Origin

What PCAF is

PCAF is an industry-led partnership of banks, insurers and investors that developed a common method for measuring the emissions tied to lending and investmentPCAF.

Its output, the Global GHG Accounting and Reporting Standard for the Financial Industry, has become the reference method that regulators and reporting standards point to PCAF Standard.

It is built directly on the GHG Protocol, operationalising the otherwise abstract Scope 3 Category 15 for financial institutions GHG Protocol Scope 3 Standard.

That alignment is why a PCAF-calculated figure slots into an IFRS S2 disclosure without translation IFRS S2.

Structure

The three parts of the standard

PCAF is published in three parts, because a financial institution's carbon shows up in three different ways PCAF Standard:

  • Part A — Financed emissions: the emissions of assets a firm holds on balance sheet, such as loans and investments
  • Part B — Facilitated emissions: the emissions tied to capital-markets transactions a firm arranges but does not hold, such as bond underwriting
  • Part C — Insurance-associated emissions: the emissions of the activities an insurer underwrites

Most institutions start with Part A because it covers the bulk of the balance sheet; banks with capital-markets arms add Part B, and insurers add Part CPCAF Standard.

The sector pages for banks and insurers show how the parts combine in practice.

The maths

Attribution factors and asset classes

PCAF's financed-emissions method works through an attribution factor: the institution's outstanding exposure to a company divided by that company's total valuePCAF Standard, Part A.

The investee's emissions are multiplied by that factor to give the attributed total.

The denominator differs by asset class, which is why Part A sets out seven of them, each with its own rule PCAF Standard, Part A:

  • Listed equity and corporate bonds — denominator is enterprise value including cash (EVIC)
  • Business loans and unlisted equity — denominator is total equity plus debt
  • Project finance — attribution by share of total project value
  • Commercial real estate — denominator is property value at origination
  • Mortgages — denominator is property value at origination
  • Motor vehicle loans — attribution by share of vehicle value
  • Sovereign debt — emissions attributed using the country’s production or consumption emissions

Because some denominators are market values, financed-emissions figures move with valuations as well as with real decarbonisation — a point reporters are expected to explainGHG Protocol.

Honesty built in

The data-quality score

PCAF requires every financed-emissions figure to carry a data-quality score from 1 to 5, so the reader can see how much is measured and how much is estimatedPCAF Standard:

  • Score 1 — verified actual emissions reported by the investee
  • Score 2 — reported actual emissions, unverified
  • Score 3 — estimated from the investee’s physical activity data
  • Score 4 — estimated from economic activity, such as revenue and sector emission factors
  • Score 5 — estimated from asset-class averages or proxies

UK SRS S2 expects this kind of transparency about estimation and its limitsIFRS S2.

A weighted-average score that improves over time is a credible signal of a maturing programmePCAF Standard.