEVICdefinitionstillincludesthemarketvalueofequity(marketcapitalization)plusthetotalbookvalueofdebtofanygivencompany.71FinancedEmissions–SecondEdition–PCAFchosetoalignthedefinitionofEVICwiththedefinitionprovidedbythe:1.EUTEGinitsHandbookofClimateTransitionBenchmarks,Paris-AlignedBenchmarkandBenchmarks’ESGDisclosure952.CommissionDelegatedRegulation(EU)2020/1818of17July2020SupplementingRegulation(EU)2016/1011oftheEuropeanParliamentandoftheCouncilasregardsminimumstandardsforEUClimateTransitionBenchmarksandEUParis-alignedBenchmarks,whichsaysEVICshouldbeusedtodeterminetheGHGintensitiesforthebenchmarks.FurtherclarificationontherationaleforusingEVICfortheattributionoflistedcompaniesisprovidedintheassetclasssubchapteronlistedequityandcorporatebonds.EquationstocalculatefinancedemissionsThefinancedemissionsfrombusinessloansandunlistedequityarecalculatedbymultiplyingtheattributionfactorbytheemissionsoftheborrowerorinvesteecompanyandthentakingthesumoftheseemissions:96𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒=@𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓!×𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒!!(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑐𝑐=𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑜𝑜𝑜𝑜𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐)Theattributionfactorrepresentstheproportionalshareofagivencompany—thatis,theratiooftheoutstandingamounttototalequityanddebtforprivatecompaniesandEVICforlistedcompanies:Forbusinessloansandequityinvestmentsto/inprivatecompanies:𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒=@𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎!𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑!×𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒!!Forbusinessloanstolistedcompanies:𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒=@𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎!𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐶𝐶𝐶𝐶𝐶𝐶ℎ!×𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒!!(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑐𝑐=𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑜𝑜𝑜𝑜𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐)Thefinancedemissionsfrombusinessloansandunlistedequitycanbecalculatedindifferentwaysdependingontheavailabilityoffinancialandemissionsdataspecifictotheborroweror95(EUTechnicalExpertGrouponSustainableFinance,2019)96Whereinafinancialinstitutionislendingtoorinvestinginasubsidiaryofalargerentity,theattributionshouldbeaccountedatthesubsidiarylevelaccordingtothe“followthemoney”principle,ifthefinancialinstitutionhasbalancesheetinformationonthesubsidiary.Ifthesubsidiarybalancesheetisunavailable,thefinancialinstitutionshouldcalculatetheattributionfactorbasedonthetotalbalancesheetoftheentitytowhomthefinancialinstitutionhasrecourseforrepaymentoftheloan.72FinancedEmissions–SecondEdition–investee.Overall,PCAFdistinguishesthreedifferentoptionstocalculatethefinancedemissionsfrombusinessloansandunlistedequitydependingontheemissionsdataused.•Option1:Reportedemissions,whereverified97orunverified98emissionsarecollectedfromtheborrowerorinvesteecompanydirectly(e.g.,companysustainabilityreport)orindirectlyviaverifiedthird-partydataproviders(e.g.,CDP)andthenallocatedtothereportingfinancialinstitutionusingtheattributionfactor.•Option2:Physicalactivity-basedemissions,whereemissionsareestimatedbythereportingfinancialinstitutionbasedonprimaryphysicalactivitydatacollectedfromtheborrowerorinvestee(e.g.,megawatt-hoursofnaturalgasconsumedortonsofsteelproduced)andthenallocatedtothereportingfinancialinstitutionusingtheattributionfactor.Theemissionsdatashouldbeestimatedusinganappropriatecalculationmethodologyortoolwithverifiedemissionfactorsexpressedperphysicalactivity(e.g.,tCO2e/MWhortCO2e/tofsteel)issuedorapprovedbyacredibleindependentbody.•Option3:Economicactivity-basedemissions,whereemissionsareestimatedbythereportingfinancialinstitutionbasedoneconomicactivitydatacollectedfromtheborrowerorinvesteecompany(e.g.,euro/dollarofrevenueoreuro/dollarofasset)andthenallocatedtothereportingfinancialinstitutionusingtheattributionfactor.TheemissionsdatashouldbeestimatedusingofficialstatisticaldataoracknowledgedEEIOtablesprovidingregion-orsector-specificaverageemissionfactorsexpressedpereconomicactivity(e.g.,tCO2e/€or$ofrevenueortCO2e/€or$ofsectoralassets).99DatarequiredAsdescribed,PCAFdistinguishesthreeoptionstocalculatethefinancedemissionsfrombusinessloansandunlistedequitydependingontheemissionsdataused:•Option1:reportedemissions•Option2:physicalactivity-basedemissions•Option3:economicactivity-basedemissionsWhileOptions1and2arebasedoncompany-specificreportedemissionsorprimaryphysicalactivitydataprovidedbytheborrowerorinvesteecompanyorthird-partydataproviders,Option3isbasedonregion-orsector-specificaverageemissionsorfinancialdataobtainedfrompublicdatasourcessuchasstatisticsordatafromotherthird-partyproviders.100Options1and2arepreferredoverOption3fromadataqualityperspectivebecausetheyprovidemoreaccurateemissionsresultstoafinancialinstitution.Duetodatalimitations,financial97ThisreferstoreportedemissionsbeingcalculatedinlinewiththeGHGProtocolandverifiedbyathird-partyauditor.98ThisreferstoreportedemissionsbeingcalculatedinlinewiththeGHGProtocolwithoutverificationbyathirdparty-auditor.Unverifiedreportedemissionscanbecalculatedbyeitheranexternalpartyorbytheborrowerorinvesteecompanyitself.99SamplingtestsbasedonactualdataonthecompanylevelextrapolatedtotheportfoliolevelcanhelptotesttheaccuracyofcalculationsbasedonthisdatafromstatisticsorEEIOtables.Thismayalsobeusedtorefinethedataforspecificsectorsorregionsifthereportingfinancialinstitutionhasastrongpresenceinandspecificknowledgeoftherespectivesectororregion.Nationalagenciesandregionaldataprovidersorstatisticalofficesinindividualregionsmayassistreportingfinancialinstitutionsandinvesteecompaniesinvariousregionsinfindingregionalandmorerelevantfinancialoremissionsdatainformation.100Option1andOption2werecalled“Approach1:companyspecificapproach”andOption3wascalled“Approach2:Sector/regionaverageapproximation”inthereportproducedbythePCAFDutchteam:(PCAF,2019).73FinancedEmissions–SecondEdition–institutionsmightuseOptions1or2forcertaincompaniesandOption3forothers.Thedataqualitymixshallbereflectedintheaveragedataqualityscore,asChapter6illustrates.Table5-7providesdataqualityscoresforeachofthedescribedoptionsandsub-options(ifapplicable)thatcanbeusedtocalculatethefinancedemissionsforbusinessloansandunlistedequity.Table5-7.Generaldescriptionofthedataqualityscoretableforbusinessloansandunlistedequity101(score1=highestdataquality;score5=lowestdataquality)DataQualityOptionstoestimatethefinancedemissionsWhentouseeachoptionScore1Option1:Reportedemissions1aOutstandingamountinthecompanyandtotalcompanyequityplusdebtareknown.Verifiedemissionsofthecompanyareavailable.Score21bOutstandingamountinthecompanyandtotalcompanyequityplusdebtareknown.Unverifiedemissionscalculatedbythecompanyareavailable.Option2:Physicalactivity-basedemissions2a102Outstandingamountinthecompanyandtotalcompanyequityplusdebtareknown.Reportedcompanyemissionsarenotknown.Emissionsarecalculatedusingprimaryphysicalactivitydataforthecompany’senergyconsumptionandemissionfactors103specifictothatprimarydata.Relevantprocessemissionsareadded.Score32bOutstandingamountinthecompanyandtotalcompanyequityplusdebtareknown.Reportedcompanyemissionsarenotknown.Emissionsarecalculatedusingprimaryphysicalactivitydataforthecompany’sproductionandemissionfactorsspecifictothatprimarydata.Score4Option3:Economicactivity-basedemissions3aOutstandingamountinthecompany,totalcompanyequityplusdebt,andthecompany’srevenue104areknown.Emissionfactorsforthesectorperunitofrevenueareknown(e.g.,tCO2epereuroordollarofrevenueearnedinasector).Score53bOutstandingamountinthecompanyisknown.Emissionfactorsforthesectorperunitofasset(e.g.,tCO2epereuroordollarofassetinasector)areknown.3cOutstandingamountinthecompanyisknown.Emissionfactorsforthesectorperunitofrevenue(e.g.,tCO2epereuroordollarofrevenueearnedinasector)andassetturnoverratiosforthesectorareknown.Adetailedsummaryofthedataqualityscoretable,includingdataneedsandequationstocalculatefinancedemissions,isprovidedinAnnex10.1(Table10.1-2).DataforallthreeoptionsinTable5-7canbederivedfromdifferentdatasources.101Forbusinessloanstolistedcompanies,totalcompanyequityanddebtisdefinedastheEVICoftherespectivecompany.102ThequalityscoringforOption2aisonlypossiblefor/applicabletoscope1andscope2emissionsasscope3emissionscannotbeestimatedbythisoption.Otheroptionscanbeusedtoestimatethescope3emissions,however.103Supplier-specificemissionfactors(e.g.,fromanelectricityprovider)fortherespectiveprimaryactivitydataarealwayspreferredovernon-supplier-specificemissionfactors.104Ifrevenueisnotdeemedasuitablefinancialindicatorforestimatingtheemissionsofacompanyinacertainsector,onecanapplyothersuitablefinancialindicatorsasaproxy.Ifanalternativeindicatorisused,thereasoningfortheselectionofthisalternativeindicatorshouldbemadetransparent.Thedataqualityscorewillnotbeaffected.74FinancedEmissions–SecondEdition–Dataproviders(Option1)ForOption1(reportedemissions),PCAFrecommendseithercollectingemissionsfromtheborrowerorinvesteecompanydirectly(e.g.,companysustainabilityreport)orthird-partydataproviders,suchasCDP,Bloomberg,MSCI,Sustainalytics,S&P/Trucost,andISSESG.Dataproviderstypicallymakescope1and2emissionsdataavailable.PCAFencouragesusingthemostrecentavailabledataandtomentionthedatasource,reportingperiod,ordateofpublication.Dataproviderscollectemissionsdataasreportedbythecompaniesthemselves,eitherthroughastandardizedframeworksuchasCDPorthroughacompany’sowndisclosuresinofficialfilingsandenvironmentalreports.Theyoftenhavetheirownmethodologiestoestimate/calculatecompanies’emissions,especiallyifemissionsarenotreported.Inthiscase,thecalculationwouldbeinlinewithOptions2or3,assumingthemethodologyusedisinlinewiththeGHGProtocol.Financialinstitutionsshouldaskdataproviderstobetransparent,disclosethecalculationmethodtheyuse,andconfirmalignmentwiththeGHGProtocol.Thiswillenablefinancialinstitutionstoapplytheproperscoretothedata.PCAFalsoencouragesdataproviderstoapplythePCAFscoringmethodtotheirowndata,whichwouldallowthemtosharethedataqualityscoresdirectlywiththeirclients.PCAFdoesnotrecommendapreferreddatavendor.PCAFrecommendsusingdataprovidersthatusethestandardizedCDPframeworkandsuggestsdataprovidersdisclosethedataqualityscoreaccordingtothescoringhierarchyinTable5-7.105Whenusingdataproviders,PCAFrecommendsusingthesameproviderduetovariabilityofscope1and2emissionsobservedbyproviders.Estimationmodels(Option2and3)Notallcompaniesdisclosetheiremissionsdatainofficialfilingsorthroughdataproviders.Reportinginemergingmarketsoftenlagsthatofdevelopedmarkets.Tomaximizethecoverageofemissionsdata,theremaininggapsareoftenfilledwithestimates.ForOption2(physicalactivity-basedemissions),PCAFrecommendsusingactualenergyconsumption(e.g.,megawatt-hoursofnaturalgasconsumed)orproduction(e.g.,tonsofsteelproduced)datareportedbycompanies,giventhedatafullycoversthecompany’semissions-generatingactivities.Theemissionfactorsexpressedperphysicalactivityusedshouldbebasedonappropriateandverifiedcalculationmethodologiesortoolsissuedorapprovedbyacredibleindependentinstitution.Exampledatasourcesforretrievingemissionfactorsareecoinvent,106Defra,107IPCC,108GEMIS,109andFAO.110Themostrecentavailabledatashouldbeused,includingamentionofthedatasource,reportingperiod,orpublicationdate.ForOption3(economicactivity-basedemissions),PCAFrecommendsusingofficialstatisticaldataoracknowledgedEEIOtablesprovidingregion-orsector-specificaverageemissionfactors105MoreinformationaboutCDPcanfoundat:https://www.cdp.net/en106Moreinformationcanbefoundat:https://www.ecoinvent.org/107Moreinformationcanbefoundat:https://www.gov.uk/government/publications/greenhouse-gas-reporting-conversion-factors-2021108Moreinformationcanbefoundat:https://www.ipcc-nggip.iges.or.jp/EFDB/find_ef.php109Moreinformationcanbefoundat:http://iinas.org/gemis-download.html110Moreinformationcanbefoundat:http://www.fao.org/partnerships/leap/database/ghg-crops/en75FinancedEmissions–SecondEdition–expressedpereconomicactivity(e.g.,tCO2e/€or$ofrevenueortCO2e/€or$ofsectoralassets).Financialinstitutionsshoulduseemissionfactorsthatareasconsistentaspossiblewiththeprimarybusinessactivityfinanced.111Forexample,forabusinessloantoapaddyricefarmer,thefinancialinstitutionshouldseektofindanduseasector-specificaverageemissionfactorforthepaddyricesectorandnotanemissionfactorfortheagriculturalsectoringeneral.ExampleEEIOdatabasesthatcanbeusedtoobtainsuchemissionfactorsareEXIOBASE,112GTAP,113orWIOD.114PCAF’sweb-basedemissionfactordatabaseprovidesalargesetofemissionfactorsforOption2andOption3above.Thedatabase,whichiscurrentlyavailableonlytoPCAFsignatories,canhelpfinancialinstitutionsgetstartedwithestimatingthefinancedemissionsoftheirinvestments.PCAFexpectsthatthefinancedemissionsformostbusinessloansandunlistedequitycanbederivedthrougheitherreportedemissions(Option1),physicalactivitydata(Option2),oreconomicactivitydata(Option3).However,PCAFallowstheuseofalternativeoptionstocalculateemissionsifnoneofthespecifiedoptionscanbeusedorinthecasethatnewoptionsaredeveloped.Thereportingfinancialinstitutionshallalwaysexplainthereasonsforusinganalternativeoptionifitdeviatesfromthethreeoptionsdefinedabove.EmissionremovalsCompaniesinanFI’sportfolioshouldreportonemissionremovals,whethernature-ortechnology-based,115aspartoftheirGHGreporting.ReportingshouldfollowexistingGHGProtocolguidance,andemissionremovalsshallbereportedseparatelyfrombothabsoluteemissionsandanycarboncreditsretiredandgenerated.Carboncreditsgeneratedbycompaniesshouldbereportedandcarboncreditsretiredmaybereported.Thesefigurescanprovidetransparencyandcontextforthefinancedemissionsandremovals.Ultimately,thegoalofthePCAFFinancedEmissionsStandardistotransparentlyreportthetotalemissionsimpactsoflendingandinvestments,notdilutedbycreditsretiredorgenerated.FIscancalculateattributionofcompanies’reportedemissionremovalsusingtheexistingattributionlogicsetoutinthischapter(seeformulabelow);thissamelogicappliestoanyattributionofcompanies’reportedcreditsretiredorgenerated.×Companyemissionremovalsc(withc=borrowerorinvesteecompany)Outstandinginvestmentc(EVICorTotalcompanyequity+debt)cEmissionremovals=111Forconglomerates,financedemissionsfromamixofactivitiescanbeestimatedifdata(e.g.,revenuesplit)isavailable.Ifnot,theprimaryrevenue-generatingactivityshouldbechosen.112Moreinformationcanbefoundat:https://www.exiobase.eu113Moreinformationcanbefoundat:https://www.gtap.agecon.purdue.edu114Moreinformationcanbefoundat:http://www.wiod.org115NotethatnewGHGProtocolguidanceisbeingdevelopedonaccountingforlandsectoractivitiesandCO2removalsincorporateGHGinventories,buildingontheCorporateStandardandScope3Standard.Draftguidanceforthisisexpectedin2022.Wherenecessary,thePCAFGlobalStandardwillbeupdatedinlinewiththefinalversionofthenewGHGProtocolguidance.76FinancedEmissions–SecondEdition–Exampleaccounting–aportfolioofdifferentcompaniesAnFIinvestsintomultiplecompanieswithdifferentemissionsprofilesasillustratedinthefollowingtable.AllnumbersareintCO2eforthereportingyear2020andaredummydataforthepurposeofthisexample.Table5-8:ExampleofdatainputforcalculatingaportfolioofdifferentcompaniesScope1Scope2Scope3EmissionremovalsCarboncreditsretiredCarboncreditsgeneratedAttributionfactorForestrycompany1,0001005,00020,00005,00010%Industrialcompany20,0005,00030,000025,000025%Energycompany5,000010,0001,0005,00050020%Theportfoliocontainsaforestrycompanythatsellscarboncreditsbasedonitsforestryactivities,anindustrialcompanythatbuyscarboncreditsbasedonforestryactivities,andagreenenergycompanythatbuildsrenewableenergyplantscombinedwithafforestationactivities.TheFIwouldreportaggregatednumbersforthisportfolioperthetablebelow.Thistablesumstheattributedemissionsandcreditsoftheforestry,industrial,andenergycompaniesfromthetableabove.Notethatreportingcarboncreditsretiredbyclientsisoptional.Table5-9:CalculationexampleofaportfolioofdifferentcompaniesBasedoncompaniesinabovetableCalculationTotalportfolionumberScope1–Absoluteemissions1,000x10%+20,000x25%+5,000x20%6,100Scope2–Absoluteemissions100x10%+5,000x25%1,260Scope3–Absoluteemissions5,000x10%+30,000x25%+10,000x20%10,000Emissionremovals20,000x10%+1,000x20%2,200Carboncreditsretired25,000x25%+5,000x20%7,250Carboncreditsgenerated5,000x10%+500x20%600FIsmayfurthersubdividetheseoverallreportingcategoriesintosubcategories.Forexample,carboncreditsretiredmaybefurtherreportedseparatelybyspecifictypeofcredit(e.g.,emissions“avoidance”versus“removal”)116orclassifiedbasedonthecreditstandard(e.g.,VerifiedCarbonStandard(VCS)orGoldStandard).TheFImaychoosetoseparatelyreport‘net’numbersthatdisplaytotalabsoluteemissionsminustotalemissionremovals,forexample.Nonetheless,forthepurposesofthisFinancedEmissionsStandard,thefundamentalrequirementisthatreportingshouldataminimumincludeseparatenumbersforabsoluteemissionsandemissionremovals,inadditiontoany‘net’numbers.116Reportingaroundtheuseofcarbonoffsetsmayneedtoevolvebecauseitdoesnotyetconsistentlydistinguishbetweenavoidanceandremovaloffsets.77FinancedEmissions–SecondEdition–Exampletooltocalculateemissionremovals–theFoREStCarbonSequestration(FRESCOS)ToolFMOhasbeenworkingwiththreeotherEuropeandevelopmentfinanceinstitutions(CDC,Finnfund,andSwedfund)andFinnishforestryexpertSimosoltobuildanonlinetooltoestimatetheamountofcarbonsequesteredthroughplantationandagroforestryoperations,calledtheFRESCOSTool.ThetoolisbuiltupontheIPCCGuidelinesforNationalGHGInventoriesandcanbefoundathttps://www.frescos.earth.WhilePCAFdoesnotendorsetheuseofthistoolspecifically,theFRESCOSToolisanexampleofatoolthatcanbeusedbyFIsasabasisforcalculatingfinancedemissionremovals.TheFRESCOStoolisopenforotherFIsandinterestedpartiestouse.LimitationsGeneralizednatureofOption3OnelimitationofOption3isthegeneralizednatureandnecessaryassumptionsmadeinapplyingregion-orsector-specificaveragevalues(bothforemissionsandfinancialdata).Thismakescalculationslessrobustandmoreuncertainthanthosebasedondataspecifictotheborrowerorinvestee,asthedataforthisoptionlargelydependsonassumptionsandapproximationsderivedfromregionandsectoraverages.Inaddition,statisticaldataoracknowledgedEEIOtablesforagivenregionneedtobecriticallymappedtothesectorclassificationusedbythereportingfinancialinstitution,asthesectorsmaynotmapone-to-oneandmaycausefinancedemissionstobeover-orunderstatedintheend.MeasurementinconsistenciesInconsistenciescanarisefrommeasuringpartoftheportfoliowithborrower-orinvestee-specificemissionsdata(whichmayencompassscopes1,2,and3emissions)andfrommeasuringtheotherpartwithregion-orsector-specificaverageemissionsdata(whichoftenencompassesonlyscope1and2emissions).Onemitigatingfactoristhatusingborrower-orinvestee-specificemissiondatacouldimprovetheaccuracyoftheregion-orsector-specificaveragedataifthereportingfinancialinstitutionhadenoughborrower-orinvestee-specificdatapointsrelativetothesizeoftheportfolioinagivensector.Forexample,ifamajorityoftheborrowersinalender’stextilemanufacturingloanportfolioprovidespecificemissionsdata,theseaveragescouldbeapplied(insteadofindustrywidesectoraverages)totheremainderoftheborrowersinthesectorthatdidnotprovidespecificemissionsdata.78FinancedEmissions–SecondEdition–TimingofemissionsAnotherlimitationofthedescribedoptionsstemsfromtheuseofyear-endoutstandingbalances.Foraportfoliothatincludesloansandequityinvestmentstobusinessesinindustrieswithhighseasonalvariabilityortemporalvolatility,usingyear-endoutstandingbalancesmaynotcapturetheactivityoccurringduringseasonsthatdonotoverlapwiththeendoftheyear.Similarly,reportingfinancialinstitutionsusingdifferentfiscalcalendarsmaybelesscomparablewitheachother.AsolutioncouldbethatfinancialinstitutionsopttoconductGHGaccountingusinganaveragemonthlybalancefortheyearinsteadofayear-endbalance.However,thiswouldputmoreburdenonthereportingfinancialinstitutions.Iffinancialinstitutionsdecidetoapplysuchaveragemonthlybalances,theyshouldreporttheseresultsseparatelyandmakethemethodandassumptionstransparent.MarketvaluefluctuationsWhenusingEVICasthedenominatorforbusinessloanstolistedcompanies,assetsundermanagementchangeasaresultoffluctuatingmarketprices.Undertheinfluenceofthisfluctuation,anobjectivetoreducerelativefinancedemissions(alsoreferredtoasemissionintensities)byacertainpercentagebecomesamovingtarget.Usingnormalizedassetsundermanagementmayhelpovercomethis,aspricesareheldconstantoverthetargetperiod.Forexample,theEUTEGandEUregulationonbenchmarksrequiretheapplicationofaninflationcorrectiontochangesinEVICovertime.Applyingcorrectionsformarketpricefluctuationscanhighlyinfluencetheresultsandheavilyreducethecomparabilityofresultsbetweendifferentfinancialinstitutionswhenappliedinconsistently.Inaddition,correctionscouldtheoreticallybeappliedtomanyothervariables(likeexchangerates,inflation,emergingversusemergingmarkets,etc.),furtherreducingcomparability.Forthatreason,PCAFrequiresallfinancialinstitutionstoreporttheiruncorrectedabsoluteemissionsasaminimum.Correctedresultsmayoptionallybereportedseparately.Ifthefinancialinstitutiondecidestoapplysuchadjustments,theyshouldbemadetransparent.Inthefuture,PCAFwillalsoinvestigatethechallengeslinkedtosteeringonfinancedemissionsanddescribethemetricsinusebyinvestorsasemergingpractices.5.3Projectfinance5.3ProjectfinanceIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6CHAPTER5Reviewandapplyaccountingmethodologiesforeachassetclass80FinancedEmissions–SecondEdition–AssetclassdefinitionThisassetclassincludesallon-balancesheetloansorequitiestoprojectsoractivitiesthataredesignatedforspecificpurposes,i.e.,withknownuseofproceedsasdefinedbytheGHGProtocol.Thefinancingisdesignatedforadefinedactivityorsetofactivities,suchastheconstructionandoperationofagas-firedpowerplant,awindorsolarproject,orenergyefficiencyprojects.Tocalculateemissions,onlythefinanced(ring-fenced)activitiesareincluded.Emissionsandfinancialsrelatedtoexistingactivitiesoutsidethefinancedprojectbutwithinthefinancedorganizationarenotconsidered.EmissionscopescoveredFinancialinstitutionsshallreporttheabsolutescope1and2emissionsoftheproject.Scope3emissionsshouldbecoveredifrelevant.117Avoidedandremovedemissionsmaybereportedifrelevantbutmustbereportedseparatelyfromabsoluteemissions.AttributionofemissionsAsabasicattributionprinciple,thefinancialinstitutionaccountsforaportionoftheannualemissionsofthefinancedproject.Thisportionisdeterminedbytheattributionfactor,whichistheratiobetweentheinstitution’soutstandingamount(numerator)andthetotalequityanddebtofthefinancedproject(denominator).118OutstandinginvestmentpTotalequity+debtpAttributionfactorp=Forequity,theoutstandingamountiscalculatedasfollows:(withp=project)×totalequityp#sharesoffinancialinstitutionptotalsharespTheoutstandingamountinthenumeratoristheamountofdebtorequityprovidedbytheindividualfinancier.Inthecaseofdebt,theoutstandingamountisdefinedasthevalueofthedebttheborrowerowestothelender(i.e.,disburseddebtminusanyrepayments119).Inthecaseofequity,theoutstandingamountistheoutstandingvalueofequitythefinancialinstitutionholdsintheproject.Itiscalculatedbymultiplyingtherelativeshareofthefinancialinstitutionintherespectiveproject120bythetotalequityoftherespectiveprojectaccordingtoitsbalancesheet.Guaranteeshavenoattributionuntiltheyarecalledandturnedintoaloan.Financialinstitutionsshouldeitherusethecalendarorfinancialyear-endoutstandingamount,providedtheapproachiscommunicatedandusedconsistently.117Examplesofprojectswherescope3emissionsarerelevantincludebutarenotlimitedtonuclearpowerplants,hydroelectricpowerplants,infrastructureprojects(airports,highways),andoilandgasexploration.118Theattributionfactorcalculationis,inprinciple,onlypossibleforprojectfinancewhereproject-specificfinancialdataisavailable.Forprojectfinancewheresuchdataisunavailable,theattributionfactorcannotbecalculatedbutroughestimationsonattributioncanstillbemadebasedonregion-andsector-specificaveragefinancialdataandtheoutstandingamount.Thisisexplainedinmoredetailinthe“Equationstocalculatefinancedemissions”and“Datarequired”sectionsbelow(seeOption3bandOption3c).119Itshouldbeemphasizedthattheoutstandingofadebtpositiondoesnotincludeinterestaccruedbytheborrower.Thisvalueshouldonlyrepresenttheamountdisbursedbythefinancialinstitutionminusanyrepaymentsontheprincipalbecausethismoreaccuratelyreflectstheimpactoftheloanintherealeconomy.120Therelativeshareofthefinancialinstitutionintherespectiveprojectiscalculatedbydividingthenumberofsharesthefinancialinstitutionholdsintherespectiveprojectbythetotalnumberofsharesoftheinvestee.81FinancedEmissions–SecondEdition–Atthestartoftheproject,thetotalequity121anddebt122inthedenominatoristhetotalfinancingavailablefortheproject(totaldebtplusequitytorealizetheproject).123Insubsequentyears,itisexpectedthatprojectswillreportannuallyontheirfinancials,includingbalancesheetinformation,i.e.,thetotalequityanddebtwithintheproject.Thevalueoftotalequityanddebtinthedenominatorcanthenbeusedtocalculatetheattributionfactor.Figure5-2illustratestheattributionrule,whereinitiallymostoftheemissionsoravoidedemissionsfromtheprojectareattributedtodebt,butasdebtisrepaidmoreandmoreoftheemissionsbecomeattributabletotheequityproviders.Figure5-2.Illustrationofchangesinequity/debtattributionovertime0%10%20%30%40%50%60%70%80%90%100%012345678910111213141516171819202122232425attributiontodebtattributiontoequityEquationstocalculatefinancedemissionsThefinancedemissionsfromasingleprojectarecalculatedbymultiplyingtheattributionfactorbytheemissionsoftherespectiveproject.Thetotalfinancedemissionsfrommultipleprojectsarecalculatedusingthefollowingequation:𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒=@𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓"×𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒""(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑝𝑝=𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝)Inthisassetclass,thesumrepresentsallprojectsinafinancialinstitution’sportfolio,andtheattributionfactorrepresentstheproportionalshareofagivenproject—thatis,theratiooftheoutstandingamounttototalequityanddebt:121Incaseswherethetotalprojectequityvalueaccordingtotheproject’sbalancesheetisnegative,thefinancialinstitutionshallsettotalequityto0;thismeansthatallemissionsareattributedtodebtonly,whilenoemissionsareattributedtoequityinvestments.Thiscanhappenwhentheretainedearningsarenegativewhileatthesametimebeinghigherthantheotherequitycomponentsonthebalancesheetoftheproject.Bythisapproach,forthoseprojectsthataredoingwell(i.e.,theyhavehighretainedearnings),financialinstitutionsattributemoreemissionstoequityproviders;forthoseprojectsdoingpoorly(i.e.,theyhavehighretainedlosses),financialinstitutionsattributemoreemissionstodebtproviders.Thisisinlinewiththeattributionfactorrationaleforlistedcompanies,wheretheequitypartofEVIC(i.e.,marketcapitalization)alsoimplicitlyreflectsretainedearningsandlosses(e.g.,ifretainedearningsincrease,thesharepriceandmarketcapitalizationgenerallyalsoincrease).122Totaldebtincludesbothcurrentandlong-termdebtonthebalancesheet.123Iftotaldebtortotalequitycannotbeobtainedfromaproject’sbalancesheetforwhateverreason(e.g.,forsomeitmightbedifficulttoobtainthesevalues),financialinstitutionsareallowedtofallbacktothetotalbalancesheetvalue(i.e.,thesumoftotalequityandliabilities,whichisequaltotheproject’stotalassets)withtheintentionofimprovingthisdataqualityinthefuture.82FinancedEmissions–SecondEdition–𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒=@𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎"𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑"×𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒""(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑝𝑝=𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝)Overall,PCAFdistinguishesthreedifferentoptionstocalculateprojectemissionsdependingontheavailabilityofproject-specificdata:•Option1:reportedemissions,whereverified124orunverified125emissionsarecollectedfromtheprojectdirectlyorindirectlythroughindependentthirdparties.•Option2:physicalactivity-basedemissions,whereemissionsareestimatedbasedonprimaryphysicalactivitydatacollectedfromtheproject(e.g.,fuelconsumedormegawatt-hoursofelectricityproduced).Theemissionsdatashouldbeestimatedusinganappropriatecalculationmethodologyortoolwithverifiedemissionfactorsexpressedperphysicalactivity(e.g.,tCO2e/MWh)issuedorapprovedbyacredibleindependentbodysuchastheInternationalEnergyAgency(IEA).•Option3:economicactivity-basedemissions,whereemissionsareestimatedbasedoneconomicactivitydatacollectedfromtheproject(e.g.,revenueorassets).TheemissionsdatashouldbeestimatedusingofficialstatisticaldataoracknowledgedEEIOtablesprovidingregion-orsector-specificaverageemissionfactorsexpressedpereconomicactivity(e.g.,tCO2e/€ofrevenueortCO2e/€ofasset).126DatarequiredWithintheduediligenceandmonitoringofaprojectfinancetransaction,theavailabilityandqualityofproject-specificdataisgenerallygood.Project-specificreportedemissions(Option1)rankshighestinqualityandconsistencybutwillnotalwaysbeavailable.Physicalactivity-baseddata(Option2)suchasmegawatt-hoursproducedisgenerallyavailablefromapreviousyearorasanestimate(e.g.,P50estimationsforrenewableenergyprojects).127Thelowestdataqualityapplieswhenthereisnoproject-specificphysicaldataandonlyfinancialdataisavailable(Option3).ThedataqualityscorecardinTable5-10isrecommendedforprojectfinance.Financialinstitutionscanrefineorfurtherspecifythisgenericdataqualitytableperprojecttype,aslongastheserefineddataqualitytablesaredisclosedtransparently.124ThisreferstoreportedemissionsbeingcalculatedinlinewiththeGHGProtocolandverifiedbyathird-partyauditor.125ThisreferstoreportedemissionsbeingcalculatedinlinewiththeGHGProtocolwithoutverificationbyathird-partyauditor.Unverifiedreportedemissionscanbecalculatedbyeitheranexternalpartyorbytheborrowerorinvesteeitself.126SamplingtestsbasedonactualdataonthecompanylevelextrapolatedtotheportfoliolevelcanhelptotesttheaccuracyofcalculationsbasedonthisdatafromstatisticsorEEIOtables.Thismayalsobeusedtorefinethedataforspecificsectorsorregionsifthereportingfinancialinstitutionhasastrongpresenceinandspecificknowledgeoftherespectivesectororregion.Nationalagenciesandregionaldataprovidersorstatisticalofficesinindividualregionsmayassistreportingfinancialinstitutionsandborrowerorinvesteecompaniesinvariousregionsinfindingregionalandmorerelevantfinancialoremissionsdatainformation.127Forrenewableenergyprojectsitiscustomarytohaveexpertscalculatepercentileproductionpredictionsbasedonananalysisofhistoricdataresourcedata(wind,irradiation,hydraulicflow,etc.).TheP50valueisthepredictedannualproductionforwhichthereisa50%probabilityitwillbeexceededinagivenyear.TheP90valueisthepredictedvaluethathasa90%probabilityofbeingexceededinagivenyear(the1-yearP90)orofbeingexceededinanaverageyearovera10-yearperiod(the10-yearP90).PCAFproposesusingtheP50predictedproduction.83FinancedEmissions–SecondEdition–Table5-10.Generaldescriptionofthedataqualityscoretableforprojectfinance(score1=highestdataquality;score5=lowestdataquality)DataQualityOptionstoestimatethefinancedemissionsWhentouseeachoptionScore1Option1:Reportedemissions1aOutstandingamountintheprojectandtotalprojectequityplusdebtareknown.Verifiedemissionsoftheprojectareavailable.Score21bOutstandingamountintheprojectandtotalprojectequityplusdebtareknown.Unverifiedemissionsreportedbytheprojectareavailable.Option2:Physicalactivity-basedemissions2a128Outstandingamountintheprojectandtotalprojectequityplusdebtareknown.Projectemissionsarenotknownbutcalculatedusingprimaryphysicalactivitydatafortheproject’senergyconsumptionandemissionfactors129specifictothatprimarydata.Relevantprocessemissionsareadded.Score32bOutstandingamountintheprojectandtotalprojectequityplusdebtareknown.Projectemissionsarenotknown.Emissionsarecalculatedusingprimaryphysicalactivitydatafortheproject’sproduction130andemissionfactorsspecifictothatprimarydata.Score4Option3:Economicactivity-basedemissions3aOutstandingamountintheproject,totalprojectequityplusdebt,andtheproject’srevenue131areknown.Emissionfactorsforthesectorperunitofrevenueorfromsimilarprojectsisknown(e.g.,tCO2epereuroordollarofrevenueearnedinasector).Score53bOutstandingamountintheprojectisknown.Emissionfactorsforthesectorperunitofassetoreconomicactivity-basedemissionfactorsfromsimilarprojects(e.g.,tCO2epereuroordollarofassetinasector)areknown.3cOutstandingamountintheprojectisknown.Emissionfactorsforthesectorperunitofrevenue(e.g.,tCO2epereuroordollarofrevenueearnedinasector)andassetturnoverratiosforthesectororfromsimilarprojectsareknown.Adetailedsummaryofthedataqualityscoretable,includingdataneedsandequationstocalculatefinancedemissions,isprovidedinAnnex10.1(Table10.1-3).PCAFexpectsthatthefinancedemissionsformostprojectscanbederivedthrougheitherreportedemissions(Option1),physicalactivitydata(Option2),oreconomicactivitydata(Option3).128ThequalityscoringforOption2aisonlypossiblefor/applicabletoscope1andscope2emissionsasscope3emissionscannotbeestimatedbythisoption.Otheroptionscanbeusedtoestimatethescope3emissions,however.129Supplier-specificemissionfactors(e.g.,fromanelectricityprovider)fortherespectiveprimaryactivitydataarealwayspreferredovernon-supplier-specificemissionfactors.130Productioncanrefertoboththeproductionofphysicaloutputssuchassteelaswellastheproductionofelectricity.131Ifrevenueisnotdeemedasuitablefinancialindicatorforestimatingtheemissionsofaproject,onecanapplyothersuitablefinancialindicatorsasaproxy.Ifanalternativeindicatorisused,thereasoningfortheselectionofthisalternativeindicatorshouldbemadetransparent.Thedataqualityscorewillnotbeaffected.84FinancedEmissions–SecondEdition–AvoidedemissionsAvoidedemissionsrelatedtorenewablepowerprojectsarethereductioninemissionsofthefinancedprojectcomparedtowhatwouldhavebeenemittedintheabsenceoftheproject(thebaselineemissions).TheyarecalculatedbasedontheGHGProtocolforProjectFinanceandareaseparatecategorycomparedtothecalculationofabsoluteemissionsbasedontheGHGProtocolforCorporateAccounting.Calculatingtheannualavoidedemissionsfromafinancialinstitution’srenewablepowerprojectportfolioatafixedpointintimeandinlinewiththefinancialreportingcycleisacomplexprocess.The(estimated)annualpowerproductionoftheseprojectsoverthereportingperiodmustbecomparedwiththepowermixpercountryoverthesameperiod.Inthiscomparison,itisassumedthattheproductionofrenewablepower(overthereportingperiod)mighthaveavoidedtheneedtoruncertainfossilfuelpowerplants.Thepowermixandassociatedgridemissionfactorscanbederivedusingvariousapproachesandassumptions,asillustratedinTable5-11.Table5-11.EmissionfactorspertypeofpowermixPreferredoptionsTypeofmixDescriptionofemissionfactors1Operatingmargin132Theoperatingmargin,representsthemarginalgeneratingcapacityintheexistingdispatchhierarchyinacountry/regionthatwillmostlikelybedisplaced(i.e.,thegenerationfromthepowerplantswiththehighestvariableoperatingcostsintheeconomicmeritorderdispatchoftheelectricitysystem).2FossilfuelmixtradedEmissionfactorsbasedontheemissionsofallfossilfuelpower(includingorexcludingnuclear)traded(i.e.,producedandimportedminusexported)inacountryorregion.3FossilfuelmixproducedEmissionfactorsbasedontheemissionsofallfossilfuelpower(includingorexcludingnuclear)producedinacountryorregion.4AverageelectricitymixEmissionfactorsbasedontheemissionsofallpower(fossilandnon-fossil)producedinacountryorregion.Variouspubliclyavailabledatasourcesonnationalandinternationallevelsareavailableandprovidethedatatocalculatetheseemissionfactors(e.g.,InternationalEnergyAgency(IEA),USEnvironmentalProtectionAgency(EPA),EuropeanEnvironmentAgency(EEA)).PCAFpreferstousetheoperatingmarginemissionfactorfortheaccountingoftheavoidedemissionsofrenewablepowerprojectportfoliosoverthereportingperiod.TheInternationalFinanceInstitution(IFI)-harmonizedGHGaccountingstandardsandapproachescalculatedtheseoperatingmarginemissionfactorsforvariouscountriesusingthemethodologypublishedbytheIFITechnicalWorkingGrouponGreenhouseGasAccounting.133132TheoperatingmarginisatermdefinedundertheUNFCCCCleanDevelopmentMechanismforgrid-connectedelectricitygenerationfromrenewablesourcesandrepresentsthecohortofexistingpowerplantswhoseoperationwillbemostaffected(reduced)bytheproject.133(IFI,2020)85FinancedEmissions–SecondEdition–Iftheoperatingmarginisnotavailable,financialinstitutionscanusethefossilfuelmixtraded,thefossilfuelmixproduced,or(asalastresort)theaverageelectricitymix.Inprinciple,PCAFrecommendsexcludingnuclearenergyinlinewiththeIFImethodologybutalsoallowstheinclusionofnuclearasmostdatasourcesincludenuclearpowerunderthefossilfuelmix.EmissionremovalsEmissionremovalscanberelevantforprojectfinance.Sequesteredemissions(whichisoneformofemissionremovals)accountforcarbonsinkswherecarbonisabsorbedfromtheatmosphere.ProjectsinanFI’sportfolioshouldreportonemissionremovals,whethernature-ortechnologybased,134aspartoftheirGHGreporting.ReportingshouldfollowexistingGHGProtocolguidance,andemissionremovalsshallbereportedseparatelyfrombothabsoluteemissionsandanycarboncreditsretiredandgenerated.Carboncreditsgeneratedbyprojectsshouldbereportedandcarboncreditsretiredmaybereported.Thesefigurescanprovidetransparencyandcontextforthefinancedemissionsandremovals.Ultimately,thegoalofthePCAFFinancedEmissionsStandardistotransparentlyreportthetotalemissionsimpactsoflendingandinvestments,notdilutedbycreditsretiredorgenerated.FIscancalculateattributionofprojects’reportedemissionremovalsusingtheexistingattributionsetoutinthischapter(seeformulabelow);thissamelogicappliestoanyattributionofprojects’reportedcreditsretiredorgenerated.(withp=project)OutstandinginvestmentpTotalprojectequity+debtpEmissionremovals=×Projectemissionremovalsp∑pExampleaccounting–aportfolioofdifferentprojectsAnFIinvestsintomultipleprojectswithdifferentemissionsprofilesasillustratedinthefollowingtable.AllnumbersareintCO2eforthereportingyear2020andaredummydataforthepurposeofthisexample.Table5-12:ExampleofdatainputforcalculatingaportfolioofdifferentcompaniesScope1Scope2Scope3EmissionremovalsCarboncreditsretiredCarboncreditsgeneratedAttributionfactorForestrycompany1,0001005,00020,00005,00010%Industrialcompany20,0005,00030,000025,000025%Energycompany5,000010,0001,0005,00050020%134NotethatnewGHGProtocolguidanceisbeingdevelopedonaccountingforlandsectoractivitiesandCO2removalsincorporateGHGinventories,buildingontheCorporateStandardandScope3Standard.Draftguidanceforthisisexpectedin2022.Wherenecessary,thePCAFGlobalStandardwillbeupdatedinlinewiththefinalversionofthenewGHGProtocolguidance.86FinancedEmissions–SecondEdition–Theportfoliocontainsaforestryprojectthatsellscarboncreditsbasedonitsforestryactivities,anindustrialprojectthatbuyscarboncreditsbasedonforestryactivities,andagreenenergyprojectthatbuildsrenewablepowerplantscombinedwithafforestationactivities.TheFIwouldreportaggregatednumbersforthisportfolioperthetablebelow.Thistablesumstheattributedemissionsandcreditsoftheforestry,industrial,andenergyprojectsfromthetableabove.Notethatreportingofavoidedemissionsandcarboncreditsretiredbyclientsisoptional.Table5-13:CalculationexampleofaportfolioofdifferentcompaniesBasedoncompaniesinabovetableCalculationTotalportfolionumberScope1–Absoluteemissions1,000x10%+20,000x25%+5,000x20%6,100Scope2–Absoluteemissions100x10%+5,000x25%1,260Scope3–Absoluteemissions5,000x10%+30,000x25%+10,000x20%10,000Emissionremovals20,000x10%+1,000x20%2,200Carboncreditsretired25,000x25%+5,000x20%7,250Carboncreditsgenerated5,000x10%+500x20%600FIsmayfurthersubdividetheseoverallreportingcategoriesintosubcategories.Forexample,carboncreditsretiredmaybefurtherreportedseparatelybyspecifictypeofcredit(e.g.,emissions“avoidance”versus“removal”)135orclassifiedbasedonthecreditstandard(e.g.,VCSorGoldStandard).TheFImayseparatelyreport‘net’numbersthatdisplaytotalabsoluteemissionsminustotalemissionremovals,forexample.Nonetheless,forthepurposesofthisFinancedEmissionsStandard,thefundamentalrequirementisthatreportingshouldataminimumincludeseparatenumbersforabsoluteemissionsandemissionremovals,inadditiontoany‘net’numbers.Exampletooltocalculateemissionremovals–theFoREStCarbonSequestration(FRESCOS)ToolFMOhasbeenworkingwiththreeotherEuropeandevelopmentfinanceinstitutions(CDC,Finnfund,andSwedfund)andFinnishforestryexpertSimosoltobuildanonlinetooltoestimatetheamountofcarbonsequesteredthroughplantationandagroforestryoperations,calledtheFRESCOSTool.ThetoolisbuiltupontheIPCCGuidelinesforNationalGHGInventoriesandcanbefoundathttps://www.frescos.earth.WhilePCAFdoesnotendorsetheuseofthistoolspecifically,theFRESCOSToolisanexampleofatoolthatcanbeusedbyFIsasabasisforcalculatingfinancedemissionremovals.TheFRESCOStoolisopenforotherFIsandinterestedpartiestouse.LifetimeemissionsPortfolioaccountingofemissionsoccurringinthereportingyeardoesnotconsiderlifetimeemissionsinsofarastheseemissionshappenbeforeorafterthereportingyear.Forexample,emissionsrelatedtofuturedisposalofawindparkarenotreportedinthecurrentreportingyear.135Reportingaroundtheuseofcarbonoffsetsmayneedtoevolvebecauseitdoesnotyetconsistentlydistinguishbetweenavoidanceandremovaloffsets.87FinancedEmissions–SecondEdition–Nevertheless,thisprincipleisproblematicforconstructionprojects.Forexample,inthecaseofagas-firedpowerplant,constructionemissionswouldbeaccountedduringtheconstructionphaseandoperationalemissionsduringtheoperationalphase.However,iftheloanisrepaidshortlyafteroperationstarts,theportfolioemissionsforthatinvestmentwouldonlyreflectasmallportionofthetotalemissionsimpactcreatedduringthelifetimeofthatgas-firedpowerplant.Asthepowerplantisoftenconstructedbyathirdparty(i.e.,aconstructioncompany)contractedbytheprojectdeveloper,theemissionsoftheconstructionandpurchasedgoodsandservicesarenormallyreportedunderscope3oftheprojectdeveloper.Thesescope3emissionsareusuallynotsignificantenoughtoreportortheymightbeunavailable,inwhichcasenoemissionswillbereported.Whenthesescope3emissionsarerelevant,theyshouldbereported.Toaddresstheabove,afinancialinstitutionshould,iftheyareaninitialsponsororlender,assessthetotalprojectedlifetimescope1and2emissionsforprojectsthatwerefinancedduringthereportingyear.Thoseemissionsshouldbereportedseparatelyintheyearofcontracting.Ifafinancialinstitutionwouldbeaninitiallenderfortheaboveexampleofagas-firedpowerplant,itshouldreportintheyearofcontractingthetotalprojectedlifetimescope1and2emissionsbasedontheinstalledcapacityoftheplant,theexpectedloadfactoroftheplant,theexpectedlifetimeoftheplant,andtheexpectedcarboncontentofthegasused.Portfoliovs.(annualized)lifetimeemissionsVarious(multilateral)developmentbankshavebeenworkingonharmonizingGHGaccountingofnewprojectsundertheIFIFrameworkforaHarmonizedApproachtoGreenhouseGasAccounting.136Thesefinancialinstitutionsdevelopedamethodologytocalculatetheexpectedemissionsofnewlysignedcontractsforspecificprojectsinthereportingyear.137IntheIFImethodology,avoidedemissionsareassessedusingemissionfactors(calledcombinedmargin)thatincorporatefuturegreeningoftheelectricitygrid.Theseavoidedemissionsareannualizedandreportedintheyearofloan/equityorigination.UnliketheIFImethodology,PCAF’sportfolioGHGaccountinginvolvescalculatingtheannualemissionslinkedtothefinancialinstitution’sbalancesheetandusingemissionfactors(operatingmargin)thatarebasedontheexistingfossilfuelpowerplantsinacountryorregionwhoseoperationwillbemostaffected(reduced)bytheproject.PCAFconsidersportfolioand(annualized)lifetimeGHGaccountingtobecomplementary.PortfolioGHGaccountingbetterlendsitselftotargetsettingcomparedtoaglobalcarbonbudget,whereas(annualized)lifetimeGHGaccountingcanbeusedtoreflectthegeneratedemissionsoravoidedemissionsovertheoperationallifetime.PortfolioGHGaccountingismoresuitedtoguidestrategicdevelopmentsonaportfoliolevel,whilelifetimeGHGaccountingcanbeusedtomakeinvestment-leveldecisions(e.g.,toavoidinvestmentswithcarbonlock-in).136(UNFCCC,2015).Additionalinformationcanbefoundat:https://unfccc.int/climate-action/sectoral-engagement/ifis-harmonization-of-standards-for-ghg-accounting137Theemissionfactorscanbefoundat:https://unfccc.int/climate-action/sectoral-engagement/ifis-harmonization-of-standards-for-ghg-accounting/ifi-twg-list-of-methodologies5.4Commercialrealestate5.4CommercialrealestateIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6CHAPTER5Reviewandapplyaccountingmethodologiesforeachassetclass89FinancedEmissions–SecondEdition–AssetclassdefinitionThisassetclassincludeson-balancesheetloansforspecificcorporatepurposes,namelythepurchaseandrefinanceofcommercialrealestate(CRE),andon-balancesheetinvestmentsinCREwhenthefinancialinstitutionhasnooperationalcontrolovertheproperty.Thisdefinitionimpliesthatthepropertyisusedforcommercialpurposes,suchasretail,hotels,officespace,industrial,orlargemultifamilyrentals.Inallcases,theownerofthebuildingusesthepropertytoconductincome-generatingactivities.Incaseofnooperationalcontrol,CREinvestmentsbyassetownersarealsoincludedinthismethod.Theseinvestmentsconsistofdealswheretheassetownerpartiallyownsthebuildinginajointventure,jointoperation,orinjointownership,butdoesn’thavethefullauthoritytointroduceandimplementoperatingpoliciesattheproperty.CREinvestmentslistedinthestockmarketareclassifiedaslistedequity.Inthiscase,financialinstitutionsshallusethemethodforlistedequity(subchapter5.1).LoanssecuredbyCREforotherpurposesthanCREandloanstoCREcompaniesthatareunsecuredareclassifiedasbusinessloansiftheloansareforgeneralcorporatepurposes(i.e.,withunknownuseofproceedsasdefinedbytheGHGProtocol).Inthesecases,financialinstitutionsshallusethemethodforbusinessloans(subchapter5.2).LoansforconstructionandrenovationofCREareoptional.Asthebuildingisoftenconstructedbyathirdparty(i.e.,aconstructioncompany)contractedbytheprojectdeveloper,theemissionsoftheconstructionarenormallyreportedunderscope3oftheprojectdeveloperduringthebuilding’sconstructionphase.Assuch,itcanbeimpracticalforthelendertomeasurethefinancedemissionsofaconstructionorrenovationloanunlesstheprojectdeveloperreportsconstructionemissions.Thefollowingsectiononemissionscopescoveredprovidesfurtherexplanation.EmissionscopescoveredForpropertyalreadybuilt,financialinstitutionsshallcovertheabsolutescope1and2emissionsrelatedtotheenergyuseoffinancedbuildingsduringtheiroperation.Energyuseincludestheenergyconsumedbythebuilding’soccupantandsharedfacilities.Reportingfinancedemissionsfromconstructionorrenovationofbuildingsisoptional.Whenmeasuringtheseemissions,financialinstitutionsshouldrefertotheGHGProtocol’sguidancetoaccountforconstructionemissions.138Ifthepropertydeveloperisacompanythatmeasuresandreportsconstructionemissions,financialinstitutionsshouldaccountfortherelatedfinancedemissionsduringthebuilding’sconstructionphase.Ifthepropertydeveloperdoesnotmeasureandreportconstructionemissions,financialinstitutionsshouldengagewiththepropertydevelopertoencouragethepracticeofmeasuringandreportingtheseemissions.Whilereportingfinancedconstructionemissionsisnotyetrequired,PCAFacknowledgesthat138(ENCORD,2012)90FinancedEmissions–SecondEdition–constructionemissions,notablybuilding’sembodiedGHGemissions,areimportantandshouldnotbeneglected.PCAFwillcontinuetomonitorguidancedevelopments139onthesubject.Whenrobustapproachesanddatatomeasuretheembodiedemissionsofbuildingsareavailable,PCAFcouldexpanditscoveragetoincludetheseemissions.AttributionofemissionsWhencalculatingthefinancedemissions,abuilding’sannualemissionsareattributedbasedontheratiobetweentheoutstandingamountandthepropertyvalueatthetimeofloanorequityorigination.Thisratioiscalledtheattributionfactor:𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓#=𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎#𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜#(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑏𝑏=𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏)Forloanproviders,thenumeratoristheoutstandingloanamount,140whereasforinvestors,itistheoutstandinginvestmentamount.Inbothcases,theoutstandingamountisthevalueoftheloanorinvestmentonthefinancialinstitution’sbalancesheet.Whenthepropertyvalueatloanorequityoriginationisnotfeasibletoobtain,financialinstitutionsshallusethelatestpropertyvalueavailableandfixthisvalueforthefollowingyearsofGHGaccounting,i.e.,thedenominatorremainsconstantfromthefirstyearofGHGaccountingonward.141Thepropertyvalueshouldincludethevalueoftheland,thebuilding,andanybuildingimprovements.WhenaCREloanismodified(e.g.,loanamountisincreased,renewed,refinanced,orextended)andanewpropertyvalueisobtainedaspartofthetransaction,thepropertyvalueatoriginationshallbeupdatedtothepropertyvalueatthetimeofthemodification.WhenassetownersinvestinCRE,theyeitherfullyfinancethepropertyorpartiallyfinanceitthroughjointventures,jointoperation,orinjointownershipwithotherassetowners.WhenCREisfullyfinancedbyanassetownerandtheassetownerdoesn’thaveoperationalcontroloverthebuilding,100%ofthebuilding’semissionsareattributedtotheassetowner’sfinancedemissions.WhenCREisjointlyfinancedbyagroupofassetowners,theattributionisbasedontheshareinvestedbyeachassetowner.139Forexample,theWorldBusinessCouncilforSustainableDevelopment(WBCSD)isworkingoncreatinganapproachfortheembeddedcarbonofconstructions.Atthispoint,theyaredefiningatheoreticalapproachwithaworkinggroupconsistingofrealestatedevelopers,buildingmaterialproducers,constructioncompanies,andtechnicalconsultants.Thekeyinthisapproachistousealifecycleassessmenttoobtainaveragevaluesofembeddedcarbonpersquaremeterofbuilding,whichwilldifferperclimatezoneandbuildingtypology.140Forloanproviders,theoutstandingamountinthenumeratorisdefinedasthevalueofthedebtthattheborrowerowestothelender(i.e.,disburseddebtminusanyrepayments).Itwillbeadjustedannuallytoreflectthecorrectexposure,resultingintheattributiontodeclineto0attheendofthelifetimeoftheloan(i.e.,whenitisfullyrepaid).141Availabilityofpropertyvalueatoriginationvariesbycountry.Insomecountries,financialinstitutionscaneasilyretrievethepropertyvalueatoriginationfromtheirbooksanddonottypicallyupdateittothecurrentpropertyvalue.Inothercountries,regulatorsrequirefinancialinstitutionstoupdatethepropertyvalueyearoveryear.91FinancedEmissions–SecondEdition–EquationstocalculatefinancedemissionsFinancedemissionsofaCREloanorinvestmentarecalculatedbymultiplyingtheattributionfactorbytheemissionsofthebuilding.Thus,financedemissionsarecalculatedasfollows:𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒=@𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓#×𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑛𝑛𝑔𝑔𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒##(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑏𝑏=𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏)Theemissionsofbuildingsarecalculatedastheproductofabuilding’senergyconsumptionandspecificemissionfactorsforeachsourceofenergyconsumed.Thetotalenergyuseofthebuildingincludestheenergyconsumedbytheoccupantsofthebuilding.𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒=-𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎#𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜##,%×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐#,%×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐%(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑏𝑏=𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑎𝑎𝑎𝑎𝑎𝑎𝑒𝑒=𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠)DatarequiredActualbuildingenergyconsumptionispreferredbutmaynotbewidelyavailable.Intheabsenceofmetereddata,energyusecanbeestimatedbasedonbuildingcharacteristicsandpubliclyavailabledata.Varioussourcesandcommercialdatabasesareavailableanddivideenergyconsumptionbycharacteristicslikeenergylabel,typeofproperty,andfloorareaofproperty.Whenapplyingthesedataonalargesampleoffinancedproperties,itispossibletogetareasonableapproximationoftheemissions.Similarly,supplier-specificemissionfactors142forspecificenergysourcesshouldbeusediftheyareavailable.Iftheyarenot,averageemissionfactors143maybeused.PCAF’sweb-basedemissionfactordatabaseprovidesemissionfactorsbybuildingtype,floorarea,andnumberofbuildingsforalargesetofgeographies.InMarch2022,PCAFalsolaunchedapubliclyavailabledatabaseofemissionfactorsforEuropeanbuildingsaspartofitsproject,Financingtowardsnet-zerobuildings.Toimprovebuildingenergyuseestimation,financialinstitutionsshouldcollectdataonbuildingcharacteristics(e.g.,size,buildinguse,climatezone,andyearconstructed).Basedonthedataavailable,thefollowingdatahierarchyisproposedinorderofpreference:142Inthecaseofelectricity,supplier-specificemissionfactorsarethesameasmarket-basedemissionfactors.143Inthecaseofelectricity,averageemissionfactors,whicharenon-supplier-specificemissionfactors,arethesameaslocation-basedemissionfactors.92FinancedEmissions–SecondEdition–Table5-14.GeneraldescriptionofthedataqualityscoretableforCRE(score1=highestdataquality;score5=lowestdataquality)DataQualityOptionstoestimatethefinancedemissionsWhentouseeachoptionScore1Option1:Actualbuildingemissions1aPrimarydataonactualbuildingenergyconsumption(i.e.,metereddata)isavailable.Emissionsarecalculatedusingactualbuildingenergyconsumptionandsupplier-specificemissionfactors144specifictotherespectiveenergysource.1bPrimarydataonactualbuildingenergyconsumption(i.e.,metereddata)isavailable.Emissionsarecalculatedusingactualbuildingenergyconsumptionandaverageemissionfactorsspecifictotherespectiveenergysource.Score2Score3Option2:Estimatedbuildingemissionsbasedonfloorarea2aEstimatedbuildingenergyconsumptionperfloorareabasedonofficialbuildingenergylabelsANDthefloorareaareavailable.Emissionsarecalculatedusingestimatedbuildingenergyconsumptionandaverageemissionfactorsspecifictotherespectiveenergysource.Score42bEstimatedbuildingenergyconsumptionperfloorareabasedonbuildingtypeandlocation-specificstatisticaldataANDthefloorareaareavailable.Emissionsarecalculatedusingestimatedbuildingenergyconsumptionandaverageemissionfactorsspecifictotherespectiveenergysource.Score5Option3:Estimatedbuildingemissionsbasedonnumberofbuildings3Estimatedbuildingenergyconsumptionperbuildingbasedonbuildingtypeandlocation-specificstatisticaldataANDthenumberofbuildingsareavailable.Emissionsarecalculatedusingestimatedbuildingenergyconsumptionandaverageemissionfactorsspecifictotherespectiveenergysource.Adetailedsummaryofthedataqualityscoretable,includingdataneedsandequationstocalculatefinancedemissions,isprovidedinAnnex10.1(Table10.1-4).OtherconsiderationsEmissionfactorsspecifictoenergysourceConsumedenergycanbeconvertedtoCO2eusingemissionfactors.Whenconvertingbuildingenergyusetoemissions,careshouldbetakentouseemissionfactorsthatareappropriatetotheenergytypeusedinthebuilding,e.g.,electricity,naturalgas,fueloil,steam,etc.Thesefactorsshouldbespecifiedaccordingtothetypeofenergyconsumed.144Supplier-specificemissionfactorisanemissionrateprovidedbytheenergysupplier(e.g.,utility)toitscustomersreflectingtheemissionsassociatedwiththeenergyitprovides(e.g.,electricity,gas,etc.).Averageemissionfactorsrepresenttheaverageemissionsoftherespectiveenergysourcesoccurringinadefinedboundary(e.g.,nationalorsubnational).93FinancedEmissions–SecondEdition–BuildingcharacteristicsVariousbuildingcharacteristicscanbetakenintoconsiderationtoprovideadditionalresolutiontoaverageenergyconsumptionandemissionswhenactualdataisunavailable.Manycountriesconductsurveystopubliclyprovidebuildingtypeandlocation-specificstatisticaldataonaverageenergyconsumptionbycharacteristicssuchasfloorspace,145principalbuildingactivity,region,numberoffloors,andyearconstructed.Othernationalsurveysmightprovidetablesonemissionsandenergysourceorendusebyindustryandregion.Wherepossible,themostcommonregionalelectricitygridmixdataforthebuilding’slocationshouldbeused.Ifthisisunavailable,country-levelelectricitygridmixemissionsdatashouldbeused.LimitationsCountry-specificassumptionsManycountrieslackwidespreaduseofbuildingenergylabels,anditmaybechallengingforfinancialinstitutionstoaccessaborrower’smeasuredenergyconsumptiondata.Assuch,limitedactualdatawillrequirefinancialinstitutionstoestimatebuildingenergyuse.Institutionsmayfindthatthedatatheyhaveavailableintheexistingportfoliorequiresusingaveragevalues.Collectingadditionalbuildingdataatloanorinvestmentoriginationmayimprovefutureestimationsofenergyuse.Somemunicipalgovernmentsarecollectingbuildingenergydata,andthiscouldproveusefulforsomefinancialinstitutions.Somecountry-specificadjustmentswillneedtobemadetomakethecalculationapplicabledependingonthedataavailabilityandstandardsineachcountry.Thevariationsacrosscountriesintheirsystemsofcategorizingtheenergyefficiencyofbuildingsrequireatailoredapproachforoptimalaccuracyincalculations.PropertyvalueThisFinancedEmissionsStandardrequiresfinancialinstitutionstousethepropertyvaluesdeterminedatloanorequityoriginationinrelationtotheoriginalvalueoftheproperty.Thus,usingtheoutstandingamounttotheoriginalvalueprovidesaconsistentestimateoftheproportionoftheprojectattributabletotheloanandinvestment.Nevertheless,PCAFrecognizesthattheavailabilityofpropertyvalueatloanorequityoriginationvariesglobally.Insomecountries,financialinstitutionscaneasilyretrievethepropertyvalueatoriginationfromtheirbooksanddonottypicallyupdateitonanannualbasis.Inothercountries,regulatorsrequirefinancialinstitutionstoupdatepropertyvaluesannually.Consideringthesedifferences,andtoensureasmuchconsistencyaspossibleinthecalculations,whenfinancialinstitutionsdonothavethepropertyvalueatorigination,theyshallusethelatestpropertyvalueavailable.Inaddition,theyshallfixthisvalueforthefollowingyearsofGHGaccounting,i.e.,thedenominatorremainsconstantfromthefirstyearofGHGaccountingonward.Thepropertyvalueincludesthevalueoftheland,thebuilding,andanybuildingimprovements.145Whenselectinganemissionfactorbasedonfloorspace,financialinstitutionsshouldmakesurethattheunitoftheemissionfactormatchesthetypeoffloorarea,e.g.,netfloorarea,usablefloor,etc.5.5Mortgages5.5MortgagesIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6CHAPTER5Reviewandapplyaccountingmethodologiesforeachassetclass95FinancedEmissions–SecondEdition–AssetclassdefinitionThisassetclassincludeson-balancesheetloansforspecificconsumerpurposes—namelythepurchaseandrefinanceofresidentialproperty,includingindividualhomesandmultifamilyhousingwithasmallnumberofunits.Thisdefinitionimpliesthatthepropertyisusedonlyforresidentialpurposesandnotforcommercialactivities.Iftheloanisusedtorefinanceamortgageandthisloanisprovidedbytheoriginalmortgageprovider,thenewloansupersedestheoriginalmortgage.Iftherefinancingisdonebyaninstitutionotherthantheoriginalloanprovider,thenewloanandassociatedbuilding’semissionsareattributedtotheinstitutionprovidingtheloanforrefinancing.Homeequityloans(HELs)andhomeequitylinesofcredit(HELOCs)arenotrequiredunderthismethodologygiventhattheseproductsaregenerallyconsumerloansforgeneralconsumerpurposes,i.e.,withunknownuseofproceedsasdefinedbytheGHGProtocol.146Mortgagesusedtoconstructorrenovateahousearenotrequiredatthispointgiventhatthehomeownerdoesnotdirectlyaccountforconstructionemissions.Asahomeisoftenconstructedorrenovatedbyathirdparty(i.e.,ahomebuilder)contractedbythehomeowner,theemissionsoftheconstructionwouldnormallybeaccountedbythethirdpartyduringthebuilding’sconstructionphase.147Nevertheless,PCAFacknowledgesthatconstructionemissions,notablybuilding’sembodiedGHGemissions,areimportantandshouldnotbeneglected.PCAFrecommendsfinancialinstitutionstofindopportunitiesintheduediligenceprocesstoinfluencethehomeownerintomakinglow-carbonchoices.PCAFwillcontinuetomonitorguidancedevelopments148onthesubject.Whenrobustapproachesanddatatomeasuretheembodiedemissionsofbuildingsareavailable,PCAFcouldexpanditscoveragetoincludetheseemissions.EmissionscopescoveredFinancialinstitutionsshallcovertheabsolutescope1and2emissionsrelatedtotheenergyuseofthepropertyfinancedthroughthemortgage.Energyuseincludestheenergyconsumedbythebuildingoccupants.Ifthemortgageisusedtopurchaseamultifamilyhomewithsharedfacilities,scope1and2emissionsofthewholepropertyshouldbecovered.Ifthemortgageisusedtobuyasingleapartmentorhouse,emissionsrelatedtotheapartmentorhouseshouldbecovered.146Iftheconsumerloanistopurchasemotorvehicles,financialinstitutionsshallusethemotorvehicleloansassetclassmethod(subchapter5.6).147Theoretically,theseemissionswouldbecategorizedunderscope3ofthehomeowner,butinpracticehomeownersdonotreportemissions;thus,itisimpracticalforfinancialinstitutionstomeasurefinancedemissionsofaconstructionorrenovationmortgage.148Forexample,theWBCSDisworkingoncreatinganapproachfortheembeddedcarbonofconstructions.Atthispoint,theyaredefiningatheoreticalapproachwithaworkinggroupconsistingofrealestatedevelopers,buildingmaterialproducers,constructioncompanies,andtechnicalconsultants.Thekeyinthisapproachistousealifecycleassessmenttoobtainaveragevaluesofembeddedcarbonpersquaremeterofbuilding,whichwilldifferperclimatezoneandbuildingtypology96FinancedEmissions–SecondEdition–AttributionofemissionsWhencalculatingfinancedemissions,abuilding’sannualemissionsareattributedtothemortgageproviderusingaloan-to-valueapproach.Thus,theattributionisequaltotheratiooftheoutstandingamountatthetimeofGHGaccountingtothepropertyvalueatthetimeofloanorigination.𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓#=𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎#𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜#(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑏𝑏=𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏)Whenthepropertyvalueatloanoriginationisnotfeasibletoobtain,financialinstitutionsshallusethelatestpropertyvalueavailableandfixthisvalueforthefollowingyearsofGHGaccounting,i.e.,thedenominatorremainsconstant.149Theattributionapproachassumestheresidentialpropertyowneralsotakesownershipofthebuilding’semissions.EquationstocalculatefinancedemissionsFinancedemissionsofmortgagesarecalculatedbymultiplyingtheattributionfactorbytheemissionsofthebuilding.Thus,financedemissionsarecalculatedasfollows:𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒=@𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓#×𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒##(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑏𝑏=𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏)Theemissionsofbuildingsarecalculatedastheproductofabuilding’senergyconsumptionandspecificemissionfactorsforeachsourceofenergyconsumed.Thetotalenergyuseofthebuildingincludestheenergyconsumedbythebuilding’soccupant.Theequationbelowistheresult.𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒=-𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎#𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜##,%×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐#,%×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓%(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑏𝑏=𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑎𝑎𝑎𝑎𝑎𝑎𝑒𝑒=𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑔𝑔𝑔𝑔𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠)149Availabilityofpropertyvalueatloanoriginationvariesbycountry.Insomecountries,financialinstitutionscaneasilyretrievethepropertyvalueatloanoriginationfromtheirbooksanddonottypicallyupdateittothecurrentpropertyvalue.Inothercountries,regulatorsrequirefinancialinstitutionstoupdatethepropertyvalueyearoveryear..97FinancedEmissions–SecondEdition–DatarequiredTheavailabilityofdataontheenergyconsumptionofpropertiesisstilllimitedinmanycountries;inothers,ithasimprovedconsiderablyduetopolicyregulationswithinthebuiltenvironment,suchastheintroductionofenergyperformancecertificatesandenergylabels.Insuchcountries,theavailabledataisusuallyanonymizedbyaveragingdataoverseveralhouseholdsinthesamepeergroup.Often,buildings’energydataisavailablebyenergylabel,typeofhouseholdorsector,andtypeofproperty.Whenapplyingthesedataonmanyfinancedproperties,itispossibletogetareasonableapproximationoftheemissions.Asmoredatasourcesbecomeavailable,financialinstitutionsareexpectedtomoveupthedatahierarchy.Easilyaccessibledataformanycountriesiscurrentlybetweenscore4and5ofthedataqualityscoretableprovidedbelow.Somefinancialinstitutionsmaynotcollectinformationonpropertysize,inwhichcasetheycanusetheaverageenergyconsumptionbybuildingandgeographicregion.Financialinstitutionsshouldusethehighestqualitydatasetavailableandevaluatenewdatasourcesonaregularbasis.Supplier-specificemissionfactors150forspecificenergysourcesshouldbeusediftheyareavailable.Iftheyarenot,averageemissionfactors151maybeused.PCAF’sweb-basedemissionfactordatabase152providesemissionfactorsbybuildingtype(e.g.,single-familyhouseandmultifamilyhouse),floorarea,andnumberofbuildingsforalargesetofgeographies.150Inthecaseofelectricity,supplier-specificemissionfactorsarethesameasmarket-basedemissionfactors.151Inthecaseofelectricity,averageemissionfactors,whicharenon-supplier-specificemissionfactors,arethesameaslocation-basedemissionfactors.152ThePCAFweb-basedemissionfactordatabaseiscurrentlyonlyavailabletofinancialinstitutionsthathavecommittedtoPCAF.98FinancedEmissions–SecondEdition–Thefollowingdatahierarchyisproposedinorderofpreference:Table5-15.Generaldescriptionofthedataqualityscoretableformortgages(score1=highestdataquality;score5=lowestdataquality)DataQualityOptionstoestimatethefinancedemissionsWhentouseeachoptionScore1Option1:Actualbuildingemissions1aPrimarydataonactualbuildingenergyconsumption(i.e.,metereddata)isavailable.Emissionsarecalculatedusingactualbuildingenergyconsumptionandsupplier-specificemissionfactors153specifictotherespectiveenergysource.1bPrimarydataonactualbuildingenergyconsumption(i.e.,metereddata)isavailable.Emissionsarecalculatedusingactualbuildingenergyconsumptionandaverageemissionfactorsspecifictotherespectiveenergysource.Score2Score3Option2:Estimatedbuildingemissionsbasedonfloorarea2aEstimatedbuildingenergyconsumptionperfloorareabasedonofficialbuildingenergylabelsANDthefloorareaareavailable.Emissionsarecalculatedusingestimatedbuildingenergyconsumptionandaverageemissionfactorsspecifictotherespectiveenergysource.Score42bEstimatedbuildingenergyconsumptionperfloorareabasedonbuildingtypeandlocation-specificstatisticaldataANDthefloorareaareavailable.Emissionsarecalculatedusingestimatedbuildingenergyconsumptionandaverageemissionfactorsspecifictotherespectiveenergysource.Score5Option3:Estimatedbuildingemissionsbasedonnumberofbuildings3Estimatedbuildingenergyconsumptionperbuildingbasedonbuildingtypeandlocation-specificstatisticaldataANDthenumberofbuildingsareavailable.Emissionsarecalculatedusingestimatedbuildingenergyconsumptionandaverageemissionfactorsspecifictotherespectiveenergysource.Adetailedsummaryofthedataqualityscoretable,includingdataneedsandequationstocalculatefinancedemissions,isprovidedinAnnex10.1(Table10.1-5).Financialinstitutionsshouldworkwithactualdataontheenergyconsumptionofproperties,ifavailable.Theconsumedenergyatthehouseholdlevel(e.g.,gas,electricity,heatingoil,wood,etc.)canbeconvertedtoCO2e-emissionsusingsupplier-specificemissionfactorsoraverageemissionfactorsifnoemissionsdataisprovidedinthechosendatasources.SomedatasourcesreportonlyenergyusewhereasothersreportCO2eemissions.Asanintermediatestep,financialinstitutionscouldstartcollectingbuildingsizedata,inadditiontogeographiclocationandbuildingtype,andenergylabels,whereavailable,tomoreaccuratelycapturethefinancedemissionsoftheirmortgages.153Supplier-specificemissionfactorisanemissionrateprovidedbytheenergysupplier(e.g.,utility)toitscustomersreflectingtheemissionsassociatedwiththeenergyitprovides(e.g.,electricity,gas,etc.).Averageemissionfactorsrepresenttheaverageemissionsoftherespectiveenergysourcesoccurringinadefinedboundary(e.g.,nationalorsubnational).99FinancedEmissions–SecondEdition–OtherconsiderationsObtainingdataonenergyconsumptionActualenergyconsumptiondataspecifictoacertainmortgageportfolioispreferredbecausethiswillbemoreaccuratethanworkingwithaverageenergyconsumptiondata.Insomemarketswithcleargovernmentpartnershipsonclimateaction,financialinstitutionsmightattempttoworkatthepolicyleveltoobtainactualdatadirectlyfromgridoperatorsorgovernmentagencies.Forexample,in2020sevenDutchfinancialinstitutionsinPCAFcollaboratedwiththeDutchCentralBureauofStatisticstomeasuretheemissionsoftheirmortgageportfolios.Almostallgridsarereducingtheiremissionsovertime,resultingingraduallyreducedemissionsformortgageportfolios.Wherepossible,themostcommonregionalelectricitygridmixdataforthebuilding’slocationshouldbeused;ifunavailable,country-levelelectricitygridmixemissionsdatashouldbeused.Ifactualconsumptiondataisunavailable,financialinstitutionsshouldstartcollectingbuildingsize,geographiclocation,andbuildingtypedatatomoreaccuratelycapturetheassociatedemissionsoftheirmortgages.Ifactualenergyconsumptiondataisused,itmaybeunclearifalltheenergyconsumptionisapplicablesolelyforthehouseor,forinstance,alsoforanelectricvehicle(EV).Ifpossible,theactualenergyconsumptiondatacanbefurtherdisaggregatedtodifferentiatetheelectricityusedinthehomefromtheelectricityusedforchargingthevehicle.Off-balancemortgagesandsubsidiariesThescopeofthismethodologyison-balancesheetmortgages.Off-balancesheetmortgagesarenotincluded.Ifrelevantandsubstantial,off-balancesheetmortgagescanbereportedseparately.DistinguishingbetweenprivateandcorporatemortgagesNodistinctionismadebetweenprivateorcorporatemortgages.Improvingahome’senergyperformanceTheattributionapproachassumestheresidentialpropertyowneralsotakesownershipofthebuilding’semissions.Duringthemortgageperiod,financialinstitutionsmayhavetheopportunitytoworkwiththepropertyownertolowerthebuildingemissionsbyofferingadditionalfinancialservicesthatareusedtoimprovetheenergyperformanceofthebuilding.Greenmortgages,lowcarbonmortgages,orenergyefficientmortgagesaresomeoftheexistingproductsinvariousmarketsaroundtheglobe.LimitationsResultsdependondataqualityManyassumptionsmustbemadetocalculatetheemissionsofmortgagesasdataisoftendifficulttoretrieveforprivacyreasons.Eventhoughthecalculationmethoddoesnotdiffergreatly,thedatasourcesusedcanyielddifferentresults—forinstance,whenaverageconsumptiondataisreplacedbyactualconsumptiondatafromgridoperators.100FinancedEmissions–SecondEdition–Country-specificassumptionsSomecountry-specificadjustmentswillneedtobemadetomakethecalculationapplicabledependingonthedataavailabilityandstandardsineachcountry.Thevariationsacrosscountriesintheirsystemsofcategorizingtheenergyefficiencyofhousesrequireatailoredapproachforoptimalaccuracyincalculations.5.6Motorvehicleloans5.6MotorvehicleloansIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6CHAPTER5Reviewandapplyaccountingmethodologiesforeachassetclass102FinancedEmissions–SecondEdition–AssetclassdefinitionThisassetclassreferstoon-balancesheetloansandlinesofcredittobusinessesandconsumersforspecific(corporateorconsumer)purposes-namelythefinanceofoneorseveral154motorvehicles.Financialinstitutionswillfinancedifferentvehicletypesandwillalsousedifferentinternaldefinitionsandcategoriesforthemotorvehicletypesbeingfinancedbytheirinvestments.Forexample,onefinancialinstitutionmayhaveaportfoliomainlyofpassengercarsandmotorcycles,whileanotherfinancialinstitutionmayhaveastrongshareofbusesandheavy-dutytrucks.Thismethodologydoesnotprescribeaspecificlistofvehicletypesfallingwithinthisassetclass.Instead,itleavesitopenforfinancialinstitutionstodecideanddefinewhatvehicletypestoincludeintheirinventoryoffinancedemissions.Itistheresponsibilityofeachfinancialinstitutiontodefinethevehicletypesincludedintheirrespectiveinventoriesoffinancedemissionsand,inthecaseofleavingaspecificvehicletypeoutoftheGHGaccountingexercise,toprovideatransparentexplanationofwhyavehicletypeisexcluded.Thefollowingnon-exhaustivelistprovidesexamplesofthevehicletypesthatmayfallundertheassetclassofmotorvehicleloans:•Passengercar•Motorcycle•Lightcommercialtruck(e.g.,vans)•Medium/heavycommercialtruck•Recreationalvehicles•Bus•Snowmobiles/all-terrainvehicles•Boats,includingoutboardmotors155•Yellowequipment(i.e.,earth-movingvehiclesforminingandconstruction)Financialinstitutionstypicallyfinancemotorvehicleloansthroughconsumerlendingorbusinesslending.Consumerlendingformotorvehiclesincludesfinancingthepurchaseofamotorvehicleforaprivateperson,whereasbusinessloansformotorvehiclestypicallyincludesfinancingafleetofmotorvehiclesforabusiness.156154Asingleloanmightcoverthepurchaseofseveralvehiclesorfleets.Inanycase,themethodologypresentedinthischaptershouldbeused.155Dependingontheportfolioofsomefinancialinstitutions,itmaybeappropriatetodifferentiatebetweenthevehicleandthepropulsionsystemofthatvehicle.Inthiscase,itispossibletoapplythemethodologyforthevehicleasawholebutalsotothepropulsionsystemonitsown.Anexampleofthisarefinancialinstitutionsthathaveboatsontheirportfolio.Inthiscase,itiscommontohaveloansforboatsandalsoloansforoutboardmotorsalone.156Notethattheterm“fleet”doesnotnecessarilyrefertomultiplevehiclesonly.Itcanalsorefertoasinglebusinessvehicle.103FinancedEmissions–SecondEdition–EmissionscopescoveredFinancialinstitutionsshallcalculateandreporttheannualscope1andscope2emissionsofthevehiclesbeingfinanced:•Scope1:Directemissionsfromfuelcombustioninvehicles•Scope2:IndirectemissionsfromelectricitygenerationconsumedinEVs(hybridandfullyEVs)Scope3emissionsrelatedtotheproductionofvehicles,deliveryofvehiclestobuyers,ordecommissioningofvehiclesafterusedonotneedtobecoveredbecausetheseemissionsaredifficulttoobtainandcanbeconsideredrathermarginal.However,ifafinancialinstitutionseekstoaccountfortheproductionemissionsofnewvehicles(i.e.,embodiedemissions),theyshouldreporttheemissionsasfollows:•Intheinitialfinancingyear,thefinancialinstitutionshallreporttheproductionemissionsoftherespectivevehicleasalumpsumunderscope3emissions,whiletheoperationemissionsintherespectiveyearshallbereportedunderscope1or2emissions.•Inthefollowingfinancingyears,thefinancialinstitutionshallnotreportanyproductionemissionsoftherespectivevehicle;theyshallonlyreporttheoperationemissionsunderscope1or2emissions.Thisapproachonscope3emissionsonlyholdsfornewvehicles,notusedvehicles.AttributionofemissionsAsabasicattributionprinciple,thefinancialinstitutionaccountsforaportionoftheborrower’sannualmotorvehicleemissionsasdeterminedbytheratiobetweentheoutstandingamount(numerator)andthevalueofthemotorvehicleatloanorigination(denominator).Thisratioiscalledtheattributionfactor:1.Outstandingamount(numerator):Thisistheactualoutstandingmotorvehicleloanamount,definedasthevalueofthedebtthatthedebtorowestothecreditor.Itwillbeadjustedannuallytoreflectthecorrectexposure,resultingintheattributiontodeclineto0attheendofthelifetimeoftheloan(i.e.,whenitisfullyrepaid).Financialinstitutionsshouldeitherusethecalendarorfinancialyear-endoutstandingloan,providedtheapproachiscommunicatedandusedconsistently.2.Totalvalueatorigination(denominator):Thisisthetotalvalueofthemotorvehicleatloanorigination,whichcorrespondstothepriceofthevehicleatthetimeofthetransaction,i.e.,equityplusdebtatorigination.𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓$=𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎$𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜$(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑣𝑣=𝑣𝑣𝑣𝑣ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑜𝑜𝑜𝑜𝑣𝑣𝑣𝑣ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓)104FinancedEmissions–SecondEdition–Ifthetotalvalueofthemotorvehicleatorigination(i.e.,thedenominator)isunknown,financialinstitutionsshouldtakeaconservativeapproachandassume100%attribution.Assoonasthemotorvehicleloanisrepaid,thefinancedemissionsassociatedtothatloanareequalto0.EquationstocalculatefinancedemissionsThefinancedemissionsfromamotorvehicleloanarecalculatedbymultiplyingtheattributionfactorbytheemissionsofthemotorvehicle.Thetotalfinancedemissionsfrommultiplemotorvehicleloansarecalculatedasfollows:𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒=@𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓$×𝑉𝑉𝑉𝑉ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒$$(𝑤𝑤𝑤𝑤𝑤𝑤ℎ𝑣𝑣=𝑣𝑣𝑣𝑣ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑜𝑜𝑜𝑜𝑣𝑣𝑣𝑣ℎ𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓)Theemissionscan,inprinciple,becalculatedbymultiplyingthedistancetraveledbythevehicle(e.g.,km)bythefuelefficiencyofthevehicle(e.g.,ldiesel/km,kWhelectricity/km)andanemissionfactorspecifictothefueltypeofthevehicle(e.g.,kgCO2e/ldiesel,kgCO2e/kWhelectricity).Thetotalfinancedemissionsfrommultiplemotorvehicleloansarecalculatedasfollows:(withv=vehicleorvehiclefleet,f=fueltype)OutstandingamountvTotalvalueatoriginationv×Vehicleemissionsv×DistancetraveledvxEfficiencyv,f×Emissionfactorf∑vOutstandingamountvTotalvalueatoriginationv∑v,fFinancedemissions=Financedemissions=Thefinancedemissionsfrommotorvehicleloanscanbecalculatedinseveralwaysdependingontheavailabilityofdatatoderivetheemissionsofthefinancedvehicle.Overall,PCAFdistinguishesthreeoptionstocalculatethefinancedemissionsfrommotorvehicleloansdependingonthedataused:157•Option1:actualvehicle-specificemissions,158whereemissionsarecalculatedbasedonactualvehiclefuelconsumptionoractualvehicledistancetraveledforaknownvehiclemakeandmodelwithdatadirectlycollectedfromtheborrower.-Option1a:Vehicleemissionsarecalculatedbasedonprimarydataonactualvehiclefuelconsumption.-Option1b:Vehicleemissionsarecalculatedbasedonvehicleefficiencyandfueltype(fossilorelectricity)fromknownvehiclemakeandmodel159andprimarydataforactualvehicledistancetraveled.157Foralloptionstheattributionfactoriscalculatedinthesameway;theonlythingchangingisthewayvehicleemissionsarecalculated.158Formotorvehicleloanstoconsumers,thisapproachseemsratherunrealisticasconsumersareunlikelytoreporttheiractualfuelconsumptionordistancetraveledtoafinancialinstitution.However,formotorvehicleloanstobusinesses(inparticularforfinancingofcompany-ownedstaffcars),companiesoftencollectinformationonactualfuelconsumptionordistancetraveledandcouldsharesuchinformationwithfinancialinstitutions.159Vehiclemakeandmodelreferstothenameofthecompanythatmanufacturesthevehicleandtheproductnameofthevehicle.Forexample,ToyotaPrius.105FinancedEmissions–SecondEdition–•Option2:estimatedvehicle-specificemissions,whereemissionsarecalculatedbasedonestimatedvehicledistancetraveledforaknownvehiclemakeandmodelwithdatacollectedfromofficialstatistics.-Option2a:Vehicleemissionsarecalculatedbasedonvehicleefficiencyandfueltype(fossilorelectricity)fromknownvehiclemakeandmodelandestimatedvehicledistancetraveledderivedfromlocalstatisticaldata.160-Option2b:Vehicleemissionsarecalculatedbasedonvehicleefficiencyandfueltype(fossilorelectricity)fromknownvehiclemakeandmodelandestimatedvehicledistancetraveledderivedfromregionalstatisticaldata.161•Option3:estimatedvehicle-unspecificemissions,whereemissionsarecalculatedbasedonestimatedvehicledistancetraveledforanunspecifiedvehiclewithdatacollectedfromofficialstatistics.-Option3a:Vehicleemissionsarecalculatedbasedonvehicleefficiencyandfueltype(fossilorelectricity)fromknownvehicletype162(vehiclemakeandmodelareunknown)andestimatedvehicledistancetraveledderivedfromlocalorregionalstatisticaldata.-Option3b:Vehicleemissionsarecalculatedbasedonvehicleefficiencyandfueltype(fossilorelectricity)fromanaveragevehicle(vehiclemakeandmodelandvehicletypeareunknown)163andestimatedvehicledistancetraveledderivedfromlocalorregionalstatisticaldata.DatarequiredPCAFdistinguishesthreeoptionswithsixsub-optionstocalculatethefinancedemissionsfrommotorvehicleloansdependingonthedataused.AlthoughOption1b,Option2a,andOption2bareallbasedonknownvehiclecharacteristicsofvehicleefficiencyandfueltype,thedatausedforvehicledistancetraveledisofhigherqualityforOption1bthanitisforOption2a,anditisofhigherqualityforOption2athanitisforOption2b.Inthissense,whilethereareseveraloptionstocalculatefinancedemissions,thequalityoftheresultsisnotthesameforalltheseoptions.Forthisreason,PCAFgivesahigherscoretoresultsobtainedwithhigherdataqualityandalowerscoretoresultsobtainedwithlowerdataquality(score1=highestdataquality;score5=lowestdataquality).Ifafinancialinstitutionusesamixofoptionstocalculatetheemissionsofaborrower,thedatascoreforthelower-ratedoptionshouldbeassumedforthisborrower(i.e.,score4fromOption3a).Takeforinstancealineitemforwhichactualdistancetraveledandvehicletypeareknown,whilevehiclemakeandmodelareunknown.ThismeansthatOption1bandOption3aaremixed,andtherefore,thehighestpossibledataqualityscorethislineitemcouldreceiveisscore4.Thisisbecausethatisthescoreofthelowest-ratedoptioninthemix,Option3a.Table5-16providesdataqualityscoresforeachofthedescribedoptionsthatcanbeusedtocalculatethefinancedemissionsformotorvehicleloans.160Localstatisticaldatareferstostatisticaldataattheprovince/stateorsmallcountrylevel.161Regionalstatisticaldatareferstostatisticaldataatthelargecountryorasubcontinentallevel.162Vehicletypereferstoanoverallvehicleclasssuchaspassengercar,bus,orlightcommercialtruck.163Ifitisnotpossibletoknowthevehicletype,thenanaveragevehiclecanbeassumed.106FinancedEmissions–SecondEdition–Table5-16.Generaldescriptionofthedataqualityscoretableformotorvehicleloans(score1=highestdataquality;score5=lowestdataquality)164,165DataQualityOptionstoestimatethefinancedemissionsWhentouseeachoptionScore1Option1:Actualvehicle-specificemissions1aOutstandingamountandtotalvalueatoriginationofvehicleorvehiclefleetareknown.Primarydataonactualvehiclefuelconsumptionisavailable.Emissionsarecalculatedusingactualfuelconsumptionandfueltype-specificemissionfactors.1bOutstandingamountandtotalvalueatoriginationofvehicleorvehiclefleetareknown.Vehicleefficiencyandfueltype(fossiland/orelectricity)areavailablefromknownvehiclemakeandmodel.166Primarydataonactualvehicledistancetraveledisavailable.Emissionsarecalculatedusingestimatedfuelconsumptionandfueltype-specificemissionfactors.Score2Option2:Estimatedvehicle-specificemissions2aOutstandingamountandtotalvalueatoriginationofvehicleorvehiclefleetareknown.Vehicleefficiencyandfueltype(fossiland/orelectricity)areavailablefromknownvehiclemakeandmodel.Distancetraveledisestimatedbasedonlocalstatisticaldata.167Emissionsarecalculatedusingestimatedfuelconsumptionandfueltype-specificemissionfactors.Score32bOutstandingamountandtotalvalueatoriginationofvehicleorvehiclefleetareknown.Vehicleefficiencyandfueltype(fossiland/orelectricity)areavailablefromknownvehiclemakeandmodel.Distancetraveledisestimatedbasedonregionalstatisticaldata.168Emissionsarecalculatedusingestimatedfuelconsumptionandfueltype-specificemissionfactors.Score4Option3:Estimatedvehicle-unspecificemissions3aOutstandingamountandtotalvalueatoriginationofvehicleorvehiclefleetareknown.Vehicleefficiencyandfueltype(fossiland/orelectricity)areestimatedfromknownvehicletype(vehiclemakeandmodelareunknown).169Distancetraveledisestimatedbasedonlocalorregionalstatisticaldata.Emissionsarecalculatedusingestimatedfuelconsumptionandfueltype-specificemissionfactors.Score53bOutstandingamountandtotalvalueatoriginationofvehicleorvehiclefleetareknown.Vehicleefficiencyandfueltype(fossiland/orelectricity)areestimatedforanaveragevehicle(vehiclemakeandmodelandvehicletypeareunknown).170Distancetraveledisestimatedbasedonlocalorregionalstatisticaldata.Emissionsarecalculatedusingestimatedfuelconsumptionandfueltype-specificemissionfactors.Adetailedsummaryofthedataqualityscoretable,includingdataneedsandequationstocalculatefinancedemissions,isprovidedinAnnex10.1(Table10.1-6).164Fueltypeinthecaseofelectricorhybridvehiclescanalsorefertoelectricity.165Foralloptionsshowninthetable,supplier-specificemissionfactors(e.g.,fromelectricityprovider)fortherespectiveprimaryactivitydataarealwayspreferredovernon-supplier-specificemissionfactors(i.e.,alsosometimesreferredtoasaverageemissionfactors).166Vehiclemakeandmodelreferstothenameofthecompanythatmanufacturesthevehicleandtheproductnameofthevehicle.Forexample,ToyotaPrius.167Localstatisticaldatareferstodataattheprovince/stateorsmallcountrylevel.168Regionalstatisticaldatareferstodataatthelargecountryorasubcontinentallevel.169Vehicletypereferstoapassengercar,bus,orlightcommercialtruck.170Ifitisnotpossibletoknowthevehicletype,anaveragevehiclecanbeassumed.107FinancedEmissions–SecondEdition–Dataforallthreeoptionscanbederivedfromdifferentdatasources.DataonvehicleefficiencyandfueltypepervehiclemakeandmodelcanbederivedfromofficialstatisticaldatasourcessuchastheUSEPA’sFederalTestProcedure171andtheEEA’sWorldwideHarmonizedLightVehiclesTestProcedure(WLTP).172Bothdatasourcesprovidedetailedvehicleefficiencyandfueltypeinformationbymakeandmodel.Option1b,Option2a,andOption2brequiresuchinformation.Ifmakeandmodelareunknowntothereportingfinancialinstitution(Option3),vehicleefficiencyandfueltypecanbeestimatedonthevehicletypelevel(e.g.,passengercar)usingtheInternationalCouncilonCleanTransportation’s(ICCT’s)TransportationRoadmap173ortheInternationalTransportForumattheOrganisationforEconomicCo-operationandDevelopment(ITFOECD).174Ifnoactualdistancetraveledisknowntothereportingfinancialinstitution,dataonvehicledistancetraveledcanbeestimatedbasedondatasourcessuchastheICCTTransportationRoadmaportheITFOECD.Severallocalstatisticaldatasourcesprovidegeography-specificvehicledistancestraveled.FortheUSandCanada,state-orprovince-leveldistanceperyearcanberetrievedfromcarinsurance.com175andtheCanadianOfficeofEnergyEfficiency.176PCAF’sweb-basedemissionfactordatabase,whichiscurrentlyavailableonlytofinancialinstitutionsthathavecommittedtoPCAF,providesemissionfactorspervehicletype(e.g.,passengercar)andpervehiclemakeandmodel(e.g.,VWPolo)foralargesetofgeographies.Thesemotorvehicleemissionfactorsarewidelybasedonthesourcesmentionedabove.PCAFexpectsthatthefinancedemissionsformotorvehicleloanscanbederivedthrougheitheractualvehicle-specificemissions(Option1),estimatedvehicle-specificemissions(Option2),orestimatedvehicle-unspecificemissions(Option3).However,PCAFallowstheuseofalternativeapproachestocalculateemissionsifnoneofthespecifiedoptionscanbeusedorinthecasethatnewapproachesaredeveloped.Thereportingfinancialinstitutionshallalwaysexplainthereasonsforusinganalternativeapproachifitdeviatesfromtheoptionsdefinedabove.171TheUSEPA’sFederalTestProcedureisaseriesofdrivecycleteststomeasurethetailpipeemissionsandfuelefficiencyofpassengercars.BecausethesetestsareusedtoverifythatcarssoldintheUSmeetEPAregulatorystandards,theirresultsreflecttheroadperformanceofpassengercarsintheUS.Theresultsformorethan4,000makesandmodelsarepubliclyavailableonfueleconomy.gov,downloadablein.csvformat.172TheWLTPisaglobal,harmonizedstandardofdrivecycleteststodeterminethetailpipeemissionsandfuelefficiencyofpassengercars.ItwasdevelopedbytheUnitedNationsEconomicCommissionforEuropetoreplacetheoldNewEuropeanDrivingCycle(NEDC)astheEuropeanvehiclehomologationprocedure.TheNEDCwasshowntobeflawed,enablingmanufacturerstomeetEUenvironmentalstandardsduringlabtestsbutnotontheroad(Dieselgate).TheWLTPwasconceivedtorectifythis.TheWLTPfinalversionwaspublishedin2015.Hence,eventhoughitwillbecomeatrulyinternationalstandardintime,itisonlyusedintheEUfornow,anditsresultsonlyreflecttheperformanceofcarssoldwithintheEU.TheseresultsarepublishedbytheEEAin.csvformatandcanbedownloadedathttps://www.eea.europa.eu/data-and-maps/data/co2-cars-emission-16.173TheICCT’sTransportationRoadmaphasbeenaglobalreferenceforenvironmentalperformancedataonallmajortransportationmodes,fueltypes,andvehicletechnologiessince2012.Overthepastdecade,theICCThasextendeditsroadmapmodeltocover11ofthelargestvehiclemarkets(Australia,EU,Brazil,Canada,China,India,Japan,Mexico,SouthKorea,RussiaandtheUS)andfiveaggregateregions(Africa,OtherAsia-Pacific,OtherEurope,OtherLatinAmerica,andtheMiddleEast).Themostrecentresultsofthemodel(2017)aredownloadablein.xlsxformatontheICCTwebsite:https://theicct.org/transportation-roadmap#about.174TheOECDiLibrarymaintainsadatabaseoftransportstatisticscollectedbytheITFonthetransportoffreight(maritime,air,andsurface)andpassengers(car,rail,andair)initsmemberstateshttps://www.oecd-ilibrary.org/transport/data/itf-transport-statistics_trsprt-data-en.175Moreinformationcanbefoundat:https://www.carinsurance.com/Articles/average-miles-driven-per-year-by-state.aspx176Moreinformationcanbefoundat:http://oee.nrcan.gc.ca/publications/statistics/cvs08/appendix-1.cfm?graph=6&attr=0108FinancedEmissions–SecondEdition–LimitationsDataavailabilityInformationregardingactualvehicledistancetraveledmaynotbeeasilyavailable.Ifactualdataisunavailable,PCAFproposesusinglocalorregionalaveragesonvehicledistancetraveledbystate,province,country,orregion.PCAFproposesthatfinancialinstitutionscollecttheactualvehiclemakeandmodeltodeterminetheexactvehicleefficiencyandfueltype.Ifthefinancialinstitutiondoesnottrackthevehiclemakeandmodel,PCAFproposesthatthefinancialinstitutionfallbacktoagenericvehicletype(e.g.,passengercar,motorcycle,lightcommercialtruck,medium/heavycommercialtruck,bus)ortoanaveragevehicleasalastresort.Foraveragevehicles,thevehicleefficiencyisdeterminedbytheweightedaveragevehicleefficiencyintherespectivegeography.DualfuelvehiclesFordualfuelvehicles,thepercentageofusageperfuel(e.g.,gasolinevs.electricity)maybeunknown.Ifthevehiclemakeandmodelisknown,PCAFrecommendsassuminganaverageusagesplitfortherespectivehybridvehiclebasedoninformationfromnationalagenciesorthevehiclemanufacturer.Ifsuchinformationisnotavailable,PCAFproposeseitherapplyinganaveragegeography-specificusagesplit,or,ifthatisalsonotavailable,theconservativeassumptionthatthecombustionengine(e.g.,gasoline)isused100%ofthetime.ElectricitygridestimatesExactelectricitysourcedatawillnotbeknownforeachvehicleinafinancialinstitution’sportfolio(e.g.,wheredoestheborrowersourceelectricity?Doestheborrowersourcegrayorgreenelectricity?).Wherepossible,themostcommonlocalorregionalelectricitygridmixemissionfactorfortheborrower’slocationshouldbeused.Ifunavailable,themostcommonlocalorregionalelectricitygridmixemissionfactorforthefinancialinstitution’sbranchshouldbeused(i.e.,locationofthefinancialinstitutionwheretheloanwasissued).Ifalsounavailable,country-levelelectricitygridmixemissionsdatashouldbeused.5.7Sovereigndebt5.7SovereigndebtIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6IntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6CHAPTER5Reviewandapplyaccountingmethodologiesforeachassetclass110FinancedEmissions–SecondEdition–AssetclassdefinitionThisassetclassincludessovereignbondsandsovereignloansofallmaturitiesissuedindomesticorforeigncurrencies.Bothsovereignloansandbondsleadtothetransferoffundstothecountry,whichinturncreatesadebtobligationtoberepaidbytheborrowingcountry.Sovereigndebtistypicallyissuedbythecentralgovernmentortreasury.Financialinstitutions’exposuretocentralbankstypicallyconsistsofcash,foreignexchange,andderivative(repo)transactions.Thiscentralbankexposureisnotwithinscopeofthisaccountingstandard.However,insomecountries,centralbanksalsoissuedebtonbehalfofthesovereign.Inthosecases,centralbanksshouldbeassignedtheemissionsoftherespectivesovereign.Itischallengingtoextendthismethodologytosub-sovereignandmunicipalcounterpartiesduetoverylimiteddataavailabilityandbecausethesecounterpartiesarenotdirectlysubjecttointernationalGHGemissionsinventorystandards(e.g.,bytheUnitedNationsFrameworkConventiononClimateChange[UNFCCC]).Therefore,thesecounterpartiesarenotexplicitlypartofthisassetclass.Intermsofcoveringsupranationals–thesesupranationalsarepoliticalunionsfirst,andtheirbalancesheetsrepresenttheaggregatedbalancesheetsoftheirmembers.Technically,itispossibletoaggregatetheGHGemissionsofsupranationalsasasumoftheemissionsofitsmembers.Practically,thiswouldleadtodoublecounting.However,theaggregatedviewcanbeusefulforengagementwithrespectivebodies.EmissionscoveredFinancialinstitutionsshallreportsovereignborrowers’absolutescope1andshouldreportscope2and3inlinewiththeproposedscopedefinitionsbelow.Scopedefinition:TheGHGProtocol’sdefinitionofscope1,2,and3emissionswasinitiallydevelopedforclassificationofcorporateemissions.Nexttothecorporateemissions,theGHGProtocolalsopublishedaGlobalProtocolforCommunity-ScaleGreenhouseGasInventories(i.e.anAccountingandReportingStandardforCities)177,whichtranslatedthescopedefinitionstocities.PCAFhasattemptedtomirrorthisapproachforsovereigndebt.ThetablebelowrepresentsthePCAFscopedefinitionforsovereigndebt.Ideallyfinancialinstitutionsfollowthisbreakdownintheirreporting.177GlobalProtocolforCommunity-ScaleGreenhouseGasEmissionInventories,GHGProtocol,2014(revisededitionin2021),https://ghgprotocol.org/greenhouse-gas-protocol-accounting-reporting-standard-cities111FinancedEmissions–SecondEdition–Table5-17:PCAFscopedefinitionforSovereignDebtScope1Scope2Scope3DomesticGHGemissionsfromsourceslocatedwithinthecountryterritoryThisalignswiththeUNFCCCdefinitionofdomesticterritorialemissions,includingemissionsfromexportedgoodsandservicesGHGemissionsoccurringasaconsequenceofthedomesticuseofgrid-suppliedelectricity,heat,steamand/orcoolingwhichisimportedfromanotherterritoryEmissionsattributabletonon-energyimportsasaresultofactivitiestakingplacewithinthecountryterritoryUnderthisapproach,asovereignisseenprimarilyasanationalterritory,anditsdirect(scope1)GHGemissionsareattributabletoemissionsgeneratedwithinitsboundaries.Similartoemissionsclassificationofcities,scope2areemissionsattributabletothepurchase,inthiscaseimport,ofelectricity,steam,heatandcoolingfromoutsidethecountryterritory.Finally,scope3emissionsarerelatedtoallother(non-energy)importsfromgoodsorservicesfromoutsidethecountryterritoryasaresultofactivitiestakenplaceinthecountryterritory.Theclassificationallowstoaccountforaholisticviewofasovereign’sresponsibilityingeneratingemissionswithinandoutsideitsboundaries.Inparticular,theapproachallowstoaccountfor:•ProductionemissionsasdefinedbyUNFCCCnationalemissionsinventory(scope1)•Holisticviewofasovereign’semissionsactivity(scope1+2+3)asrequestedbytheEUSustainableFinanceDisclosureRegulation(SFDR)ThisapproachalsoallowsforGHGaccountingofemissionsofsovereigndebttakingtheconsumption-basedview.Forconsumption-basedaccounting,theemissionsrelatedtoexportshouldbesubtracted:ConsumptionEmissions=Productionemissions–Exportedemissions+Importedemissions.Soaccordingtoourscopedefinition,thiswouldbe:ConsumptionEmissions=scope1+2+3–Exportedemissions.Ourproposedscope1definitionalignswiththedefinitionofproductionemissions.Productionemissionsareemissionsattributabletoemissionsproduceddomesticallyandincludedomesticconsumptionandexports.ThisdefinitionfollowstheterritorialemissionsapproachadoptedbyUNFCCCforannualnationalinventoriesandistypicallyreferencedbysovereignsintheirNationallyDeterminedContributions(NDCs).InlinewithUNFCCC,theemissionsshouldcoverGHGemissionsfromspecifiedkeysectorsandcategories(energy,industrialprocessesandproductuse,agriculture,forestry,otherlanduse,andwaste).178However,thereisadivergenceofviewsamongemissionsdataprovidersandclimateexpertsregardingtheaccountingoflanduse,land-usechange,andforestry(LULUCF)emissionsgivensignificantdatauncertainty.Also,LULUCFemissionshavethepotentialtodistorttheoveralltrendsofthekeysectors(energy,industrialprocesses)thatcontributetoglobalwarming.178Qualityassurance/Qualitycontrolandverification,IPCCGuidelinesforNationalGreenhouseGasInventories,2006.https://www.ipcc-nggip.iges.or.jp/public/2006gl/pdf/1_Volume1/V1_6_Ch6_QA_QC.pdf112FinancedEmissions–SecondEdition–AscountriestreatLULUCFemissionsdifferentlyintheirmitigationtargetsandinvestorsmighthavedivergingviewsonthepotentiallyoffsettingroleofland-useandforestryemissions,financialinstitutionsshallreportscope1emissionsincludingandexcludingLULUCF.Table5-18:ExampleofCountryProductionEmissionsincludingandexcludingLULUCFCountryProductionEmissionsincl.LULUCF(ktCO2eq,2018)ProductionEmissionsexcl.LULUCF(ktCO2eq,2018)Netherlands191,029.65186,394.47Canada736,886.99728,475.89Finland48.071,956,281.8Austria73,500.878,627.6Source:https://di.unfccc.int/ghg_profile_annex1AlthoughProductionEmissionsiscurrentlyfrequentlythekeymetrictoaccountforsovereignGHGemissions,PCAFalsorecommendsthatfinancialinstitutionstracktheGHGemissionsofcountriesmoreholisticallyandreportConsumptionEmissionsasdescribedabove.ConsumptionEmissionsreflectthedemandsideofsovereignemissionsandaccountforconsumptionpatternsandtradeeffects.Thismetricprovidesabroaderviewofasovereign’sGHGemissionsandtacklestheissueofcarbonleakagethatarisesduetoproductionshiftsfromcountrieswheregoodsandservicesareactuallyconsumedlater.Itisalsoanimportantmetricinthecontextofbroadersovereignresponsibilityforemissionscaused.AssovereignsfocusonproductionemissionsGHGreductiontargets,theirconsumptionemissionsmightfollowadifferenttrend,whichcanbeseenintheexamplebelow:179Productionvs.consumption-basedCO₂emissions,SwitzerlandAnnualconsumption-basedemissionsaredomesticemissionsadjustedfortrade.IfacountryimportsgoodstheCOemissionsneededtoproducesuchgoodsareaddedtoitsdomesticemissions;ifitexportsgoodsthenthisissubtracted.19902020199520002005201020150t20milliont40milliont60milliont80milliont100milliont120milliontConsumption-basedCOemissionsProduction-basedCOemissionsSource:GlobalCarbonProjectNote:ThismeasuresCOemissionsfromfossilfuelsandcementproductiononly–landusechangeisnotincluded.OurWorldInData.org/co2-and-other-greenhouse-gas-emissions/•CCBY179Productionvs.consumption-basedCO2emissions,Switzerland,OurWorldinData,2021.https://ourworldindata.org/grapher/production-vs-consumption-co2-emissions?country=~CHE113FinancedEmissions–SecondEdition–AlthoughconsumptionemissionsarecurrentlynotincludedintheUNFCCCParisAgreementFrameworkandinventory,financialinstitutionscanusethismetricforamoreholisticassessmentofasovereign’sGHGemissionsandforengagementwithsovereigns.TheycanalsousethismetricforpotentialcollectiveengagementwithUNFCCCtobroadenthescopeofcountries’accountability.Nevertheless,PCAFacknowledgesthattherearecurrentlimitationstotheusabilityofthismetricgiventhefollowing:•Difficultyinaccurateallocationofemissionsalongthesupplyvaluechain•Involvementofinputoutputmodelsthatcanvarydependingonthedataprovider•Timelagindataavailability(approximately2yearscomparedwithproductionemissions)•ThefactthatonlyCO2emissionsaretypicallyavailableAttributionofemissionsPCAFrequiresusingthefollowingapproachforattributionofemissionsforSovereigndebt:AttributedEmissions=ExposuretoSovereignBond(USD)PPP-adjustedGDP(internationalUSD)×SovereignEmissions(tCO₂e)Rationale:AccordingtothegenerallogicinthisFinancedEmissionsStandard,thefinancialinstitution’sshareofemissionsshallbeproportionaltothesizeofitsexposuretotheborrower’stotalvalue.AnotherkeyprincipleofPCAFis‘followthemoney,’meaningthatthemoneyshouldbefollowedasfaraspossibletounderstandandaccountfortheclimateimpactintherealeconomy.Foralistedcompany,totalvalueismeasuredbyEnterpriseValueIncludingCash(EVIC).Applyingthesamelogictocountriesismorechallengingbecausethereisnoappropriatemeasurementofasovereign’sequity,leavingonlyoutstandingdebtinthedenominatoroftheattributionfactor.However,usingdebtforattributionofsovereignemissionshaslimitations.Itisinaccuratebecausesovereignsrarelyfinancethemselvesprimarilywithdebtasopposedtotaxrevenue.Therefore,usingoutstandingnationaldebtlevelsonly(notincludingameasurementforequity)asthedenominatorforattributionmakestheapproachhighlydependentontheextentofacountry’sgovernment’sdebt.Thetablebelowillustratesthispoint.SingaporeandHongKonghavefairlycomparablescope1emissions(hereexcl.LULUCF,source:EDGAR)andsimilarGDPlevels.However,thelowlevelofoutstandingdebtcontractedbyHongKongrelativetoSingaporeleavesahypotheticalinvestor(withequal$1millionUSDinvestmentsinsovereigndebtofbothentities)withsignificantGHGemissionsinHongKongcomparedwithSingapore.Theattributionforthisexampleiscomputedasfollows×Scope1Emissions(tCO₂e)ExposuretoSovereignBond(USD)DebtofCountry(USD)114FinancedEmissions–SecondEdition–Table5-19:Exampleof(volatilityof)attributionbasedonnationaldebtCountryScope1emissions(tCO2e)Debt($MillionsUSD)Exposure($MillionsUSD)DebtApproach(tCO2e)Singapore61,451,586312,9351196HongKong42,654,1051591268,264Astheexampleaboveshows,attributingemissionsbygovernmentdebtcangenerateunwantedincentivesinportfoliosteering.Theseeffectsarealsopresentincorporateemissionsaccounting,whereemissionsattributedtofinancialinstitutionsarestronglydependentontheunderlyingenterprisevalue(EVIC)oftherespectivecorporate.However,theimpactsonportfoliosteeringtendtobelesspronouncedbecausetheEVICmetricincludesameasurementforequity(notattributingallemissionstodebt)andgiventhatamuchlargeruniverseofcorporatesexistscomparedwithsovereigns.Giventheissuedescribedabove,thismethodologyusesanalternativeapproachtoemissionsattributionforsovereigndebtallowingforalinktotherealeconomyimpact.ThisalternativeinvolvestakingPurchasePowerParity(PPP)-adjustedGDP(i.e.,thevalueofacountry’soutputasaproxyforthe‘valueofthecountry’)adjustedbythePPPfactortoimprovethecomparisonbetweentheactualeconomysizes(seetheIntensitySectionbelowtodemonstratethecomparison)andattributionofemissionsbythesovereign’sGDP:AttributedEmissions=ExposuretoSovereignBond(USD)DebtofCountry(USD)ExposuretoSovereignBond(USD)PPP–adjustedGDP(internationalUSD)×Scope1Emissions(tCO₂e)Table5-20:ComparisonofattributionbasedonnationaldebtversusthePPP-adjustedGDPapproachCountryEmissions(tCO2e)Debt($MillionsUSD)PPP-adjustedGDP($MillionsUSD)Exposure($MillionsUSD)Debtapproach(tCO2e)PPP-adjustedGDPapproach(tCO2e)Singapore61,451,586312,935579,7621196106HongKong42,654,105159469,1821268,26491GivencomparablesizesoftheeconomiesasmeasuredbyPPP-adjustedGDP,thecountrieswouldreceiveamoreappropriatetreatmentintermsoffinancedemissionsinfinancialportfolios.Thefollowingtableillustratesfurtherexamplesofthedifferenceinrankingbythetwoattributionfactors.Relatingemissionstothesizesoftheeconomyandtoproducedoutput(PPP-adjustedGDP)allowsforapotentiallyfairertreatment.Forexample,theUSandJapan—twoofthelargestemissionsproducersintheworld—wouldrankmuchmorefavorablybydebtattributionfactorgiventheirrelativelylargesizesofoutstandingdebt.115FinancedEmissions–SecondEdition–Table5-21:ExampleofdifferenceinrankingbynationaldebtandPPP-adjustedGDPapproachCountryAbsoluteProductionEmissionsMtCO2eGrossgovernmentDebt($MillionsUSD)PPP-adj.GDP($MillionsInt’l)RankProductionEmissions/DebtRankbyProductionEmissions/PPPadj.GDPChina11.5357.905.65923.487.79821Australia433573.9611.324.17162Canada5851.528.2801.898.87083SouthKorea652667.6052.209.42454India2.5971.980.6239.560.22035UnitedStates5.10722.869.68121.433.226156Japan1.15412.071.2865.345.808257Thailand275225.4311.342.16548Indonesia626327.7893.338.14419Mexico485686.5992.608.650710Belgium104530.794628.3711611Finland43161.257285.0241212Netherlands156472.0751.031.484913Germany7032.198.2924.644.1661014Brazil4781.662.4053.229.0551115Austria72316.751520.8041316Spain2591.337.2211.988.3551717Portugal48285.248378.1241818Italy3322.673.3122.677.1182319UnitedKingdom3652.423.5563.240.5112020France3152.693.6863.320.5592421Singapore53406.936579.7632222Ireland37242.618430.3341923Sweden45197.622565.6201424Switzerland39277.619602.6412125Naturally,attributionbyPPP-adjustedGDPisnottheperfectmetric,andcountrieswithlargerPPP-adjustedGDPreceivearelativelymorefavorabletreatment.Forexample,takeThailandversusSpain:thecountrieshavecomparableemissionslevels,butSpain’slargerGDPallowsittorankmorefavorably.AnimprovementforThailandascomparedtoattributionbydebtexistsinitsimprovedranking(8versus4)whenPPP-adjustedGDPattributionisapplied.Theexamplesabovedemonstrateattributionofproductionemissions.However,thesamelogiccanapplytoattributionofconsumptionemissions–onlythatthetotalAbsoluteEmissionswillaccountfordomesticandimportedsourcesofemissionsthatultimatelycontributetotheGDPoftherespectivesovereign.PCAFadmitsthatthereisnota1:1relationshipbetweenafinancialinstitution’sinvestmentandasovereign’sGDP,incontrasttoamorestraightforwardrelationshipbetweenafinancial116FinancedEmissions–SecondEdition–institution’spurchaseofashareofasovereign’soutstandingdebt.However,empiricalevidencesuggeststhatthereislimitedinterdependencebetweensovereigndebtandemissions,whereasacountryoutputproductionislinkedmorecloselytothegeneratedemissions.Furthermore,financialinstitutions’fundswouldtypicallyspureconomicgrowthandthereforeGDP,180implyingimpactonproductionprocessesandthereforeemissions.Therefore,financialinstitutionsshallusetheattributionbyPPP-adjustedGDPforsovereigndebtemissions.EquationstocalculatefinancedemissionsThefinancedemissionsofsovereigndebtarecalculatedbymultiplyingtheattributionfactorbytheemissionsoftherespectivesovereignborrower.Financedemissions=∑Attributionfactors×SovereignEmissionsss(withs=sovereignborrower)Attributionfactor:Financedemissions=∑sOutstandingamountsPPP-adjustedGDPs×SovereignEmissionss(withs=sovereignborrower)EmissionsintensitiesInthecourseoftheworkofPCAF’ssovereigndebtworkinggroup,thefollowingintensitymetricsfornormalizationandcomparisonofsovereignproductionandconsumptionGHGemissionsintensity,respectively,havebeendefinedasfollows:•Forsovereignproduction:ProductionEmissions/PPP-adjustedGDP•Forconsumptionemissionintensity:ConsumptionEmissions/CapitaForacomparisonofproductionemissionsintensity,usingaGDPmetricinthedenominatorappearsstraightforward,giventhelinkbetweenacountry’sproductionandindustrialprocessescausingemissionsandthecountry’soutput(GDP).ThePPPadjustmentofGDPallowsforcomparingtherealsizesoftheeconomiesandtheoutputbysubtractingtheexchangerateeffect.Thiseffectbecomesrelevantforcountrieswitharelativelystrongerexchangerateeffectinparticularandallowsforafairercomparisonofthecountries,asthetablebelowillustrates(2019data):180Admittedly,thisrelationshipisvaliduptoacertainthresholdbecauseverylargepublicdebtmightbecomeunsustainableanddetrimentalforgrowth.SeeTheimpactofhighandgrowinggovernmentdebtoneconomicgrowth:anempiricalinvestigationfortheeuroarea(europa.eu).117FinancedEmissions–SecondEdition–Table5-22:ExampleofdifferencebetweennominalandPPP-adjustedGDPCountryNominalGDP($MillionsUSD)PPP-adj.GDP($MillionsInt’l)China14,279,93723,487,798US21,433,22621,433,226India2,868,9299,560,220Japan5,081,7705,345,808Germany3,861,1244,644,166Indonesia1,119,1913,338,144France2,715,5183,320,559Whencomparingproductionemissionsintensity,thePPPadjustmentmitigatesthenegativeeffectforcountrieswhereproductionandemissionsareconcentrated:Table5-23:ExampleofdifferencebetweennominalandPPP-adjustedGDPbyproductionemissionsintensityCountryAbsoluteProductionEmissionsMtCO2eNominalGDP($MillionsUSD)PPP-adj.GDP($MillionsInt’l)(ProductionEmissions/NominalGDP)1,000(ProductionEmissions/PPP-adj.GDP)1,000China11,53514,279,93723,487,7980.810.49US5,10721,433,22621,433,2260.240.24India2,5972,868,9299,560,2200.910.27Japan1,1545,081,7705,345,8080.230.22Germany7033,861,1244,644,1660.180.15Indonesia6261,119,1913,338,1440.560.19France3152,715,5183,320,5590.120.09Emissionssource:Edgar,2019.IntensityKPIsaremultipliedby1,000forbettervisualizationofthecomparison.Forconsumptionemissions,PCAFrecommendsusingnormalizationpercapita.Consumptionemissionsreflectthedemandsideoftheeconomy,andnormalizationpercapitaappearsnatural.Inlinewiththeargumentsstatedabove,PCAFrecommendsusingtheconsumptionemissionsintensityasanadditionalmetrictoobtainaholisticviewofacountry’sGHGemissions.Thetablebelowillustratesthatsomecountriestendtohavehigherconsumptionemissionsthanproductionemissions,butthedifferenceisnotalwayssignificant(e.g.,India),implyingthatcountrieswithnotablecontributionstoproductionemissionscanbeequallyhighconsumers.PCAFrecommendsconsideringboththeproductionandconsumptionintensitymetricswhencomparing,monitoring,andengagingwithsovereigns.118FinancedEmissions–SecondEdition–Table5-24:ExampledifferentintensitymetricsSovereignDebtCountryAbsoluteProductionEmissionsMtCO2eAbsoluteConsumptionEmissionsMtCO2eRankbyProductionEmissions/PPP-adj.GDPRankbyConsumptionEmissionsperCapitaChina11,5358,96015US5,1075,76731India2,5972,35527Japan1,1541,31242Germany70386263Indonesia62659156France31544274Forallofthemetrics,PCAFrecommendsthatfinancialinstitutionsreviewatleast5yearsofhistoricaldataforabetterunderstandingofsovereigns’overallemissionstrendsandunderlyingpatterns(e.g.,productionversusconsumption).DatarequiredPCAFhasidentifiedthefollowingdatarequiredforaccountingsovereigndebtemissionsandprovidesalistofpublicdatasourceswiththemostcurrentandcomprehensivedatacoverageperdatacategory.However,thislistisnotexhaustive,andfinancialinstitutionsmightprefertouseotherdataproviders.Independentlyofthedataused,PCAFrecommendsaligningwiththedefinitionsofthedatacategoriesandbeingawareofthepossibledataspecificsindicatedearlier(e.g.,GHGversusCO2emissions,inclusionorexclusionoflanduse(LULUCF)emissionsinacountry’sproductionemissions).119FinancedEmissions–SecondEdition–Table5-25:OverviewrequireddataandpotentialsourcesDatacategoryDescriptionSourceScopeLimitationsScope1-AbsoluteemissionsDomesticEmissions(UNFCCC)IncludingLULUCF/ExcludingLULUCFUNFCCAnnexIcountriesandNon-AnnexIcountries(https://di.unfccc.int)GHGandCO2eemissions,globalcountrycoverageNodataavailableforthefollowingnon-Annex1parties:Andorra,EquatorialGuinea,Libya,SierraLeone,Somalia.WorldTotalincludingLUCFGreenhouseGas(GHG)EmissionsClimateWatch(climatewatchdata.org)Globalcoverage(CO2)CO2emissionsonlyMostrecentGHGemissionsdataavailablein2018EDGAR-TheEmissionsDatabaseforGlobalAtmosphericResearch(europa.eu)Globalcoverage(GHG)Time-lagof4years(GHGemissions1970-2018series)EmissionsofExportsofGoodsandServicesOECD–Carbondioxideemissionsembodiedininternationaltrade(2021ed.)(https://stats.oecd.org)Globalcoverage(CO2)CO2emissionsonlyTime-anddatalagsregardingnon-AnnexIcountriesScope2–AbsoluteemissionsGrid-suppliedelectricity,steamandcoolingimportsOECD–Carbondioxideemissionsembodiedininternationaltrade(2021ed.)(https://stats.oecd.org)Globalcoverage(CO2)CO2emissionsonlyIndustrycode:D35Electricity,gas,steam,andairconditioningsupplyisdefinedbroaderasscope2definitionTime-lagof4years(CO2emissions1995-2018series)Dataunavailableforsomespecificcountries(e.g.Cuba,Egypt,SierraLeone)Scope3-AbsoluteemissionsNon-energyimportsOECD–Carbondioxideemissionsembodiedininternationaltrade(2021ed.)(https://stats.oecd.org)Globalcoverage(CO2)CO2emissionsonlyTime-lagof4years(CO2emissions1995-2018series)Dataunavailableforsomespecificcountries(e.g.Cuba,Egypt,SierraLeone)PPP-adjustedGDPGDPadjustedbyPPPGDP,PPP(currentinternational$)Data(worldbank.org)Globalcoverage,2020dataDataunavailableforsomespecificcountries(i.e.Cuba,Eritrea,Monaco)NominalGDP,PopulationStandardmacro-economicmetricsWorldBank/InternationalMonetaryFund(IMF)(worldbank.org),(www.imf.org)Globalcoverage,2020data120FinancedEmissions–SecondEdition–Similartootherassetclasses,PCAFdistinguishesforsovereigndebtalsothreeoptionstocalculatethefinancedemissions:•Option1:reportedemissions•Option2:physicalactivity-basedemissions•Option3:economicactivity-basedemissionsTable5-26providesdataqualityscoresforeachoftheseoptionsandsub-options(ifapplicable)thatcanbeusedtocalculatethefinancedemissionsforsovereigndebt.Table5-26:GeneraldescriptionofthedataqualityscoretableforSovereignDebt(score1=highestdataqualityscore5=lowestdataquality)DataQualityOptionstoestimatethefinancedemissionsWhentouseeachoptionScore1Option1:Reportedemissions1aVerifiedGHGemissionsofthecountryareavailable.TheseGHGemissionsarereportedbythecountryitselfandcanbeextractedfromUNFCCC181Score21bUnverifiedemissionsofthecountryareavailable.Score3Option2:Physicalactivitybasedemissions2aReportedGHGemissionsofthecountryarenotknown.Emissionsarecalculatedusingprimaryphysicalactivitydataofthecountry’senergyconsumption(domesticgeneratedandimported)andemissionfactorsspecifictothatprimarydata.Score4Option3:Economicactivitybasedemissions3aReportedGHGemissionsofthecountryarenotknown.Emissionsarecalculatedusingsectoralrevenuedataofthecountry’sproductionandemissionfactorsspecifictothatrevenuedata.Score53bCountryGHGemissionsareestimatedbytakingaproxy.GHGemissionsfrom(a)similar(climate(zones),wealth,GDP)countryaretakentoestimatethecountryGHGemissions.Adetailedsummaryofthedataqualityscoretable,includingdataneedsandequationstocalculatefinancedemissions,isprovidedinAnnex10.1(Table10.1-7).181ThisreferstoUNFCCCreportingrequirements.Forthepurposesofverification,AnnexIPartiesshouldcomparetheirnationalestimatesofCO2emissionsfromfuelcombustionwiththoseestimatesobtainedusingtheIPCCreferenceapproach,ascontainedinthe2006IPCCGuidelines,andreporttheresultsofthiscomparisonintheNIR.121FinancedEmissions–SecondEdition–LimitationsEmissionsscopeThepresentedapproachtoclassifyscope1,2,and3emissionsofsovereignsisanattempttomirrortheapproachdevelopedandadoptedforcorporatesandcitiesandcan’tbecompared1:1.DoublecountingDoublecountingoccursintwodimensions:1.Doublecountingofemissionsofnon-sovereignsectors(e.g.corporates)duetoaccountingofemissionsatsovereignterritoriallevel.Thisrepresentsachallengeforafinancialinstitutionwithinvestmentportfoliosinmultipleassetclasses.However,doublingcountingwithintheGHGemissionsreportsoffinancialinstitutionsisnotnecessarilyproblematicaslongasemissionresultsofthedifferentassetclassesareclearlyreportedseparately.Accountingforallemissionsindirectlyinvolvedwithloansandinvestmentsofthedifferentindividualassetclassesdoesensurethattherightconsiderationsaretakenwhenmakinglendingorinvestmentdecisions.2.DoublecountingofemissionsofothersovereignswhenaccountingforemissionsbeyondscopeTheissueisnotdifferentfromtheonewithcorporateemissionsandshouldberesolved/treatedconsistently,i.e.double-countingacceptedwhenaccountingforemissionsbeyondscope1.AttributionFactorPCAFacknowledgesthatPPP-adj.GDPhasitslimitationsastheattributionfactor:itisaflowmetric,andtherelationshipbetweeninvestmentsandGDParenot1:1.Therearehoweverreasonsasstatedabovethatjustifytheusabilityofthisattributionfactor.Alternativeattributionfactorsmightstillemerge,andPCAFisreadytoreviewthese.Forexample,Totalcapitalstock(IMF)182-ameasureoftotalvalueofgrossfixedcapitalformationintheeconomy-hasalsobeenbrieflyreviewed.TheconceptiscomparabletototalcapitalandEVICforcorporates.Thoughareasonabletheoreticalconcept,themetrichasmultiplelimitations.Mostimportantly,thisisnotareadilyavailableandreportedmetric,buttheoncecalculatedbasedonIMFMethodology,whichinvolvesassumptions,exclusionofcertainsourcesofinvestments,anddataavailabilitylimitations.PCAFdoesnotrecommendthismetricatthecurrentstage.182EstimatingPublic,Private,andPPPCapitalStocks,AnnextoIMFBoardPaper“MakingPublicInvestmentMoreEfficient”6.Reportingrequirementsandrecommendations6.ReportingrequirementsandrecommendationsIntroductionCHAPTER1CHAPTER2UnderstandwhatGHGaccountingisIdentifybusinessgoalsCHAPTER3CHAPTER4ReviewaccountingandreportingprinciplesandrulesCHAPTER5ReviewandapplyaccountingmethodologiesforeachassetclassReportemissionsCHAPTER6ReportemissionsCHAPTER6123FinancedEmissions–SecondEdition–TomanagefinancialandreputationalriskandsteerinlinewiththeParisAgreement,itiscrucialthatthefinancialsectorreportsGHGemissionsofloansandinvestmentsfortransparencyandaccountability.ThefollowingreportingrequirementsandrecommendationsguidefinancialinstitutionstodisclosetheGHGemissionsassociatedwiththeirloansandinvestments.Ratherthancreatinganewframework,PCAFdevelopedthesereportingrequirementsandrecommendationstocomplementexistingframeworkssuchasTCFD,GRI,SustainabilityAccountingStandardsBoard(SASB),generallyacceptedaccountingprinciples(GAAP),andInternationalFinancialReportingStandards(IFRS).ItadherestoandbuildsuponthereportingrequirementssetoutbytheGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandard.AllfinancialinstitutionsthatcommittousingthisFinancedEmissionsStandardshallfulfilcertainrequirementswhendisclosingtheirfinancedemissionspublicly.However,theydohavetheflexibilitytodecidewheretheywanttostartwithmeasuringanddisclosingtheirfinancedemissions—forinstance,ataspecificassetclasslevelorforaspecificsectorwithinacertainassetclass.Flexibilityinreportingisallowedlargelybecauseofrecognizedlimitationsindataavailabilityandquality.PCAFrecognizesthatdataformanyassetclassesmaynotbeavailabletofinancialinstitutionsandthatafinancialinstitutionmaynotbeabletodisclose100%ofitsportfolio.However,financialinstitutionsshallbetransparentintheircoverageandjustifyanyexclusions.Therequirementsfordisclosureoffinancedemissionsdescribeaminimumdisclosurelevelwithroomforfinancialinstitutionstoreportbeyondthislevel.Anyrequirementsnotfulfilledmustbeaccompaniedbyanexplanation.Minimumreportingrequirementsaredescribedinthischapterusingtheword“shall.”Wherecertainaspectsofreportingarenotrequiredbutencouragedasbestpractice,theword“should”isused.Reportusingtheoperationalorfinancialcontrolconsolidationapproach183TheassetclassmethodsinthisFinancedEmissionsStandardareusedtocalculatethescope3category15emissionsfromfinancialinvestments.AccordingtotheGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandard,184threeconsolidationapproachescanbeappliedbyfinancialinstitutionstoaccountfortheirscope1,2,and3emissions—namelyequityshare,operationalcontrol,andfinancialcontrol.ForPCAFreporting,financialinstitutionsshallusetheoperationalcontrolapproachorthefinancialcontrolapproach;asaresult,allfinancedemissionsshallbeaccountedforintheirscope3category15reporting.183AdditionalinformationonconsolidationapproachescanbefoundinChapter4.184(WRIandWBCSD,2011)124FinancedEmissions–SecondEdition–OverallReportingRequirementsandRecommendations•Principles:GHGaccountingandreportingoffinancialinstitutionsshallbebasedonthefollowingprinciples:relevance,completeness,consistency,transparency,andaccuracy.•Purpose:Afinancialinstitution’sreportingshouldalignwithitsspecificbusinessgoals;forinstance,foridentifyingandmanagingclimate-relatedtransitionrisksorforsteeringtowardaspecificemissionsreductiontarget.•Frequency:Financialinstitutionsshalldiscloseatleastannuallyandatafixedpointintimeinlinewiththefinancialaccountingcycle.Financialinstitutionsshallensurethatthechosenpointintimeprovidesarepresentativeviewontheemissionsforthatreportingyearandshalltransparentlydiscloseiflargechangescloseto(before/after)thereportingdateaffectedtheresults.•Recalculationandsignificancethreshold:Financialinstitutionsshall,inlinewiththeGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandardrequirement(pg.104185),establishabaselinerecalculationpolicytodefineunderwhichcircumstancesarecalculatingof(baseyear)financedemissionsisnecessarytoensuretheconsistency,comparability,andrelevanceofthereportedGHGemissionsdataovertime.Aspartofthisbaseyearemissionsrecalculationpolicy,financialinstitutionsshallestablishanddisclosethesignificancethreshold186thattriggersbaseyearemissionsrecalculations.•Formofreporting:Financialinstitutionsshalldiscloseinpubliclyavailablereportssuchas(semi)annualreports,websitearticles,orotherpubliclyavailablesourcesasdeemedappropriatebythefinancialinstitution.Annex10.2providesanexampletemplateforhowfinancialinstitutionscandisclosetheirfinancedemissions.•Pastperformance:Whereappropriateandrelevantfortheirbusinessgoals,financialinstitutionsshoulddisclosetheirfinancedemissionsformultiplecomparabletimeperiods,e.g.,years.Coverage•Financialinstitutionsshalldiscloseallabsoluteemissionsforallrelevantassetclassesorsectors187coveredinChapter5andjustifyanyexclusions.Potentialjustificationcriteriaforexclusioninclude:-Dataavailability:Requireddataisnotavailabletothefinancialinstitutions.-Size:Theactivitiesareinsignificanttotheinstitution’stotalanticipatedfinancedemissions.-Methodology:Thereisnoglobalmethodologytoquantifythefinancedemissionsofspecificactivities(i.e.,assetclassesnotcoveredinthisFinancedEmissionsStandard).•FinancialinstitutionsshalldisclosethepercentageoftheirtotalloansandinvestmentscoveredintheirfinancedemissionsinventoriesforthesevenassetclassescoveredinChapter5,e.g.afinancialinstitution’stotaloutstandingloansandinvestmentsbyassetclassnotinganylimitationsandexclusions.185(WRIandWBCSD,2011)186DefinitionaccordingtotheGHGProtocol:“Asignificancethresholdisaqualitativeand/orquantitativecriterionusedtodefineanysignificantchangetothedata,inventoryboundaries,methods,oranyotherrelevantfactors.”187Financialinstitutionscanchoosetoreportbysectorratherthanassetclass.125FinancedEmissions–SecondEdition–Gasesandunits•FinancialinstitutionsshallaccountforthesevengasesundertheKyotoProtocolthatarealsomandatedundertheUNFCCCtobeincludedinnationalinventoriesiftheyareemittedinthevaluechain.Thesearecarbondioxide(CO2),methane(CH4),nitrousoxide(N2O),hydrofluorocarbons(HFCs),perfluorocarbons(PFCs),sulfurhexafluoride(SF6),andnitrogentrifluoride(NF3).•Thesesevengasesshallbeconvertedtocarbondioxideequivalents(CO2e)usingthe100-yeartimehorizonglobalwarmingpotentialspublishedbytheIPCC—eithertheAR5valuespublishedbytheGHGProtocol188ortheIPCC’smostrecentlypublishedassessmentreport.189•Financialinstitutionsshallexpresstheirfinancedemissionsinmetrictonnesofcarbondioxideequivalents(tCO2e)oranotherappropriatemetricconversion—e.g.,kilotonnes(ktCO2e),megatonnes(MtCO2e).WhenemissionsfromaspecificGHG(e.g.,methaneemissions)arematerialandrelevant,financialinstitutionsshouldconsideraseparatedisclosureoftheseemissions.•BiogenicCO2emissionsthatoccurinthevaluechainshallnotbeincludedinthescopesbutshallbeincludedandseparatelyreportedinthepublicreport.Absoluteemissions•Institutionsshalldisclosetheabsoluteemissions(scope1and2combined)oftheirloansandinvestments.Ifitservesthebusinessgoalsofthefinancialinstitutions,absolutescope1andscope2emissionsofloansandinvestmentsshouldbereportedseparatelyfromeachother.•Beyondthereportingofscope3category15emissionscoveredbythisFinancedEmissionsStandard,financialinstitutionsshallalsomeasureandreporttheirscope1and2emissionsandanyotherrelevantscope3emissionscategoriesinlinewiththeGHGProtocolCorporateValueChain(Scope3)AccountingandReportingStandard(seeAnnex10.2foranexample).•WhererequiredbytherelevantmethodologyinChapter5,financialinstitutionsshallseparatelydisclosetheabsolutescope3emissionsoftheirloansandinvestments,includingthespecificsectorscovered.Financialinstitutionsshallexplainiftheyarenotabletoprovideanyrequiredscope3informationbecauseofdataavailabilityoruncertainty.•Financialinstitutionsshalldisaggregateanddiscloseabsoluteemissionsdataattheassetclassoratthesectorlevel,particularlyforthemostemission-intensivesectors(e.g.,energy,power,cement,steel,automotive).•Whenafinancialinstitutionisaninitialsponsororlenderofaspecificproject,theinstitutionshouldalsoassessandreporttheabsolutelifetimescope1and2emissionsoftheprojectthatwasfinancedduringthereportingyear.•Absoluteemissionsshallbereportedwithouttakingintoaccountcarboncreditsretiredbyclientstooffsettheseemissions.Carboncreditsretiredbyclientsmaybereported,andifso,shallbereportedseparately.188(GHGProtocol,2014)189TheIPCCreportscanbefoundat:https://www.ipcc.ch126FinancedEmissions–SecondEdition–Box6.DoublecountinginreportingabsoluteemissionsDoublecounting—whichoccurswhenGHGemissionsarecountedmorethanonceinthefinancedemissionscalculationofoneormoreinstitutions—shouldbeavoidedasmuchpossible.Doublecountingoccursbetweenthedifferentscopesofemissionsfromloansandinvestmentswhenafinancialinstitutioninvestsinstakeholdersthatareinthesamevaluechain.190Thisformofdoublecountingcannotbeavoided,butitcanbemademoretransparentbyreportingthescope1and2emissionsofloansandinvestmentsseparatelyfromtheirscope3emissions.Apartfromthis,doublecountingcantakeplaceatfivelevels:•Betweenfinancialinstitutions•Inco-financingthesameentityoractivity•Betweentransactionswithinthesamefinancialinstitutions•Acrossdifferentassetclasses•WithinthesameassetclassPCAFrecognizesthatdoublecountingofGHGemissionscannotbeavoidedcompletely;however,itshouldbeminimized.Doublecountingbetweenco-financinginstitutionsandbetweentransactionswithinthesameassetclassofafinancialinstitutionareavoidedbyusingtheappropriateattributionrulesdefinedbyPCAFconsistently.Byusingthecorrectattributionmethod,doublecountingofemissionsbetweeninstitutionscanbeminimized.FinancialinstitutionsusingthemethodologiesintheFinancedEmissionsStandardwillbesubjecttothesameexposuretodoublecountingsothatonefinancialinstitutionwillnotbemoresignificantlyburdenedthananother.Avoidedemissionsandemissionremovals191•Inadditiontoabsoluteemissions,financialinstitutions:-Shouldreportemissionremovalswhererelevanttotheirloansandinvestmentswhenappropriatemethodologiesbecomeavailable.-Mayreportavoidedemissionsoftheirrenewablepowerprojects.•Iffinancialinstitutionschoosetodiscloseemissionremovalsoravoidedemissions,theyshalldiscloseabsoluteemissionremovalsoravoidedemissionsseparatelyfromthefinancialinstitution’sscope1,scope2,andscope3inventories(seeAnnex10.2foranexample).•Avoidedemissionsandemissionremovalsshallbereportedwithouttakingintoaccountcarboncreditsgeneratedforthesesameemissions.Carboncreditsgeneratedbyclientsshouldbereported,andifso,shallbereportedseparately.190Thescope1emissionsofonecompanycanbetheupstreamscope2or3emissionsofitscustomer.Forexample,scope1emissionsfromautilityprovidingenergytoacompanywouldendupinthescope2inventoryofthatcompany.Ifbothcompaniesarereceivingfundingfromthesamefinancialinstitutiontheseemissionswouldbedoublecountedwithinitsinventory.191AsdefinedinChapter3,removedemissionsarethoserelatedtoprojectsortechnologiesthatcanresultinCO2beingsequesteredbytreesorremovedfromtheatmosphereandstoredinsolidorliquidform.127FinancedEmissions–SecondEdition–Emissionintensity•Financialinstitutionsshouldreporteconomicemissionintensitiesifthesevaluesarerelevanttotheirbusinessgoals.•Economicemissionintensitiesshallbeexpressedonaportfolio,assetclass,orsectorlevelinmetrictonnesofcarbondioxideequivalentspermillioneuroordollarinvestedorloaned:tCO2e/€MortCO2e/$M•Whenrelevanttotheirbusinessgoals,financialinstitutionsshouldconsiderreportingphysicalemissionintensitiespersectorusingsector-specificactivity(e.g.,tCO2e/m2forrealestate,tCO2e/MWhforpowerutilities,tCO2e/tonneofsteelproducedforsteelcompanies,etc.).Box7.FinancedemissionmetricsandcomparabilityMeasuringfinancedemissionsinabsoluteterms,i.e.,absoluteemissions,providesfinancialinstitutionswiththenecessarybaselineforclimateactiontoalignwiththeParisAgreement.Whenbanksandinvestorsaimtobenchmarkorcomparecompanies,sectors,orportfoliostoeachother,normalizationisrequired.Absolutefinancedemissionsataportfoliolevelarenotagoodmetrictocompareorbenchmarkfinancialinstitutionsontheirperformanceduethepotentialdifferencesbetweenfinancialinstitutionsintermsofsize,productportfolio,exposuretosectorsandregions,etc.Forcomparabilityandbenchmarking,theabsolutefinancedemissionsneedtobetranslatedintoanemissionintensitymetric(emissionsperaspecificunit).192Awidearrayofintensitymetricsisappliedinthemarketandeachhasitsownmerits.Thetablebelowincludesalistofthemostcommonmetrics.MetricPurposeDescriptionAbsoluteemissionsTounderstandtheclimateimpactofloansandinvestmentsandsetabaselineforclimateactionThetotalGHGemissionsofanassetclassorportfolioEconomicemissionintensityTounderstandhowtheemissionintensitiesofdifferentportfolios(orpartsofportfolios)comparetoeachotherpermonetaryunitAbsoluteemissionsdividedbytheloanorinvestmentvolumeinEURorUSD,expressedastCO2e/€MortCO2e/$MloanedinvestedPhysicalemissionintensityTounderstandtheefficiencyofaportfolio(orpartsofaportfolio)intermsoftotalGHGemissionsperunitofacommonoutputAbsoluteemissionsdividedbyavalueofphysicalactivityoroutput,expressedas,e.g.,tCO2e/MWh,tCO2e/tonneproductproducedWeightedaveragecarbonintensity(WACI)193Tounderstandexposuretoemission-intensivecompaniesPortfolio’sexposuretoemission-intensivecompanies,expressedastCO2e/€Mor$Mcompany194revenue192ActualperformancebenchmarkingortargetsettingforfinancialinstitutionsisnotcoveredbythisStandard.Forthistypeofassessment,otherinitiativesexistthatbuildontheaccountingrequirementssetforthinthisStandardbutthatfurtherrelyontheirownmethodologiesandapproaches.ExamplesincludetheSBTiorRMI’sCenterforClimate-AlignedFinance.193(TCFD,2017)194Thewordcompanyreferstothefinancialinstitution’sborrowerorinvestee.128FinancedEmissions–SecondEdition–Dataanddataquality•Financialinstitutionsshallusethemostrecentorotherwiseappropriatedataavailabletothem.PCAFrecognizesthereisoftenalagbetweenfinancialreportingandrequiredemissionsdata,suchasemissionfactorsoremissionsdatafromborrowersorinvestees.Intheseinstances,itisacceptablethatthedatarepresentsdifferentyears.•Financialinstitutionsshouldprovideadescriptionofthetypesandsourcesofdata—includingactivitydata,assumptions,emissionfactors,andallrelevantpublicationdates—usedtocalculateemissions.Descriptionsshouldbewrittentocreatetransparency.•Financialinstitutionsshouldpublishaweightedscorebyoutstandingamountofthedataqualityofreportedemissionsdataorshouldexplainwhytheyareunabletodoso.AnexampleisprovidedinBox8.•Wherefinancialinstitutionsarereportingscope3emissions,theweighteddataqualityscoreoftheseemissionsshallbereportedseparatelyfromthatofscopes1and2.•ThedatahierarchytablesprovidedineachassetclassmethodinChapter5shouldbeusedasaguidefordisclosingdataquality.Financialinstitutionsshouldexplainhowdataqualityisassessed,acknowledgingthatitwillimproveovertime.•Overtimeandwherepossible,datashouldbeverifiedtoatleastaleveloflimitedassurance.Financialinstitutionsshoulddisclosewhetherdataisverifiedandtowhatlevel.129FinancedEmissions–SecondEdition–Box8.AnillustrativeexampleforcalculatingweighteddataqualityscoresItislikelythatdataqualitywilldifferacrossassetclasses,sectors,companies,andemissionscopes.Todisclosethebestrepresentationofdataquality,theFinancedEmissionsStandardrequiresthatfinancialinstitutionsnormalizethedataqualityscoresforeachassetclassandsectortothetotaloutstandingloanorinvestmentamount.Theequationforcalculatingweighedaveragesforanassetclassorsectoris:(withi=borrowerorinvestee)Outstandingamounti×DataqualityscoreiOutstandingamounti=∑ni=1∑ni=1Anillustrativeexampleofafinancialinstitution’slendingisprovidedbelow:AssetclassSectorCompanyOutstandingloanAttributedscope1and2absoluteemissions(ktonCO2e)Dataqualityscore(1=high,5=low)BusinessloansOil&GasCompanyA522,425153BusinessloansOil&GasCompanyB187,44975BusinessloansCattlefarmingCompanyC82,77881BusinessloansCattlefarmingCompanyD108,997111BusinessloansCattlefarmingCompanyE67,55672BusinessloansCattlefarmingCompanyF54,76255Weighteddatascoreforbusinessloansscope1and2emissions:(522,425×3)+(187,449×5)+(82,778×1)+(108,997×1)+(67,556×2)+(54,762×5)=3.03(522,425+187,449+82,778+108,977+67,556+54,762)Weighteddatascoreforoil&gassectorscope1and2emissions:(522,425×3)+(187,449×5)=3.53(522,425+187,449)7.Glossary7.Glossary131FinancedEmissions–SecondEdition–AbsoluteemissionsEmissionsattributedtoafinancialinstitution’slendingandinvestingactivity.ExpressedintonnesCO2e.Seefinancedemissions.AssetclassAgroupoffinancialinstrumentsthathavesimilarfinancialcharacteristics.AttributionfactorTheshareoftotalgreenhousegas(GHG)emissionsoftheborrowerorinvesteethatareallocatedtotheloanorinvestments.AvoidedemissionsEmissionreductionsthatthefinancedprojectproducesversuswhatwouldhavebeenemittedintheabsenceoftheproject(thebaselineemissions).InthecontextoftheFinancedEmissionsStandard,avoidedemissionsareonlyfromrenewablepowerprojects.Biogeniccarbondioxide(CO2)emissionsEmissionsfromastationarysourcedirectlyresultingfromthecombustionordecompositionofbiologicallybasedmaterialsotherthanfossilfuels.BorrowerApersonorcompanythatborrowsmoneyfromabank.BusinessloanOn-balancesheetloansandlinesofcredittobusinesses,nonprofits,andanyotherstructureoforganizationthatarenottradedonamarketandareforgeneralcorporatepurposes(i.e.,withunknownuseofproceedsasdefinedbytheGHGProtocol).Fordetailinformationonthisassetclass,seesubchapter5.2.ClimateimpactInthecontextofthisFinancedEmissionsStandard,climateimpactreferstotheemissionsfinancedbyloansandinvestments.ClimateriskThepotentialforadverseeffectsonlives,livelihoods,healthstatus,economic,socialandculturalassets,services(includingenvironmental),andinfrastructureduetoclimatechange.CO2-equivalent(CO2e)TheamountofCO2thatwouldcausethesameintegratedradiativeforcing(ameasureforthestrengthofclimatechangedrivers)overagiventimehorizonasanemittedamountofanotherGHGormixtureofGHGs.Conversionfactorsvarybasedontheunderlyingassumptionsandasthescienceadvances.Asabaseline,PCAFrecommendsusing100-yearGlobalWarmingPotentialswithoutclimate-carbonfeedbackfromthemostrecentIPCCAssessmentreport.Commercialrealestate(CRE)Thisassetclassincludeson-balancesheetloansforspecificcorporatepurposes,namelythepurchaseandrefinanceofCRE,andon-balancesheetinvestmentsinCRE.Thisdefinitionimpliesthatthepropertyisusedforcommercialpurposes,suchasretail,hotels,officespace,industrial,orlargemultifamilyrentals.Inallcases,theownerofthebuilding(theborrowerorinvestor)usesthepropertytoconductincome-generatingactivities.Thisincludesusingthepropertyfortheirownbusinessaswellasrentingorleasingthepropertytotenantswhousethepropertyforeithercommercialorresidentialpurposes.Fordetailedinformationonthisassetclassseesubchapter5.4.ConsolidationapproachReferstohowanorganizationsetsboundariesforGHGaccounting.Typesincludeequityshareapproach,financialcontrol,andoperationalcontrol.ConsumerfinanceFinanceprovidedtoindividualandhouseholdconsumers,suchasmortgagesandmotorvehicleloans.CorporatedebtMoneythatisowedbycompaniesratherthanbygovernmentsorindividualpeople.DebtAfinancinginstrumentthatrequiresrepaymentbytheborrower.InthecontextofthisFinancedEmissionsStandard,debtrefersonlytotheprincipalamountowedbytheborrowerandexcludesinterest.DirectemissionsEmissionsfromsourcesthatareownedorcontrolledbythereportingentityortheborrowerorinvestee.DoublecountingOccurswhenGHGemissions(generated,avoided,orremoved)arecountedmorethanonceinaGHGinventoryortowardattainingmitigationpledgesorfinancialpledgesforthepurposeofmitigatingclimatechange.132FinancedEmissions–SecondEdition–EmbodiedemissionsinbuildingsTheGHGemissionsassociatedwiththenon-operationalphaseoftheproject.Thisincludesemissionscausebyextraction,manufacture,transportation,assembly,maintenance,replacement,deconstruction,disposalandendoflifeaspectsofthematerialsandsystemsthatmakeupabuilding.EmissionintensitymetricEmissionsperaspecificunit,forexample:tCO2e/€Mor$Minvested,tCO2e/MWh,tCO2e/tonneproductproduced,tCO2e/MWh,tCO2e/tonproductproduced,tCO2e/€Mor$Mcompanyrevenue.EmissionremovalsTheactionofremovingGHGemissionsfromtheatmosphereandstoreitthroughvariousmeans,suchasinsoils,trees,undergroundreservoirs,rocks,theocean,andevenproductslikeconcreteandcarbonfiber.EmissionscopesTheGHGProtocolCorporateAccountingandReportingStandardclassifiesanorganization’sGHGemissionsintothreescopes.Scope1emissionsaredirectemissionsfromownedorcontrolledsources.Scope2emissionsareindirectemissionsfromthegenerationofpurchasedenergy.Scope3emissionsareallindirectemissions(notincludedinscope2)thatoccurinthevaluechainofthereportingorganization,includingbothupstreamanddownstreamemissions.EnterpriseValueIncludingCash(EVIC)Thesumofthemarketcapitalizationofordinarysharesatfiscalyearend,themarketcapitalizationofpreferredsharesatfiscalyear-end,andthebookvaluesoftotaldebtandminorities’interests.Nodeductionsofcashorcashequivalentsaremadetoavoidthepossibilityofnegativeenterprisevalues.Environmentallyextendedinput-output(EEIO)dataEEIOdatareferstoEEIOemissionfactorsthatcanbeusedtoestimatescope1,2,andupstreamscope3GHGemissionsforagivenindustryorproductcategory.EEIOdataisparticularlyusefulinscreeningemissionssourceswhenprioritizingdatacollectionefforts.EquityTheownershipofbanksorinvestorsinacompanyorproject.Therearevarioustypesofequity,butequitytypicallyreferstoshareholderequity,whichrepresentstheamountofmoneythatwouldbereturnedtoacompany’sshareholdersifallcompanyassetswereliquidatedandallcompanydebtwerepaidoff.EXIOBASEAglobal,detailedmulti-regionalenvironmentallyextendedsupply-usetableandinput-outputtable.Itwasdevelopedbyharmonizinganddetailingsupplyusetablesforalargenumberofcountries,estimatingemissions,andresourceextractionsbyindustry.FederalTestProcedureTheUSEnvironmentalProtectionAgency’sFederalTestProceduresareaseriesofdrivecycleteststomeasurethetailpipeemissionsandfuelefficiencyofpassengercars.FinancedemissionsAbsoluteemissionsthatbanksandinvestorsfinancethroughtheirloansandinvestments.Seeabsoluteemissions.FinancialinstitutionAcompanyengagedinthebusinessofdealingwithfinancialandmonetarytransactionssuchasdeposits,loans,investments,andcurrencyexchange.Financialinstitutionsencompassabroadrangeofbusinessoperationswithinthefinancialservicessector,includingcommercialbanks,investmentbanks,developmentbanks,assetowners/managers(mutualfunds,pensionfunds,close-endfunds,investmenttrusts),andinsurancecompanies.Greenhousegas(GHG)emissionsThesevengasesmandatedundertheKyotoProtocolandtobeincludedinnationalinventoriesundertheUnitedNationsFrameworkConventiononClimateChange(UNFCCC)—carbondioxide(CO2),methane(CH4),nitrousoxide(N2O),hydrofluorocarbons(HFCs),perfluorocarbons(PFCs),sulfurhexafluoride(SF�),andnitrogentrifluoride(NF3).GHGaccountingAmeansofmeasuringthedirectandindirectemissionstotheEarth’sbiosphereofCO2anditsequivalentgasesfromindustrialactivities.GHGaccountingoffinancialportfoliosTheannualaccountinganddisclosureofGHGemissionsassociatedwithloansandinvestmentsatafixedpointintimeinlinewithfinancialaccountingperiods.ThisisalsocalledportfolioGHGaccounting.133FinancedEmissions–SecondEdition–GHGProtocolComprehensiveglobalstandardizedframeworkstomeasureandmanageGHGemissionsfromprivateandpublicsectoroperations,valuechains,andmitigationactions.TheGHGProtocolsuppliestheworld’smostwidelyusedGHGaccountingstandards.TheCorporateAccountingandReportingStandardprovidestheaccountingplatformforvirtuallyeverycorporateGHGreportingprogramintheworld.GlobalTradeAnalysisProject(GTAP)databaseGTAPisaglobalnetworkofresearchersandpolicymakersconductingquantitativeanalysisofinternationalpolicyissues.GTAPiscoordinatedbytheCenterforGlobalTradeAnalysisinPurdueUniversity’sDepartmentofAgriculturalEconomics.ThecenterpieceoftheGTAPisaglobaldatabasedescribingbilateraltradepatterns,production,consumption,andintermediateuseofcommoditiesandservicesHomeequitylineofcredit(HELOC)Arevolvinglineofcreditusuallywithanadjustableinterestrate,whichallowshomeownerstoborrowuptoacertainamountoveraperiodoftime.HELOCsworkinamannersimilartocreditcards,wherethehomeownercancontinuouslyborrowuptoanapprovedlimitwhilepayingoffthebalance.Homeequityloan(HEL)Sometimesreferredtoasasecondmortgage,usuallyallowshomeownerstoborrowalumpsumagainsttheircurrenthomeequityforafixedrateoverafixedperiodoftime.Usually,homeequityloansareusedtofinancelargeexpenditures,suchashomerepairsorcollegetuition.IndirectemissionsEmissionsthatareaconsequenceoftheactivitiesofthereportingentitybutoccuratsourcesownedorcontrolledbyanotherentity.InvestmentTheterminvestment(unlessexplicitlystatedotherwise)isusedinthebroadsense:“Puttingmoneyintoactivitiesororganizations’withtheexpectationofmakingaprofit.”Mostformsofinvestmentinvolvesomeformofrisktaking,suchasinvestmentinequities,debt,property,projects,andevenfixedinterestsecuritieswhicharesubjecttoinflationrisk,amongotherrisks.InvesteecompanyorinvesteeprojectAcompanyorprojectinwhichaninvestormakesadirectinvestment.KnownuseofproceedsKnownuseofproceedsrelatestoinvestmentsandloansforspecific(corporateorconsumer)purposes,i.e.,thefinancialinstitutionknowsforwhatactivitythemoneyisused.ListedequityandcorporatebondsThisassetclassincludesallon-balancesheetlistedcorporatebondsandallon-balancesheetlistedequitythataretradedonamarketandareforgeneralcorporatepurposes,i.e.,unknownuseofproceedsasdefinedbytheGHGProtocol.Fordetailedinformationonthisassetclassseesubchapter5.1.MortgagesThisassetclassincludeson-balancesheetloansforspecificconsumerpurposes—namelythepurchaseandrefinanceofresidentialproperty,includingindividualhomesandmulti-familyhousingwithasmallnumberofunits.Thisdefinitionimpliesthatthepropertyisusedonlyforresidentialpurposesandnotforcommercialactivities.Fordetailedinformationonthisassetclassseesubchapter5.5.MotorvehicleloansThisassetclassreferstoloansandlinesofcredittobusinessesandconsumersforspecific(corporateorconsumer)purposes—namelythefinanceofoneorseveralmotorvehicles.Fordetailedinformationonthisassetclassseesubchapter5.6.ParisAgreementTheParisAgreement,adoptedwithintheUNFCCCinDecember2015,commitsparticipatingcountriestolimitglobaltemperaturerisetowell-below2°Cabovepreindustriallevelsandpursueeffortstolimitwarmingto1.5°C,adapttochangesalreadyoccurring,andregularlyincreaseeffortsovertime.ProjectfinanceThisassetclassincludesallon-balancesheetloansorequitiestoprojectsforspecificpurposes,i.e.,withknownuseofproceedsasdefinedbytheGHGProtocol.Thefinancingisdesignatedforadefinedactivityorsetofactivities,suchastheconstructionandoperationofagas-firedpowerplant,awindorsolarproject,orenergyefficiencyprojects.Fordetailedinformationonthisassetclassseesubchapter5.2.134FinancedEmissions–SecondEdition–ScenarioanalysisAprocessofanalyzingfutureeventsbyconsideringalternativepossibleoutcomes.Science-basedreductiontargets(SBTs)TargetsadoptedbycompaniestoreduceGHGemissionsareconsideredscience-basediftheyareinlinewithwhatthelatestclimatesciencesaysisnecessarytomeetthegoalsoftheParisAgreement—tolimitglobalwarmingtowell-below2°Cabovepreindustriallevelsandpursueeffortstolimitwarmingto1.5°C.Scope1emissionsDirectGHGemissionsthatoccurfromsourcesownedorcontrolledbythereportingcompany—i.e.,emissionsfromcombustioninownedorcontrolledboilers,furnaces,vehicles,etc.Scope2emissionsIndirectGHGemissionsfromthegenerationofpurchasedoracquiredelectricity,steam,heating,orcoolingconsumedbythereportingcompany.Scope2emissionsphysicallyoccuratthefacilitywheretheelectricity,steam,heating,orcoolingisgenerated.Scope3emissionsAllotherindirectGHGemissions(notincludedinScope2)thatoccurinthevaluechainofthereportingcompany.Scope3canbebrokendownintoupstreamemissionsanddownstreamemissions:Upstreamemissionsincludeallemissionsthatoccurinthelifecycleofamaterial/product/serviceuptothepointofsalebytheproducer,suchasfromtheproductionorextractionofpurchasedmaterials.195Downstreamemissionsincludeallemissionsthatoccurasaconsequenceofthedistribution,storage,use,andend-of-lifetreatmentoftheorganization’sproductsorservices.Scope3category15(investments)emissionsThiscategoryincludesscope3emissionsassociatedwiththereportingcompany’sloansandinvestmentsinthereportingyear,notalreadyincludedinscope1orscope2.SequesteredemissionsReferstoatmosphericCO2emissionsthatarecapturedandstoredinsolidorliquidform,therebyremovingtheirharmfulglobalwarmingeffect.SovereigndebtThisassetclassincludessovereignbondsandsovereignloansofallmaturitiesissuedindomesticorforeigncurrencies.Bothsovereignloansandbondsleadtothetransferoffundstothecountry,whichinturncreatesadebtobligationtoberepaidbytheborrowingcountry.TotalbalancesheetvalueAbalancesheetisafinancialstatementthatreportsacompany’sassets,liabilities,andshareholders’equity.Thebalancesheetvaluereferstothesumoftotalequityandliabilities,whichisequaltothecompany’stotalassets.UnknownuseofproceedsUnknownuseofproceedsreferstoinvestmentsandloansforgeneral(corporateorconsumer)purposes,i.e.,thefinancialinstitutiondoesnotknowexactlyforwhatactivitythemoneyisused,whichholdsforgeneral-purposeloans.UnlistedequityAllon-balancesheetequityinvestmentstobusinesses,nonprofits,andanyotherstructureoforganizationthatarenottradedonamarketandareforgeneralcorporatepurposes,i.e.,withunknownuseofproceedsasdefinedbytheGHGProtocol.Unlistedequityisalsoreferredtoasequityinvestmentsinprivatecompanies(i.e.,thefinancialinstitutionobtainssharesofthecompany).VehiclemakeThenameofthecompanythatmanufacturesthevehicle.VehiclemodelTheproductnameofthevehicle.WorldInput-OutputDatabase(WIOD)WorldInput-Outputtablesandunderlyingdata,covering43countries,andamodelfortherestoftheworldfor2000-2014.Datafor56sectorsareclassifiedaccordingtotheInternationalStandardIndustrialClassificationrevision4(ISICREV.4).WorldHarmonizedLight-dutyVehiclesTestProcedure(WLTP)TheWLTPisaglobal,harmonizedstandardofdrivecycleteststodeterminethetailpipeemissionsandfuelefficiencyofpassengercars.195(WRIandWBCSD,2013)8.Acronyms8.Acronyms136FinancedEmissions–SecondEdition–CDPCarbonDisclosureProjectCH4MethaneCO2CarbondioxideCO2eCarbondioxideequivalentCRECommercialrealestateEEIOEnvironmentallyextendedinput-outputEUEuropeanUnionEUTEGEuropeanCommissionTechnicalExpertGrouponSustainableFinanceEVElectricvehicleEVICEnterprisevalueincludingcashFAOFoodandAgricultureOrganizationoftheUnitedNationsFSBFinancialStabilityBoardGAAPGenerallyacceptedaccountingprinciplesGEMISGlobalEmissionsModelforintegratedSystemsGHGGreenhousegasGTAPGlobalTradeAnalysisProjectHFCHydrofluorocarbonHELHomeequityloanHELOCHomeequitylineofcreditICCTInternationalCouncilonCleanTransportationIEAInternationalEnergyAgencyIFIInternalFinancialInstitutionIFRSInternationalFinancialReportingStandardsIPCCIntergovernmentalPanelonClimateChangeIPOInitialpublicofferingISICIndustrialClassificationofAllEconomicActivitiesITFOECDInternationalTransportForumattheOrganisationforEconomicCo-operationandDevelopmentktCO2ekilotonnesofcarbondioxideequivalentL2Level2(NACE)MtCO2emegatonnesofcarbondioxideequivalentMWhMegawatt-hourN2ONitrousoxideNACEStatisticalClassificationofEconomicActivitiesintheEuropeanCommunityNDCNationallydeterminedcontributionNEDCNewEuropeanDrivingCycleNF3NitrogentrifluorideNGONongovernmentalorganizationPCAFPartnershipforCarbonAccountingFinancialsPFCPerfluorocarbonSASBSustainabilityAccountingStandardsBoardSBTScience-basedtargetsSBTi-FIScienceBasedTargetsinitiativeforFinancialInstitutionsSDASectoralDecarbonizationApproachSF6Sulfurhexafluoride137FinancedEmissions–SecondEdition–TCFDTaskForceonClimate-relatedFinancialDisclosurestCO2eMetrictonnesofcarbondioxideequivalentUNEPFIUnitedNationsEnvironmentProgrammeFinanceInitiativeUNFCCCUnitedNationsFrameworkConventiononClimateChangeUSUnitedStatesWACIWeightedAverageCarbonIntensityWBCSDWorldBusinessCouncilforSustainableDevelopmentWIODWorldInput-OutputDatabaseWLTPWorldwideHarmonizedLightVehiclesTestProcedure9.References9.References139FinancedEmissions–SecondEdition–•CDP.(2020).CDPClimateChange2020Questionnaire.RetrievedfromCDP:https://bit.ly/39d9zoE•CROForum.(2020).CarbonFootprintingMethodologyforUnderwritingPortfolios.RetrievedfromTheCROForum:https://www.thecroforum.org/wp-content/uploads/2020/05/CRO-Carbon-Foot-Printing-Methodology.pdf•ENCORD.(2012).ConstructionCO2eMeasurementProtocol:AGuidetoreportingagainsttheGreenHouseGasProtocolforconstructioncompanies.RetrievedfromGreenhouseGasProtocol:https://ghgprotocol.org/sites/default/files/ENCORD-Construction-CO2-Measurement-Protocol-Lo-Res_FINAL_0.pdf•EUTechnicalExpertGrouponSustainableFinance.(2019).FinancingaSustainableEuropeanEconomy:ReportonBenchmarks:HandbookofClimateTransitionBenchmarks,ParisAlignedBenchmark,andBenchmarks’ESGDisclosure.RetrievedfromEuropeanCommission:https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/192020-sustainable-finance-teg-benchmarks-handbook_en_0.pdf•GHGProtocol.(2014).GlobalWarmingPotentialValues.RetrievedfromTheGreenhouseGasProtocol:https://www.ghgprotocol.org/sites/default/files/ghgp/Global-Warming-Potential-Values%20%28Feb%2016%202016%29_1.pdf•IFI.(2020).MethodologicalApproachfortheCommonDefaultGridEmissionFactorDataset.RetrievedfromUnitedNationsFrameworkConventiononClimateChange:https://unfccc.int/sites/default/files/resource/IFITWG_Methodological_approach_to_common_dataset.pdf•NewClimateInstituteandClimateAnalytics.(2020).ClimateActionTracker.Retrievedfromhttps://climateactiontracker.org/global/cat-thermometer/•PCAF.(2019,December).AccountingforandSteeringCarbon:HarmonisedApproachfortheFinancialSector.RetrievedfromPartnershipforCarbonAccountingFinancials:https://carbonaccountingfinancials.com/files/downloads/1911-pcaf-report-nl.pdf?6253ce57ac•PCAF.(2019,November).HarmonizingandImplementingaCarbonAccountingApproachfortheFinancialSectorinNorthAmerica.RetrievedfromPartnershipforCarbonAccountingFinancials:https://carbonaccountingfinancials.com/files/2019-10/20191028-pcaf-report-2019.pdf•PCAF.(2019).Shapingtheclimateactionjourneyforfinancialinstitutions:navigatingthroughtheclusterofclimateinitiatives.RetrievedfromPartnershipforCarbonAccountingFinancials:https://carbonaccountingfinancials.com/files/2020-01/overview-initiatives-shaping-climate-action-journey-for-fis.pdf?ae36ae7be6•SBTi.(2020).FinancialSectorScience-BasedTargetsGuidance,PilotVersion.Retrievedfromhttps://sciencebasedtargets.org/wp-content/uploads/2020/10/Financial-Sector-Science-Based-Targets-Guidance-Pilot-Version.pdf•TCFD.(2017).FinalReport:RecommendationsoftheTaskForceonClimate-relatedFinancialDisclosures.Retrievedfromhttps://www.fsb-tcfd.org/publications/final-recommendations-report/•TCFD.(2017).ImplementingtheRecommendationsoftheTaskForceonClimate-relatedFinancialDisclosures.SectionD:SupplementalGuidancefortheFinancialSector.RetrievedfromTaskForceonClimate-relatedFinancialDisclosures:https://www.fsb-tcfd.org/wp-content/uploads/2017/12/FINAL-TCFD-Annex-Amended-121517.pdf140FinancedEmissions–SecondEdition–•UNFCCC.(2015).InternationalFinancialInstitutionFrameworkforaHarmonisedApproachtoGreenhouseGasAccounting.RetrievedfromUnitedNationsFrameworkConventiononClimateChange:https://unfccc.int/sites/default/files/resource/International%20Financial%20Institution%20Framework%20for%20a%20Harmonised_rev.pdf•WorldBankGroup.(2020).StateandTrendsofCarbonPricing.Washington,D.C.•WRIandWBCSD.(2004).GHGProtocolCorporateAccountingandReportingStandard,RevisedEdition,Chapter2.RetrievedfromTheGreenhouseGasProtocol:https://ghgprotocol.org/sites/default/files/standards/ghg-protocol-revised.pdf•WRIandWBCSD.(2011).GHGProtocol,CorporateValueChain(Scope3)AccountingandReportingStandard,SupplementtotheGHGProtocolCorporateAccountingandReportingStandard.RetrievedfromGreenhouseGasProtocol:https://ghgprotocol.org/sites/default/files/standards/Corporate-Value-Chain-Accounting-Reporing-Standard_041613_2.pdf•WRIandWBCSD.(2013).TechnicalGuidanceforCalculatingScope3Emissions.RetrievedfromGreenhouseGasProtocol:https://ghgprotocol.org/sites/default/files/standards/Scope3_Calculation_Guidance_0.pdf10.Annex10.Annex142FinancedEmissions–SecondEdition–10.Annex10.1.DetaileddataqualityscoretablesperassetclassLISTEDEQUITYANDCORPORATEBONDS–DETAILEDSUMMARYOFDATANEEDSANDEQUATIONSTOCALCULATEFINANCEDEMISSIONSTable10.1-1.Detaileddescriptionofthedataqualityscoretableforlistedequityandcorporatebonds194OptionDescriptionDataqualityAttributionEmissionfactorFinancedemissionscalculationHighesttolowestFinancialdataEmissiondataEquationsOption1aOutstandingamountinthecompanyEVICforlistedcompaniesandtotalequityplusdebtforbondstoprivatecompaniesEVICforlistedcompaniesandtotalequityplusdebtforbondstoprivatecompaniesVerifiedGHGemissionsdatafromthecompanyinaccordancewiththeGHGProtocolForlistedcompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐×𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐Forbondstoprivatecompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐×𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐Score1Option1bUnverifiedGHGemissionsdatacalculatedbythecompanyinaccordancewiththeGHGProtocolForlistedcompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐×𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐Forbondstoprivatecompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐×𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐Score2Option2a195Primaryphysicalactivitydataforthecompany’senergyconsumptionbyenergysource(e.g.,megawatt-hoursofelectricity)plusanyprocessemissionsEmissionfactorsspecifictothatprimarydata(e.g.,energysource-specificemissionfactors)196Forlistedcompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐ͳͻ͹×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑐𝑐Forbondstoprivatecompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐ͳͻͺ×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑐𝑐Score3Option2bPrimaryphysicalactivitydataforthecompany’sproduction(e.g.,tonnesofriceproduced)Emissionfactorsspecifictothatprimarydata(e.g.,emissionfactorpertonneofrice)Forlistedcompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐×𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑐𝑐×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑐𝑐Forbondstoprivatecompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐×𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑐𝑐×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑐𝑐Score3Option3aGHGemissionspersectorRevenuepersector199Forlistedcompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐×𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑐𝑐×𝐺𝐺𝐺𝐺𝐺𝐺𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠𝑐𝑐Forbondstoprivatecompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐×𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑐𝑐×𝐺𝐺𝐺𝐺𝐺𝐺𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠𝑐𝑐Score4RevenueofthecompanyOption3bN/AGHGemissionspersectorAssetspersectorForlistedcompaniesandbondstoprivatecompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐×𝐺𝐺𝐺𝐺𝐺𝐺𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑠𝑠𝑐𝑐Score5Option3cAssetturnoverratiopersectorGHGemissionspersectorRevenuepersectorForlistedcompaniesandbondstoprivatecompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑠𝑠×𝐺𝐺𝐺𝐺𝐺𝐺𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠𝑐𝑐194Wherec=borrowerorinvesteecompanyands=sector.195ThequalityscoringforOption2aisonlypossiblefor/applicabletoscope1andscope2emissionsasscope3emissionscannotbeestimatedbythisoption.Otheroptionscanbeusedtoestimatethescope3emissions,however.196Supplier-specificemissionfactors(e.g.,fromanelectricityprovider)fortherespectiveprimaryactivitydataarealwayspreferredovernon-supplier-specificemissionfactors.197Wherethisoptionisused,processemissionsmustbeaddedtothecalculatedenergyconsumptionemissionsbeforemultiplyingbytheattributionfactor.198Wherethisoptionisused,processemissionsmustbeaddedtothecalculatedenergyconsumptionemissionsbeforemultiplyingbytheattributionfactor.199Ifrevenueisnotdeemedasuitablefinancialindicatorforestimatingtheemissionsofacompanyinacertainsector,onecanapplyothersuitablefinancialindicatorsasaproxy.Ifanalternativeindicatorisused,thereasoningfortheselectionofthisalternativeindicatorshouldbemadetransparent.Thedataqualityscorewillnotbeaffected.143FinancedEmissions–SecondEdition–BUSINESSLOANSANDUNLISTEDEQUITY–DETAILEDSUMMARYOFDATANEEDSANDEQUATIONSTOCALCULATEFINANCEDEMISSIONSTable10.1-2.Detaileddescriptionofthedataqualityscoretableforbusinessloansandunlistedequity200OptionDescriptionDataqualityAttributionEmissionfactorFinancedemissionscalculationHighesttolowestFinancialdataEmissiondataEquationsOption1aOutstandingamountinthecompanyTotalequityplusdebtforbusinessloansandequityinvestmentsto/inprivatecompanies,andEVICforbusinessloanstolistedcompaniesVerifiedGHGemissionsdatafromthecompanyinaccordancewiththeGHGProtocolForbusinessloansandequityinvestmentsto/inprivatecompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐×𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐Forbusinessloanstolistedcompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐×𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐Score1Option1bUnverifiedGHGemissionsdatacalculatedbythecompanyinaccordancewiththeGHGProtocolForbusinessloansandequityinvestmentsto/inprivatecompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐×𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑐𝑐𝑐𝑐𝑐𝑐𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐Forbusinessloanstolistedcompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐×𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐Score2Option2a201Primaryphysicalactivitydataforthecompany’senergyconsumptionbyenergysource(e.g.,megawatt-hoursofelectricity)plusanyprocessemissionsEmissionfactorsspecifictothatprimarydata(e.g.,energysource-specificemissionfactors)202Forbusinessloansandequityinvestmentsto/inprivatecompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐ʹͲ͵×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑐𝑐Forbusinessloanstolistedcompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐ʹͲͶ×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑐𝑐Option2bPrimaryphysicalactivitydataforthecompany’sproduction(e.g.,tonnesofriceproduced)Emissionfactorsspecifictothatprimarydata(e.g.,emissionfactorpertonneofrice)Forbusinessloansandequityinvestmentsto/inprivatecompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐×𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑐𝑐×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑐𝑐Forbusinessloanstolistedcompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐×𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑐𝑐×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑐𝑐Score3Option3aTotalequityplusdebtforbusinessloansandequityinvestmentsto/inprivatecompanies,andEVICforbusinessloanstolistedcompaniesGHGemissionspersectorRevenuepersector205Forbusinessloansandequityinvestmentsto/inprivatecompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑐𝑐×𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑐𝑐×𝐺𝐺𝐺𝐺𝐺𝐺𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠𝑐𝑐Forbusinessloanstolistedcompanies:∑𝑂𝑂𝑂𝑂𝑂𝑂𝑠𝑠𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐×𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑐𝑐×𝐺𝐺𝐺𝐺𝐺𝐺𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠𝑐𝑐Score4RevenueofthecompanyOption3bN/AGHGemissionspersectorAssetspersector∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐×𝐺𝐺𝐺𝐺𝐺𝐺𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑠𝑠𝑐𝑐Score5Option3cAssetturnoverratiopersectorGHGemissionspersectorRevenuepersector∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑠𝑠×𝐺𝐺𝐺𝐺𝐺𝐺𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠𝑐𝑐200Wherec=borrowerorinvesteecompanyands=sector.201ThequalityscoringforOption2aisonlypossiblefor/applicabletoscope1andscope2emissionsasscope3emissionscannotbeestimatedbythisoption.Otheroptionscanbeusedtoestimatethescope3emissions,however.202Supplier-specificemissionfactors(e.g.,fromanelectricityprovider)fortherespectiveprimaryactivitydataarealwayspreferredovernon-supplier-specificemissionfactors.203Wherethisoptionisused,processemissionsmustbeaddedtothecalculatedenergyconsumptionemissionsbeforemultiplyingbytheattributionfactor.204Wherethisoptionisused,processemissionsmustbeaddedtothecalculatedenergyconsumptionemissionsbeforemultiplyingbytheattributionfactor.205Ifrevenueisnotdeemedasuitablefinancialindicatorforestimatingtheemissionsofacompanyinacertainsector,onecanapplyothersuitablefinancialindicatorsasaproxy.Ifanalternativeindicatorisused,thereasoningfortheselectionofthisalternativeindicatorshouldbemadetransparent.Thedataqualityscorewillnotbeaffected.144FinancedEmissions–SecondEdition–PROJECTFINANCE–DETAILEDSUMMARYOFDATANEEDSANDEQUATIONSTOCALCULATEFINANCEDEMISSIONSTable10.1-3.Detaileddescriptionofthedataqualityscoretableforprojectfinance206OptionDescriptionDataqualityAttributionEmissionfactorFinancedemissionscalculationHighesttolowestFinancialdataEmissiondataEquationsOption1aOutstandingamountinprojectTotalprojectequityanddebtVerifiedGHGemissionsdataoftheprojectinaccordancewiththeGHGProtocol∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑝𝑝×𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑝𝑝𝑝𝑝Score1Option1bUnverifiedGHGemissionsdatacalculatedbytheprojectinaccordancewiththeGHGProtocol∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑝𝑝×𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑝𝑝𝑝𝑝Score2Option2a207Primaryphysicalactivitydatafortheproject’senergyconsumptionbyenergysource(e.g.,megawatt-hoursofelectricity)plusanyprocessemissionsEmissionfactorsspecifictothatprimarydata(e.g.,energysource-specificemissionfactors)208∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑝𝑝×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑝𝑝ʹͲͻ𝑝𝑝×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓Option2bPrimaryphysicalactivitydatafortheproject’sproduction(e.g.,tonnesofriceproduced)Emissionfactorsspecifictothatprimarydata(e.g.,emissionfactorpertonneofrice)∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑝𝑝×𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑝𝑝×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑝𝑝Score3Option3aTotalprojectequityanddebtGHGemissionspersectorRevenuepersector210∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒+𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑑𝑝𝑝×𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑝𝑝×𝐺𝐺𝐺𝐺𝐺𝐺𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠𝑝𝑝Score4RevenueoftheprojectOption3bN/AGHGemissionspersectorAssetspersector∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝×𝐺𝐺𝐺𝐺𝐺𝐺𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑠𝑠𝑝𝑝Score5Option3cAssetturnoverratiopersectorGHGemissionspersectorRevenuepersector∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑝𝑝×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑠𝑠×𝐺𝐺𝐺𝐺𝐺𝐺𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠𝑝𝑝206Wherec=borrowerorinvesteecompanyands=sector.207ThequalityscoringforOption2aisonlypossiblefor/applicabletoscope1andscope2emissionsasscope3emissionscannotbeestimatedbythisoption.Otheroptionscanbeusedtoestimatethescope3emissions,however.208Supplier-specificemissionfactors(e.g.,fromelectricityprovider)fortherespectiveprimaryactivitydataarealwayspreferredovernon-supplier-specificemissionfactors.209Wherethisoptionisused,processemissionsmustbeaddedtothecalculatedenergyconsumptionemissionsbeforemultiplyingbytheattributionfactor.210Ifrevenueisnotdeemedasuitablefinancialindicatorforestimatingtheemissionsofacompanyinacertainsector,onecanapplyothersuitablefinancialindicatorsasaproxy.Ifanalternativeindicatorisused,thereasoningfortheselectionofthisalternativeindicatorshouldbemadetransparent.Thedataqualityscorewillnotbeaffected.145FinancedEmissions–SecondEdition–COMMERCIALREALESTATE–DETAILEDSUMMARYOFDATANEEDSANDEQUATIONSTOCALCULATEFINANCEDEMISSIONSTable10.1-4.Detaileddescriptionofthedataqualityscoretableforcommercialrealestate211OptionDescriptionDataqualityAttributionEmissionfactorFinancedemissionscalculationHighesttolowestFinancialdataEmissionsdataEquationsOption1aOutstandingamountandpropertyvalueatoriginationSupplier-specificemissionfactorsspecifictotheenergysourcePrimarydataonactualbuildingenergyconsumption∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑏𝑏,𝑒𝑒𝑏𝑏,𝑒𝑒×𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒Score1Option1bAverageemissionfactorsspecifictotheenergysourcePrimarydataonactualbuildingenergyconsumption∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑏𝑏,𝑒𝑒𝑏𝑏,𝑒𝑒×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒Score2Option2aEstimatedbuildingenergyconsumptionperfloorareabasedonofficialbuildingenergylabelsandfloorareafinanced∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑏𝑏,𝑒𝑒𝑏𝑏,𝑒𝑒×𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒Score3Option2bEstimatedbuildingenergyconsumptionperfloorareabasedonbuildingtypeandlocation-specificstatisticaldataandfloorareafinanced∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑏𝑏,𝑒𝑒𝑏𝑏,𝑒𝑒×𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑓𝑓𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑒𝑒Score4Option3Estimatedbuildingenergyconsumptionperbuildingbasedonbuildingtypeandlocation-specificstatisticaldataandnumberofbuildingsfinanced∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑏𝑏,𝑒𝑒𝑏𝑏,𝑒𝑒×𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑜𝑜𝑜𝑜𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒Score5211Whereb=buildingande=energysource.146FinancedEmissions–SecondEdition–MORTGAGES–DETAILEDSUMMARYOFDATANEEDSANDEQUATIONSTOCALCULATEFINANCEDEMISSIONSTable10.1-5.Detaileddescriptionofthedataqualityscoretableformortgages212OptionDescriptionDataqualityAttributionEmissionfactorFinancedemissionscalculationHighesttolowestFinancialdataEmissionsdataEquationsOption1aOutstandingamountandpropertyvalueatoriginationSupplier-specificemissionfactorsspecifictotheenergysourcePrimarydataonactualbuildingenergyconsumption∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏𝑥𝑥𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑏𝑏,𝑒𝑒𝑏𝑏,𝑒𝑒×𝑆𝑆𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒Score1Option1bAverageemissionfactorsspecifictotheenergysourcePrimarydataonactualbuildingenergyconsumption∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑏𝑏,𝑒𝑒𝑏𝑏,𝑒𝑒×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒Score2Option2aEstimatedbuildingenergyconsumptionperfloorareabasedonofficialbuildingenergylabelsandfloorareafinanced∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑙𝑏𝑏,𝑒𝑒𝑏𝑏,𝑒𝑒×𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒Score3Option2bEstimatedbuildingenergyconsumptionperfloorareabasedonbuildingtypeandlocation-specificstatisticaldataandfloorareafinanced∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑏𝑏,𝑒𝑒𝑏𝑏,𝑒𝑒×𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒Score4Option3Estimatedbuildingenergyconsumptionperbuildingbasedonbuildingtypeandlocation-specificstatisticaldataandnumberofbuildingsfinanced∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑏𝑏𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑏𝑏×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑏𝑏,𝑒𝑒𝑏𝑏,𝑒𝑒×𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑜𝑜𝑜𝑜𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏𝑏×𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑒𝑒Score5212Whereb=buildingande=energysource.147FinancedEmissions–SecondEdition–MOTORVEHICLELOANS–DETAILEDSUMMARYOFDATANEEDSANDEQUATIONSTOCALCULATEFINANCEDEMISSIONSTable10.1-6.Detaileddescriptionofthedataqualityscoretableformotorvehicleloans213OptionDescriptionDataqualityAttributionEmissionfactorFinancedemissionscalculationHighesttolowestFinancialdataEmissionsdataEquationsOption1aOutstandingamountandtotalvalueofvehicleorvehiclefleetatoriginationEmissionfactors214specifictothefueltypePrimarydataonactualvehiclefuelconsumption∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑣𝑣𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑣𝑣×𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑣𝑣×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑣𝑣,𝑓𝑓Score1Option1bPrimarydataonactualvehicledistancetraveledplusvehicle’sfuelefficiencyandfueltypefromknownvehiclemakeandmodel∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑣𝑣𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑣𝑣×𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑣𝑣𝑥𝑥𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑣𝑣,𝑓𝑓×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑣𝑣,𝑓𝑓Option2aLocalstatisticaldatafordistancetraveledplusvehicle’sfuelefficiencyandfueltypefromknownvehiclemakeandmodel∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑣𝑣𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑣𝑣×𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑙𝑙×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑣𝑣,𝑓𝑓×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑣𝑣,𝑓𝑓Score2Option2bRegionalstatisticaldatafordistancetraveledplusvehicle’sfuelefficiencyandfueltypefromknownvehiclemakeandmodel∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑣𝑣𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑣𝑣×𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑟𝑟×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑣𝑣,𝑓𝑓×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑣𝑣,𝑓𝑓Score3Option3aLocalorregionalstatisticaldatafordistancetraveledplusvehicle’sfuelefficiencyandfueltypefromknownvehicletype∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑣𝑣𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑣𝑣×𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑠𝑠×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑡𝑡,𝑓𝑓×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑡𝑡,𝑓𝑓Score4Option3bLocalorregionalstatisticaldatafordistancetraveledplusvehiclefuel’sefficiencyandfueltypefromaveragevehicle∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑣𝑣𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑎𝑎𝑎𝑎𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑣𝑣×𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑠𝑠×𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑎𝑎,𝑓𝑓×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑎𝑎,𝑓𝑓Score5213Wherev=vehicleorvehiclefleetwithknownmakeandmodelforthatvehicle,t=vehicleorvehiclefleetwithknownvehicletype,a=assumedaveragevehicleorvehiclefleet,l=localestimationofdistancetraveled,r=regionalestimationofdistancetraveled,s=localorregionalestimationofdistancetraveled,f=fueltype(fueltypeinthecaseofelectricorhybridvehiclescanalsorefertoelectricity).214Ofalloptionsshowninthetable,supplier-specificemissionfactors(e.g.,fromanelectricityprovider)fortherespectiveprimaryactivitydataarealwayspreferredovernon-supplier-specificemissionfactors.148FinancedEmissions–SecondEdition–SOVEREIGNDEBT–DETAILEDSUMMARYOFDATANEEDSANDEQUATIONSTOCALCULATEFINANCEDEMISSIONSTable10.1-7.DetaileddescriptionofthedataqualityscoretableforsovereigndebtOptionDescriptionDataqualityAttributionEmissionfactorFinancedemissionscalculationHighesttolowestFinancialdataEmissiondataEquationsOption1aOutstandingamount(loanorbond)tothesovereignPPP215-adjustedGrossDomesticProduct(GDP)VerifiedGHGemissionsofthecountry,reportedbythecountrytoUNFCCC∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑃𝑃𝑃𝑃𝑃𝑃−𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝐺𝐺𝐺𝐺𝐺𝐺𝑐𝑐×𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐Score1Option1bUnverifiedGHGemissionsofthecountry∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑃𝑃𝑃𝑃𝑃𝑃−𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝐺𝐺𝐺𝐺𝐺𝐺𝑐𝑐×𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑈𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑐𝑐𝑐𝑐Score2Option2aPrimaryphysicalactivitydataofthecountry’senergyconsumption(domesticgeneratedandimported)byenergysource(e.g.,megawatt-hoursofelectricity)plusanyprocessemissionsEmissionfactorsspecifictothatprimarydata(e.g.,energysource-specificemissionfactors)∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑃𝑃𝑃𝑃𝑃𝑃−𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝐺𝐺𝐺𝐺𝐺𝐺𝑐𝑐×𝐸𝐸𝐸𝐸𝐸𝐸𝑟𝑟𝑔𝑔𝑔𝑔𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐×𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑐𝑐Score3Option3aGHGemissionspersectorrevenueRevenuepersector216∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑃𝑃𝑃𝑃𝑃𝑃−𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝐺𝐺𝐺𝐺𝐺𝐺𝑐𝑐×𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠,𝑐𝑐×𝐺𝐺𝐺𝐺𝐺𝐺𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑠𝑠,𝑐𝑐𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑠𝑠,𝑐𝑐𝑐𝑐Score4Option3bGHGemissionsperppp-adjustedGDPofproxycountryPPP-adjustedGDPofthecountry∑𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑐𝑐𝑃𝑃𝑃𝑃𝑃𝑃−𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝐺𝐺𝐺𝐺𝐺𝐺𝑐𝑐×𝑃𝑃𝑃𝑃𝑃𝑃−𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝐺𝐺𝐺𝐺𝐺𝐺𝑐𝑐×𝐺𝐺𝐺𝐺𝐺𝐺𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑃𝑃𝑃𝑃𝑃𝑃−𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝐺𝐺𝐺𝐺𝐺𝐺𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑐𝑐Score5215Purchasingpowerparity(PPP)216Ifrevenueisnotdeemedasuitablefinancialindicatorforestimatingtheemissionsofacompanyinacertainsector,onecanapplyothersuitablefinancialindicatorsasaproxy.Ifanalternativeindicatorisused,thereasoningfortheselectionofthisalternativeindicatorshouldbemadetransparent.Thedataqualityscorewillnotbeaffected.149FinancedEmissions–SecondEdition–10.2.SampletabletemplatesdisplayingreportedemissionsforagivenfiscalyearTable10.2-7.ExampleofaGHGaccountingreportforscopes1,2,and3ScopesandcategoriesBaselineyearemissions(tCO2e)(ifrelevant)Currentreportingyearemissions(tCO2e)Scope1emissionsTotalscope1Scope2emissionsTotalscope2Upstreamscope3emissionsCategory1:PurchasedgoodsCategory2:CapitalgoodsCategory3:Fuel-andenergy-relatedactivitiesCategory4:UpstreamtransportationanddistributionCategory5:WastegeneratedinoperationsCategory6:BusinesstravelCategory7:EmployeecommutingCategory8:UpstreamleasedassetsDownstreamscope3emissionsCategory9:DownstreamtransportationanddistributionCategory10:ProcessingofsoldproductsCategory11:UseofsoldproductsCategory12:End-of-lifetreatmentofsoldproductsCategory13:DownstreamleasedassetsCategory14:FranchisesCategory15:InvestmentsTotalemissionsallscopesScope1totalemissionsScope2totalemissionsScope3totalemissionsOveralltotalemissionsSeeTable10.2-8andTable10.2-9forexampleshowtoreportscope3category15(investments)emissions.Table10.2-8.Examplereportingofabsolutefinancedemissions—scope3,category15(investments)ActivityTotaloutstandingloanandinvestmentscovered(x€1,000)Scope1+Scope2emissions(tCO2e)Scope3emissions(tCO2e)Emissionintensity(tCO2e/€M)Weighteddataqualityscore(HighQuality=1LowQuality=5)Absoluteemissionsperassetclass(ifreportingbyassetclass)ListedEquity&BondsBusinessLoans-Sector1,e.g.,Cement-Sector2,e.g.,CattleProjectFinanceMortgagesCommercialRealEstateMotorVehicleLoansSovereignDebtTotalAbsoluteemissionspersector(ifreportingbysector)Oil&GasAgricultureTotal150FinancedEmissions–SecondEdition–Table10.2-9.Examplereportingoffinancedemissionremovalsandavoidedemissions—scope3,category15(investments)ActivityTotaloutstandingloanandinvestmentscovered(x€1,000)Emissions(tCO2e)Emissionintensity(tCO2e/€M)Weighteddataqualityscore(HighQuality=1LowQuality=5)AvoidedemissionsfromrenewablepowerprojectsWindSolarTotalEmissionsremovalsfromforestryprojectsCarboncreditsgeneratedTotalCarboncreditsretiredTotal151FinancedEmissions–SecondEdition–Website:carbonaccountingfinancials.comE-mail:info@carbonaccountingfinancials.comPhotocredits:Unsplashand:1DavidCosta2ClintAdair3FranckV4SandyMillar5HuguesDeBuyerMimeure5.1Sigmund5.2MarcinJozwiak5.3GonzDdl5.4JezaelMelgozaLay5.5MikaBaumeister5.6RyanSearle5.7DarrylLow6SamDanTruong7LysanderYuen8KristianStrand9MichaelDziedzic10RyanSearleMEASURINGANDREPORTINGTheGLOBALGHGACCOUNTING&REPORTINGStandardPARTAFinancedEmissions

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