PCAF Business Loans & Unlisted Equity
The listed-equity asset class has it easy: a market capitalisation sits on a screen, and enterprise value falls out of it. Private companies offer no such luxury. A bank financing a family-owned manufacturer or a private-equity-backed logistics firm has no market cap to divide by — yet the financed-emissions obligation is identical, and the attribution still has to be exact.
When there is no market value, the balance sheet becomes the denominator.
PCAF attributes business-loan and unlisted-equity emissions by multiplying the borrower’s emissions by an attribution factor — the outstanding amount divided by the company’s total equity plus debt (book value). Each holding is scored 1–5 for data quality.
This page covers the PCAF business loans and unlisted equity asset class as defined in the PCAF Global GHG Accounting and Reporting Standard for the Financial Industry. It covers the attribution principle for private companies, the total-equity-plus-debt denominator that replaces EVIC, the loan-versus-equity numerator distinction, the five-rung data quality score, scope coverage, and three audit-record worked examples reconciling against the PCAF Financed Emissions Standard and the GHG Protocol Corporate Standard. For the market-based denominator used when the borrower is publicly listed, see the companion PCAF listed equity and corporate bonds methodology.
What This Asset Class Covers: Loans and Equity in Unlisted Companies
Business loans and unlisted equity is the second PCAF asset class and, for most commercial and corporate banks, the largest by exposure. It covers two instrument types financing companies that are not publicly listed: term loans, revolving credit facilities, and other on-balance-sheet lending to private businesses; and direct equity investments in companies whose shares do not trade on a recognised exchange — private-equity stakes, venture holdings, and minority interests in privately held firms. The unifying feature is that the borrower or investee has no observable market price, so the attribution denominator must come from its financial statements rather than the market.
The attribution principle, restated for private companies
The PCAF accounting idea is unchanged from the listed-equity case: a financial institution is responsible for the emissions it enables, in proportion to its share of the company’s financing. The borrower keeps reporting 100% of its own emissions; the financier attributes a slice equal to its proportional claim on the company’s total capital. What changes is how that proportional claim is measured. For a listed company the claim is measured against enterprise value including cash (EVIC); for a private company there is no market capitalisation to anchor EVIC, so the claim is measured against the book value of the company’s total equity and debt.
Financed emissions for this asset class are reported as a Scope 3 Category 15 (Investments) line in the financial institution’s own inventory — the same inventory line as listed equity and corporate bonds. The two asset classes differ only in the attribution denominator, not in where the result lands.
Why the denominator changes: no market cap means no EVIC
EVIC depends on a market capitalisation, which only exists for a listed company. A private company has no continuously quoted share price, so its enterprise value cannot be read from the market. PCAF therefore substitutes the book value of total equity plus debt — figures that every company with audited or reviewed financial statements reports on its balance sheet. This substitution keeps the attribution factor computable for borrowers that will never appear on an exchange, at the cost of relying on accounting book values rather than market values.
If you maintain one attribution engine across asset classes, parameterise the denominator: EVIC for listed equity and corporate bonds, total equity plus debt for business loans and unlisted equity. The numerator logic (outstanding amount) and the multiply-by-emissions step are identical — only the denominator definition swaps.
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The Financed-Emissions Equation
For each loan or equity position, financed emissions are the borrower’s absolute emissions multiplied by an attribution factor:
| Financed emissions (per holding) |
|---|
| Financed emissions = Attribution factor × Borrower emissions |
| Attribution factor = Outstanding amount ÷ (Total company equity + debt) |
| Financed emissions = (Outstanding amount ÷ (Equity + Debt)) × (Scope 1 + Scope 2 + Scope 3 emissions) |
As with every PCAF asset class, the portfolio total is the straight sum of per-holding financed emissions — no netting, no offsetting, and no portfolio-level denominator. Attribution is always computed holding-by-holding, which is what keeps the result traceable to source and therefore assurable.
The attribution factor: outstanding amount ÷ (total equity + debt)
The attribution factor is the financier’s proportional claim on the borrower’s total capital. The numerator is the outstanding amount the institution holds — the drawn balance of a loan or the value of an equity investment at the reporting date. The denominator is the borrower’s total equity plus total debt, taken from its most recent audited or reviewed balance sheet. The factor is dimensionless and, in the normal case, sits between 0 and 1.
Total equity + debt defined, from the audited balance sheet
The denominator is the sum of the company’s total equity (shareholders’ funds, including retained earnings and reserves) and its total debt (short- and long-term interest-bearing liabilities), as reported on the balance sheet. Unlike EVIC, this is a book-value measure, not a market-value measure — it reflects what the company’s financiers have contributed and what the company owes, rather than what the market would pay for it. The figure should be taken from the most recent financial statements available at the reporting date, and the statement date should be disclosed.
The denominator choice partitions the borrower’s emissions across everyone who finances it — equity providers and lenders alike — in proportion to the capital each provides. A lender holding a loan equal to 10% of the borrower’s total equity-plus-debt attributes 10% of the borrower’s emissions; an equity investor holding 5% of the same denominator attributes 5%. Because the denominator already spans the whole capital structure, a correctly classified loan and a correctly classified equity stake in the same company do not double count — they draw distinct slices from one shared base.
Book values lag reality. A balance sheet a year or more old can materially misstate the denominator for a fast-growing or recently recapitalised private company. Always disclose the financial-statement date behind the denominator, and refresh it when newer statements arrive rather than carrying a stale figure into the current year’s attribution.
Business loans vs unlisted equity — the same denominator, different numerator
The equation is identical for the two instrument types in this asset class; only the outstanding-amount numerator differs. For a business loan, the numerator is the outstanding (drawn) loan balance at the reporting date. For an unlisted equity investment, the numerator is the value of the equity stake held. Both divide by the same total-equity-plus-debt denominator for the company, so a lender and an equity investor in the same private firm partition its emissions consistently between them.
| Dimension | Business loan | Unlisted equity |
|---|---|---|
| Numerator (outstanding amount) | Drawn loan balance at reporting date | Value of equity investment held |
| Denominator | Total equity + debt of borrower | Total equity + debt of investee (same figure) |
| Attribution factor range (normal) | 0–1 | 0–1 |
| Emissions multiplied | Scope 1 + 2 (+ 3 phased) | Scope 1 + 2 (+ 3 phased) |
| Typical numerator source | Loan ledger / drawn balance | Investment carrying value |
| Denominator source | Borrower’s audited balance sheet | Investee’s audited balance sheet |
An institution holding both a loan and an equity stake in the same private company attributes two separate slices of its emissions — one through the loan numerator, one through the equity numerator — both drawn from the same equity-plus-debt denominator. This is correct: the two positions represent distinct capital provided to the company.
The PCAF Data Quality Score (1–5) for This Asset Class
The five-rung data quality score works identically to the listed-equity case, but the realistic distribution is different: private companies report verified emissions far less often than listed corporates, so business-loan and unlisted-equity portfolios skew toward the estimation rungs (Scores 3–5). The score is a transparency device, not a penalty — it tells a reader how much of the reported total rests on measured data. In the GreenCalculus MasterBrain these scores are stored as framework markers under reporting.pcaf.business_loans_unlisted_equity.score_1 through score_5 — rank values, not emission factors.
| Score | Emissions data basis | What the institution holds | Attribution basis | Audit risk |
|---|---|---|---|---|
| 1 | Reported, third-party-verified emissions | Borrower’s audited/verified Scope 1+2 (+3 phased), and a known equity+debt denominator | Outstanding amount ÷ verified equity+debt | Low |
| 2 | Reported, unverified emissions | Borrower-reported emissions without third-party assurance; known equity+debt | Outstanding amount ÷ known equity+debt | Low–medium |
| 3 | Physical-activity-based estimate | Borrower physical-activity data (output, energy use, floor area) × sector physical-intensity factor | Outstanding amount ÷ equity+debt, applied to the estimate | Medium |
| 4 | Economic-activity-based, company-specific | Borrower revenue or asset turnover × sector emission-intensity (per unit revenue) | Outstanding amount ÷ equity+debt, applied to the estimate | Medium–high |
| 5 | Economic-activity-based, sector-average | Estimated revenue/asset value × sector-average emission-intensity (no company-specific data) | Outstanding amount ÷ estimated equity+debt, applied to the estimate | High |
Scores 1–2 — reported, with the private-company data gap
Score 1 (verified) and Score 2 (reported, unverified) require the borrower to report its own emissions. For large private companies — those subject to mandatory disclosure under CSRD ESRS E1 or with sustainability-conscious owners — this data exists. For the long tail of small and mid-sized private borrowers it usually does not, which is why business-loan portfolios cannot rely on reaching Score 1 or 2 across the book the way a listed-equity manager often can.
Score 3 — physical-activity-based
Where reported emissions are unavailable, a physical-activity estimate is the preferred fallback: the borrower’s physical output, energy consumption, or building floor area multiplied by a sector physical-intensity factor. Physical activity correlates far more tightly with emissions than revenue does, so a Score 3 estimate is materially more reliable than a Score 4/5 economic estimate — reach for it whenever physical data is obtainable, even partially.
Scores 4–5 — economic-activity (revenue/spend) based
Scores 4 and 5 are the estimation floor and, in practice, where much of a business-loan portfolio starts. Score 4 multiplies the borrower’s own revenue by a sector emission-intensity factor; Score 5 uses an estimated revenue and a sector-average factor with no company-specific input. These rungs draw on environmentally-extended input-output (MRIO/EEIO) factors; on GreenCalculus the relevant secondary-data factors live in the spend_based.* keyspace and are documented in the spend-based MRIO emission factors methodology. They are statistically sound across a diversified portfolio but unreliable for any single borrower.
The temptation in this asset class is to default the entire SME book to a single sector-average Score 5 factor and move on. That produces a defensible portfolio total but hides the holdings an assurer will probe — and it forfeits the improvement roadmap. Score the SME book honestly at 5, then prioritise obtaining revenue (→ Score 4) or physical data (→ Score 3) for the largest exposures.
The portfolio-weighted data quality score
The portfolio reports a single emissions-weighted average score, weighting each holding by its share of portfolio financed emissions (or by outstanding amount where emissions are not yet known). The rule is held qualitatively in the MasterBrain at reporting.pcaf.weighted_average.data_quality_score. For business-loan and unlisted-equity portfolios this number is typically higher (worse) than a comparable listed-equity book, and that is expected — the disclosure should present the weighted score alongside a data-improvement plan rather than apologise for it.
Illustrative data-quality distribution for a business-loan portfolio. Compared with a listed-equity book, the mass shifts right toward Scores 4–5 — the structural consequence of lending to companies that mostly do not report verified emissions.
Scope Coverage and the Scope 3 Phase-In
Attributed emissions are reported by scope, mirroring the borrower’s own GHG Protocol inventory. Borrower Scope 1 (direct) and Scope 2 (purchased energy) are required; borrower Scope 3 is phased in, prioritising the most material sectors first, because private-borrower Scope 3 data is even scarcer than listed-corporate Scope 3 data. The GHG Protocol Scope 3 Standard governs the materiality prioritisation.
| Borrower scope | Treatment in the financier’s attributed total | Requirement |
|---|---|---|
| Scope 1 (direct) | Attributed and reported | Required |
| Scope 2 (purchased electricity/heat) | Attributed and reported | Required |
| Scope 3 (value chain) | Attributed and reported, prioritising the most material sectors first | Phased — required for material sectors, expanding over time |
For private borrowers in high-emitting sectors — agriculture, transport, heavy industry — attributed Scope 3 frequently dominates the total, yet is the part least likely to be reported. Disclose the scope split explicitly so a Scope-1+2-only figure is never mistaken for a complete one.
Worked Examples — Audit Records
Three audit-record snapshots. All values are fixed as audit records: they reconcile to their stated inputs and must continue to reconcile regardless of future data-layer changes. Each is replicable in the PCAF Business Loans & Unlisted Equity calculator once published; the figures below are the canonical reference arithmetic.
Example A — term loan, Score 2 reported emissions
| Example A — business loan, reported emissions | Value |
|---|---|
| Holding — outstanding (drawn) loan balance | EUR 8,000,000 |
| Borrower total equity + debt (audited balance sheet) | EUR 200,000,000 |
| Attribution factor = 8,000,000 ÷ 200,000,000 | 0.04 (4%) |
| Borrower reported Scope 1 + 2 emissions (unverified) | 120,000 tCO₂e |
| Financed emissions = 0.04 × 120,000 | 4,800 tCO₂e |
| Data quality score | 2 (reported, unverified) |
The institution attributes 4,800 tCO₂e from a loan equal to 4% of the borrower’s total capital. Because the emissions are self-reported but not independently assured, the holding carries a Score 2 — solid, but a notch below the verified benchmark.
Example B — unlisted equity stake, Score 3 physical-activity estimate
| Example B — unlisted equity, physical-activity estimate | Value |
|---|---|
| Holding — value of equity investment held | EUR 5,000,000 |
| Investee total equity + debt (audited balance sheet) | EUR 50,000,000 |
| Attribution factor = 5,000,000 ÷ 50,000,000 | 0.10 (10%) |
| Investee physical activity (cement produced) | 300,000 tonnes |
| Sector physical-intensity factor (illustrative) | 0.60 tCO₂e/tonne |
| Estimated investee emissions = 300,000 × 0.60 | 180,000 tCO₂e |
| Financed emissions = 0.10 × 180,000 | 18,000 tCO₂e |
| Data quality score | 3 (physical-activity-based) |
The same arithmetic applies to an equity stake as to a loan — only the numerator basis (equity carrying value rather than drawn loan balance) changes. The investee’s emissions are estimated from physical output because reported figures were unavailable, so the holding scores 3. The illustrative 0.60 tCO₂e/tonne intensity stands in for a sourced sector factor; in production it would be drawn from a sector physical-intensity dataset and cited.
Example C — mixed portfolio, weighted data quality score with SME Score 5 fallback
| Holding | Outstanding amount | Attribution factor | Borrower emissions | Financed emissions | Score |
|---|---|---|---|---|---|
| A — loan, reported | €8m | 0.04 | 120,000 t | 4,800 t | 2 |
| B — equity, physical est. | €5m | 0.10 | 180,000 t | 18,000 t | 3 |
| C — SME loan, sector-avg spend | €2m | 0.20 | 31,000 t (est.) | 6,200 t | 5 |
| Portfolio total | €15m | — | — | 29,000 t | — |
Holding C is an SME loan with no audited emissions and no physical data, estimated from revenue × a sector-average spend-based intensity (a Score 5 fallback of the kind documented in the spend-based MRIO methodology). Its 0.20 attribution factor — a €2m loan against a €10m equity-plus-debt base — illustrates how small private borrowers can carry high attribution factors. The portfolio financed-emissions total is the simple sum: 4,800 + 18,000 + 6,200 = 29,000 tCO₂e.
| Emissions-weighted data quality score | Value |
|---|---|
| Weighting = each holding’s financed emissions ÷ portfolio financed emissions | 4,800 / 18,000 / 6,200 of 29,000 |
| Weighted score = (4,800×2 + 18,000×3 + 6,200×5) ÷ 29,000 | (9,600 + 54,000 + 31,000) ÷ 29,000 |
| Weighted data quality score | 3.26 |
The weighted score of 3.26 reflects an estimation-leaning portfolio — characteristic of private-company lending. The physical-estimate Holding B dominates the financed-emissions total and therefore the weighted score, so the highest-value data improvement here is obtaining reported emissions for Holding B, not chasing the small SME estimate.
Weight the data quality score by financed emissions, never by holding count. In a private-loan book dominated numerically by small SME exposures, count-weighting would make the portfolio look worse than it is and would point your data-improvement effort at the holdings that matter least.
Edge Cases and Known Pitfalls
SME borrower with no audited accounts
Many small private borrowers have no audited or even reviewed financial statements, leaving the equity-plus-debt denominator unobservable. Estimate the denominator from available data (filed accounts, credit-file financials, sector benchmarks), score the holding at 5, document the estimation basis, and treat obtaining real financials as a data-improvement priority for material exposures.
Stale balance-sheet denominator
Book values lag. A denominator drawn from a balance sheet 18 months old can badly misstate the attribution factor for a company that has since raised capital or grown sharply. Disclose the financial-statement date, refresh when newer statements arrive, and never silently carry a prior-year denominator into the current year.
Syndicated and club loans
When several lenders finance one borrower through a syndicate, each lender attributes only its own outstanding share — its participation amount divided by the borrower’s equity-plus-debt. The denominator is the borrower’s, not the syndicate’s; each lender’s numerator is its slice. Done correctly, the syndicate’s combined attribution sums to the loan’s full share of the borrower’s emissions without double counting.
Revolving credit: drawn vs committed
For a revolving facility, the outstanding-amount numerator is the drawn balance at the reporting date, not the committed limit. An undrawn commitment finances nothing and attributes nothing. Disclose the drawn-balance basis, and be consistent across reporting periods so a fluctuating draw is not mistaken for a change in the borrower’s emissions.
Attribution factor exceeding 1
A small, highly leveraged private borrower can produce an outstanding amount larger than its equity-plus-debt, pushing the attribution factor above 1. Cap the disclosed factor at 1, document the cap, and investigate — a factor above 1 usually signals a stale or mis-stated denominator rather than genuine over-attribution.
Holding moves from unlisted to listed
If a borrower or investee lists during the year (an IPO), the denominator basis switches from equity-plus-debt to EVIC, and the position migrates to the listed equity and corporate bonds asset class. Apply the basis matching the instrument’s status at the reporting date; do not retroactively restate the private-period figure onto an EVIC basis. See the listed equity and corporate bonds methodology for the post-listing treatment.
Governance, Assurance, and Disclosure Obligations
Business-loan and unlisted-equity financed emissions feed the same mandatory and voluntary disclosures as the listed asset class: CSRD ESRS E1 for in-scope EU institutions, the SBTi Corporate Net-Zero Standard for financial-institution target setting, and CDP for voluntary disclosure. Because private-company data is weaker, the methodology and data-quality documentation behind these figures carries even more assurance weight than it does for listed holdings.
Run the following pre-flight before submitting a business-loan and unlisted-equity financed-emissions total for reasonable assurance:
- Attribution factor reconciliation. Every holding’s attribution factor traces to a sourced outstanding amount (drawn loan balance or equity carrying value at reporting date) and a sourced equity-plus-debt denominator. Sample the largest-emitting positions first.
- Denominator recency. Confirm each equity-plus-debt figure comes from the most recent available financial statements, and disclose the statement date. Flag denominators older than the borrower’s latest reporting period.
- Drawn-vs-committed basis. For revolving facilities, confirm the numerator is the drawn balance at the reporting date, not the committed limit.
- Attribution factor > 1 check. Flag and cap any holding whose attribution factor exceeds 1; investigate the denominator before disclosure.
- Scope completeness disclosure. State which borrower scopes (1, 2, and which Scope 3 categories) are included and which are omitted and why.
- Data quality score per holding. Every holding carries a 1–5 score with the evidence behind it; the portfolio reports an emissions-weighted average.
- SME estimation justification. For Score 4/5 SME holdings, document the revenue/denominator estimation basis and the data-improvement plan.
- No netting confirmation. Confirm the portfolio total is a straight sum of per-holding financed emissions with no offsetting or portfolio-level denominator.
The most common assurance finding in this asset class is a stale equity-plus-debt denominator — a current-year loan balance divided by a balance sheet that predates a material recapitalisation. Lock the denominator’s financial-statement date in the methodology note and refresh it on a defined cadence.
What the Calculator Handles vs What You Decide
A calculator automates the mechanical attribution arithmetic. It cannot make the data-sourcing and classification judgements that determine whether the result is assurance-grade.
The calculator handles
Computing the attribution factor (outstanding amount ÷ equity-plus-debt); multiplying through to financed emissions by scope; summing holdings to a portfolio total; computing the emissions-weighted data quality score; applying the attribution-factor cap at 1; and producing a per-holding audit trail with the full arithmetic chain for each position.
You decide
Which financial statement supplies the equity-plus-debt denominator and its date; whether the numerator is drawn or committed for revolving facilities; whether a borrower’s emissions are reported, physical-estimated, or spend-estimated (the Score 1–5 assignment); how to estimate a denominator for an SME with no audited accounts; and when a Score 4/5 holding should be promoted up the ladder.
Apply the equity-plus-debt denominator, the attribution factor, and the data quality score to a business-loan and unlisted-equity portfolio with a full per-holding audit trail.
Standards Alignment
Six standards govern this asset class and its disclosure consequences.
| Standard | Role for this methodology |
|---|---|
| PCAF Financed Emissions Standard | Defines the asset class, the attribution-factor formula, the total-equity-plus-debt denominator, and the five-rung data quality score. The methodological foundation of every figure on this page. |
| GHG Protocol Corporate Standard | Defines the financier’s own inventory boundary; financed emissions are reported as Scope 3 Category 15 (Investments). PCAF operationalises this category. |
| GHG Protocol Scope 3 Standard | Governs the materiality and phase-in logic for borrower Scope 3, which becomes the financier’s attributed value-chain emissions. |
| CSRD ESRS E1 | EU mandatory climate disclosure; in-scope financial institutions report financed emissions and the underlying methodology, including data-quality scoring. |
| SBTi Corporate Net-Zero Standard | Uses the financed-emissions baseline for financial-institution target setting; data quality and scope completeness affect target validation. |
| Spend-based MRIO emission factors | Supplies the Score 4/5 economic-activity fallback factors used when reported and physical data are unavailable. |
Across the asset classes. This is one of ten PCAF methods. For which class applies to a given exposure, and how the attribution denominator changes between them while the equation stays the same, see PCAF Financed Emissions.
Frequently Asked Questions
The attribution factor is the outstanding amount the institution holds divided by the borrower’s total equity plus total debt (book value), taken from its most recent audited balance sheet. Multiplying the borrower’s emissions by this factor gives the financed emissions attributed to the institution. For an €8m loan to a company with €200m equity-plus-debt, the factor is 0.04 — so 4% of that company’s emissions are attributed.
EVIC depends on a market capitalisation, which only exists for listed companies. Private borrowers and investees have no quoted share price, so PCAF substitutes the book value of total equity plus total debt from the balance sheet. This keeps the attribution factor computable for companies that will never appear on an exchange, at the cost of relying on accounting book values rather than market values. The companion listed equity and corporate bonds methodology uses EVIC for the publicly listed case.
The formula is identical; only the numerator differs. A business loan uses the drawn loan balance at the reporting date; an unlisted equity investment uses the carrying value of the stake held. Both divide by the same equity-plus-debt denominator for the company, so a lender and an equity investor in the same private firm partition its emissions consistently between them without double counting.
The drawn balance at the reporting date. An undrawn commitment finances nothing and attributes nothing, so the committed limit is not the numerator. Disclose the drawn-balance basis and apply it consistently across reporting periods, so that a change in the draw is not misread as a change in the borrower’s emissions.
Each lender attributes only its own participation. The numerator is the lender’s outstanding share of the loan; the denominator is the borrower’s total equity-plus-debt, not the syndicate’s. Done correctly, the lenders’ combined attribution sums to the loan’s full share of the borrower’s emissions without any single lender double counting another’s slice.
Estimate the equity-plus-debt denominator from whatever is available — filed accounts, credit-file financials, or sector benchmarks — score the holding at 5 to reflect the estimation, document the basis, and treat obtaining real financials as a data-improvement priority for material exposures. Do not present an estimated-denominator figure with the precision of a verified one.
Private borrowers report verified emissions far less often than listed corporates, so business-loan and unlisted-equity books skew toward the estimation rungs (Scores 3–5). A higher weighted data quality score is the expected structural consequence of lending to companies that mostly do not report — the right response is to disclose it alongside a data-improvement plan, prioritising reported or physical data for the largest exposures.
The denominator basis switches from equity-plus-debt to EVIC at the point of listing, and the position moves to the listed equity and corporate bonds asset class. Apply the basis that matches the instrument’s status at the reporting date; do not retroactively restate the private-period figure onto an EVIC basis. The listed equity and corporate bonds methodology covers the post-listing treatment.