Financed emissions

Financed emissions are the greenhouse gas (GHG) emissions that result from the lending and investment activities of financial institutions, such as banks and investment managers. Essentially, they represent the carbon footprint of a firm's investments or loans.

These emissions are categorized as Scope 3 emissions under the Greenhouse Gas Protocol, meaning they are indirect emissions that occur as a consequence of the financial institution's activities but originate from sources owned or controlled by another entity. For some firms, financed emissions can be significantly larger than their direct emissions.

Calculating financed emissions involves estimating the total carbon footprint of the activities financed through loans or investments and then allocating a share of that footprint to the financial institution. This allocation is typically based on the ratio of the financial institution's investment in a company to the company's enterprise value, which includes debt, equity, and cash.

Several organizations are working to standardize the measurement and reporting of financed emissions, including the Partnership for Carbon Accounting Financials (PCAF) . In recent times PCAF has emerged as a defacto standard for the financial and insurance industry.

PCAF has delivered 3 Methodologies under the standard.

Part A -Financed emissions

This standard provides the methodology for calculating, lending, and Investment portfolio emissions.

Part B - Facilitated emissions.

This standard provides the methodology for calculating, emissions on account of facilitating financial transactions for institutions like merchant bankers, Financial Instrument underwriters.

Part C -Insurance Associated emissions.

This standard provides the methodology for calculating, emissions in the Insurance sector

Sustina Eco advisors can help you calculate your financed emissions using their software " Impact Financials".

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