Definition

What financed emissions are

The GHG Protocol splits a company's value-chain emissions into fifteen Scope 3 categories, and the fifteenth — Investments — captures the emissions associated with a company's investments and lending GHG Protocol Scope 3 Standard.

For a manufacturer that category is a footnote; for a bank, insurer or asset manager it is the headline.

IFRS S2 requires Scope 1, 2 and 3 emissions measured on the GHG Protocol Corporate StandardGHG Protocol, and its industry-based guidance for financial activities asks explicitly for these portfolio figuresIFRS S2 industry-based guidance.

Financed emissions are therefore not an optional extra in UK SRS — they are the substance of a financial institution's climate disclosure.

The principle

How attribution works

The core idea is proportional ownership.

If an institution provides a given share of a company's financing, it takes that same share of the company's emissionsPCAF Standard.

The PCAF standard turns this into an attribution factor — the institution's exposure divided by the total value of the financed company.

For listed equity and corporate bonds, that denominator is enterprise value including cash (EVIC); for business loans and unlisted equity it is total equity plus debt; for real estate and mortgages it is the property value at originationPCAF Standard, Part A.

The investee's own emissions are then multiplied by that factor to give the financed figure.

This is why financed-emissions numbers move with markets as well as with decarbonisation: a change in enterprise value changes the denominator, and therefore the attributed emissions, even if nothing in the real economy changed PCAF Standard.

Reporters are expected to explain such movements rather than present the figure raw.

Coverage

PCAF and the asset classes

The PCAF financed-emissions methodology sets out attribution rules for seven asset classes, so an institution can map almost any balance sheet onto a consistent approachPCAF Standard, Part A:

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

Capital-markets activity that a firm arranges but does not hold — underwriting a bond, for example — falls outside this financed total and is treated separately as facilitated emissions PCAF Standard, Part B.

Insurers carry a further category, insurance-associated emissions, under PCAF Part CPCAF Standard, Part C.

The honest part

Data quality and why it is disclosed

Most financed-emissions data is estimated, not measured, so PCAF requires a data-quality score on every figure — a number from 1 to 5 that tells the reader how solid the estimate isPCAF Standard:

  • Score 1 — verified, reported actual emissions from the investee
  • Score 2 — reported actuals that are not third-party verified
  • Score 3 — emissions estimated from the investee’s physical activity data
  • Score 4 — estimated from economic activity, such as revenue and sector factors
  • Score 5 — estimated from asset-class averages or proxies, the weakest basis

Disclosing this score is not an admission of weakness; it is the mechanism that makes an estimate-heavy number credible and comparableIFRS S2.

A programme that improves its average score over time is demonstrating exactly the progress UK SRS expectsPCAF Standard.

In the regime

How financed emissions land in UK SRS

Under the FCA's CP26/5 proposals, UK SRS S2 would apply to in-scope listed companies for financial years beginning 1 January 2027, but Scope 3 — and therefore financed emissions — gets one year of transitional relief and becomes comply-or-explain a year laterFCA CP26/5.

Large banks and insurers are also caught by the existing climate-disclosure law in Companies Act s.414CBCompanies Act 2006 s.414CB.

The deferral acknowledges how hard the data problem is, but it is short relative to the time it takes to build counterparty-data pipelines and PCAF attributionFCA CP26/5.

How the figure is framed differs by sub-sector, which is why banks, insurers and asset managers each get their own treatment.