Financed Emissions
For a bank, an asset manager, or an insurer, the emissions that matter are not the ones from the office lights — they are the emissions of everything the institution funds. CDP’s first sector-wide analysis found financed emissions averaging more than 700 times a financial institution’s own operational emissions; the institution’s direct footprint is a rounding error against its portfolio.
A net-zero commitment that covers only Scope 1 and Scope 2 therefore addresses well under one percent of the institution’s real climate impact.
Financed emissions are a financial institution’s proportional share of the emissions of the companies, projects, and assets it finances. They sit in Scope 3 Category 15 and are measured with the PCAF Standard.
Financed Emissions at a Glance
| Property | Value | Notes |
|---|---|---|
| Governing standard | PCAF Part A | Global GHG Accounting and Reporting Standard for the Financial Industry |
| Scope classification | Scope 3 Category 15 | Investments — the institution’s own inventory |
| Core formula | Σ (AF × emissions) | Attribution factor × financed entity’s emissions, summed across the portfolio |
| Asset classes | 7 | Each with a distinct attribution denominator |
| Data quality scale | 1–5 | 1 = reported/verified; 5 = economic-activity proxy |
| Financed entity scopes | 1 + 2 always; 3 phased | Scope 3 begins with oil & gas, mining, automotive |
| Key disclosure regimes | IFRS S2, CSRD, CDP | TCFD established the original expectation |
| Related modules | Facilitated, insurance-associated | PCAF Parts B and C — different attribution bases |
Definition and PCAF Basis
Financed emissions are the absolute greenhouse gas emissions associated with a financial institution’s lending and investment activities — the portion of the emissions of each borrower, investee, project, or asset that the institution accounts for in proportion to its financing. They are defined and measured by the PCAF Global GHG Accounting and Reporting Standard for the Financial Industry (Part A), the methodology built on, and consistent with, the GHG Protocol Scope 3 Standard.
For the financial institution itself, financed emissions are not a separate scope — they are Scope 3 Category 15 (Investments). PCAF exists because Category 15 is uniquely difficult: the emissions sit inside thousands of counterparties, each with its own reporting maturity, and a consistent rule is needed to decide how much of each counterparty’s footprint the lender should carry. That rule is attribution.
Financed emissions are not the institution’s own emissions and they are not the full emissions of the borrower. They are the borrower’s emissions multiplied by the institution’s share of that borrower’s financing — the attribution factor. Change the financing share or the borrower’s value, and the financed-emissions figure changes even if the borrower’s actual emissions do not.
The Attribution Principle
Attribution is the heart of the PCAF method. For every loan or investment, the institution accounts for a share of the financed entity’s emissions equal to its attribution factor:
Financed emissions = Σ ( Attribution factori × Emissionsi )
where Attribution factori = Outstanding amounti ÷ Total value of financed entityi
The numerator — the outstanding amount — is the institution’s actual exposure: the drawn loan balance or the market value of the equity or bond holding. The denominator is what differs by asset class. For listed equity and corporate bonds it is EVIC (enterprise value including cash); for business loans and unlisted equity it is total company equity plus debt; for real estate and vehicles it is the value of the financed asset. Getting the denominator right is the single most common source of error in a financed-emissions inventory.
The Seven Asset Classes
PCAF Part A specifies a distinct attribution approach for each of seven asset classes. GreenCalculus provides a dedicated calculator and methodology page for every one.
| Asset class | Attribution denominator | Calculator |
|---|---|---|
| Listed equity & corporate bonds | EVIC | Listed equity & bonds |
| Business loans & unlisted equity | Total equity + debt | Business loans |
| Project finance | Total project equity + debt | Project finance |
| Commercial real estate | Property value at origination | Commercial real estate |
| Mortgages | Property value at origination | Mortgages |
| Motor vehicle loans | Total value at origination | Motor vehicle loans |
| Sovereign debt | PPP-adjusted GDP | Sovereign debt |
Each calculator reads its formula and data quality scorecard from the methodology page — for example, the listed equity & corporate bonds methodology.
Which Emissions Count — Financed Scope 1, 2, and 3
The emissions being attributed are the financed entity’s own emissions across its scopes. PCAF requires institutions to account for the financed entity’s Scope 1 and Scope 2 emissions in all cases, and to phase in the financed entity’s Scope 3 emissions on a sector-by-sector basis — beginning with the sectors where Scope 3 is most material, such as oil and gas, mining, and automotive.
Omitting the financed entity’s Scope 3 understates financed emissions dramatically in value-chain-heavy sectors. For an oil major, downstream use-of-product emissions can exceed its Scope 1 and 2 combined by a factor of ten — so a lender that attributes only the borrower’s Scope 1 and 2 reports a fraction of the true exposure.
Data Quality — the 1–5 Score
Every financed-emissions figure must carry a PCAF data quality score from 1 to 5, where 1 is the highest quality (audited, reported emissions from the financed entity) and 5 is the lowest (emissions estimated from economic activity and regional averages with no entity-specific data). The score is not cosmetic: it tells the user of the disclosure how much of the reported number rests on primary data versus proxy estimation, and it sets the institution’s improvement roadmap — moving exposures from score 4–5 toward 1–2 over time.
The PCAF Data Quality Score Calculator derives the score across all asset classes from the inputs available, so the score is consistent with the attribution math rather than assigned by hand.
How to Calculate Financed Emissions — Worked Example
A bank holds €10 million of equity in a listed manufacturer whose EVIC is €500 million and whose reported Scope 1 + Scope 2 emissions are 40,000 tCO₂e. The outstanding amount and the EVIC are both stated in euros and drawn from the same reporting period.
Attribution factor = €10m ÷ €500m = 0.02 (2%)
Financed emissions = 0.02 × 40,000 tCO₂e = 800 tCO₂e
Data quality score = 1 (reported, verified emissions; market-value EVIC)
If the manufacturer had not reported its emissions and the bank had to estimate them from sector revenue and an emission-intensity factor, the same 2% attribution would still apply — but the figure would carry a data quality score of 4 or 5, flagging it for improvement. Run the full calculation, including the data quality derivation, in the PCAF Listed Equity & Corporate Bonds Calculator.
Financed vs Facilitated vs Insurance-Associated Emissions
PCAF now spans three accounting modules, and the distinction matters because the same transaction can fall under different rules depending on the institution’s role.
- Financed emissions (Part A) — emissions from on-balance-sheet loans and investments. The lender holds the exposure.
- Facilitated emissions (Part B) — emissions linked to capital-markets activities such as bond and equity underwriting, where the institution arranges financing it does not retain. PCAF applies a weighting factor to avoid double counting against financed emissions.
- Insurance-associated emissions (Part C) — emissions attributed to re/insurance underwriting, with attribution based on premiums rather than financing.
An underwritten bond can appear under both financed emissions (if the institution retains a position) and facilitated emissions (for the underwriting role). Counting it at full weight in both inflates the portfolio total. PCAF’s facilitated-emissions weighting factor exists precisely to prevent this — apply it, and document which module each exposure sits in.
Regulatory and Disclosure Relevance
Financed-emissions disclosure has moved from voluntary to expected. IFRS S2 requires financial institutions to disclose Scope 3 Category 15 financed emissions, including the methodology and the proportion of exposure covered. The CDP Climate Change questionnaire includes a dedicated financial-services module built around PCAF, and the CSRD / ESRS E1 regime captures financed emissions within the Scope 3 datapoints for in-scope institutions. TCFD (now consolidated into the ISSB baseline) established the original expectation that financial institutions disclose the emissions tied to their lending and investment portfolios.
Five Common Mistakes
- Wrong denominator. Using market capitalisation instead of EVIC for listed equity, or property value at reporting date instead of at origination for mortgages, breaks comparability.
- Omitting the financed entity’s Scope 3. In oil and gas, mining, and automotive, this is the largest part of the number.
- No data quality score. A financed-emissions figure without a 1–5 score is not PCAF-compliant and cannot be benchmarked.
- Double counting across modules. Counting an underwritten bond as both financed and facilitated without the weighting factor inflates the total.
- Currency and timing mismatch. The outstanding amount and the financed entity’s value must be in the same currency and the same reporting period.
Frequently Asked Questions
Financed emissions are the greenhouse gas emissions a financial institution attributes to its loans and investments — its proportional share of the emissions of the companies, projects, and assets it finances. They form Scope 3 Category 15 (Investments) for the institution and are measured with the PCAF Standard. Because a bank’s financed emissions are, on average, more than 700 times its own operational emissions, they dominate any credible financial-sector climate target.
For each loan or investment, multiply the financed entity’s emissions by an attribution factor — the institution’s outstanding amount divided by the financed entity’s value — then sum across the portfolio. The denominator depends on the asset class: EVIC for listed equity and corporate bonds, total equity plus debt for business loans, and asset value for real estate and vehicles. Every figure carries a 1–5 data quality score. Worked examples and the data quality derivation are built into the PCAF Listed Equity & Corporate Bonds Calculator.
For the financial institution, financed emissions are Scope 3 — specifically Category 15 (Investments). The emissions being attributed are the financed entity’s own Scope 1, Scope 2, and (phased in by sector) Scope 3. PCAF requires the financed entity’s Scope 1 and 2 in all cases and adds its Scope 3 starting with the most material sectors such as oil and gas, mining, and automotive.
Financed emissions (PCAF Part A) come from on-balance-sheet loans and investments the institution holds. Facilitated emissions (Part B) come from capital-markets activities such as underwriting, where the institution arranges financing it does not retain — and a weighting factor prevents double counting. Insurance-associated emissions (Part C) are attributed to re/insurance underwriting, with attribution based on premiums rather than financing.
IFRS S2 requires financial institutions to disclose Scope 3 Category 15 financed emissions with their methodology and coverage. The CDP financial-services module is built around PCAF, and CSRD / ESRS E1 captures financed emissions within its Scope 3 datapoints for in-scope institutions. The expectation originated with the TCFD recommendations, now consolidated into the ISSB baseline.