Home / Blog / PCAF Explained: Guiding financial institutions on emissions reporting

PCAF Explained: Guiding financial institutions on emissions reporting

May 25, 2023
PCAF Explained: Guiding financial institutions on emissions reporting featured image
Demands are growing on financial institutions to measure and report the emissions from their investing and lending activities – their financed emissions. In response, a specific methodology has been developed to support the process, called the Partnership for Carbon Accounting Financials (PCAF).

PCAF has developed The Global GHG Accounting and Reporting Standard for the Financial Industry, otherwise known as the PCAF Standard. It’s a comprehensive methodology to accurately and consistently measure financed emissions, and it’s targeted at superannuation funds, investment managers, banks and insurers. 

The PCAF Standard is a vital contribution to the process of decarbonising our economy. It offers financial institutions a consistent approach to identify key sources of emissions, gather insights about their portfolio companies, and set decarbonisation targets towards the goal of reaching net zero emissions.

Key sections in this guide

What is PCAF?

PCAF is an industry-led initiative that provides financial institutions with a standard for the measurement and reporting of greenhouse gas (GHG) emissions that result from their lending and investment activities.

It was founded in 2015 by a group of banks and investors based in the Netherlands. It expanded into the US in 2018 and scaled globally in 2019. 

In 2020 the group released the PCAF Standard, and in March 2023 it had 373 registered firms using the methodology. 

The latest iteration of the standard offers guidance for a set of seven broad asset classes: 

  1. Listed equity and corporate bonds
  2. Business loans and unlisted equity
  3. Project finance
  4. Commercial real estate
  5. Mortgages
  6. Motor vehicle loans
  7. Sovereign debt


How does the PCAF methodology integrate with the GHG Protocol?

The GHG Protocol is the global standard for measuring greenhouse gas. This is the foundation upon which PCAF is built, and more specifically, PCAF aligns with the GHG Protocol Corporate Accounting and Reporting Standard

The GHG Protocol defines 15 categories of scope 3 emissions. Examples include upstream emissions like purchased goods and services, or downstream emissions like transport and distribution.

The PCAF Standard received the tick of approval from the GHG Protocol, where financed emissions are defined as ‘Scope 3, category 15 investment activities’. PCAF offers further detail and specific guidance on various investment asset classes. 

While PCAF adopts the core accounting principles of the GHG Protocol, it also adds some of its own. 

In particular it defines principles around attribution, which explores the proportionality of an investor’s shareholding, and data quality which recognises the impact of using estimated data, rather than ‘measured’ data.


GHG emissions, from loans or investments into a company, should be allocated to the financial institution in proportion to their shareholding in that company. This attribution should be based on annual emissions. 

An attribution factor is calculated by dividing the total share in the company outstanding by the ‘total debt + equity’ of the company. This attribution factor is then multiplied by the emissions of the borrower or investee. 

Note the importance of using a consistent common denominator, which may vary by asset class, i.e. ‘total debt + equity’. This ensures a complete representation of the company’s total financing, and avoids double-counting by separate equity and debt providers. 

PCAF data quality score

A financial institution should endeavour to use the highest quality data available to achieve the best possible carbon accounting accuracy.

To ensure quality, it’s preferable to attain core measured data directly from portfolio companies. 

When this isn’t possible, or when a financial institution is just starting to measure financed emissions, estimates can be used based on a company’s production data.

The use of ‘proxy data’ in this way can help financial institutions identify emissions hotspots in their portfolio. It’s important to achieve a high coverage of assets from the onset to avoid any ‘blind spots’ in the portfolio, even if the data score is relatively poor.

Accessing measured data is easier said than done, but it shouldn’t deter financial institutions from getting started. As measurement technology improves, and global methodologies are adopted, the process should become easier. 

To assess and record data quality, PCAF defines a system of data scoring that ranks a dataset from one to five, with one representing the highest quality data, and 5 the lowest quality. 

Scores 4 and 5 represent estimated emissions based on financial data, which is assessed as lower quality than emissions calculated by portfolio companies using the GHG Protocol Corporate Accounting and Reporting Standard. The latter will result in a score 2, or 1, if verified by a third party. 

General data quality scorecard example. Displays PCAF score 5 (uncertain) through to PCAF score 1 (certain) with text: 'Data quality scoring from 1 to 5 enables financial institutions to develop a strategy to improve data over time.' Source: Partnership for Carbon Accounting Financials

Emissions reporting guidance for private market investors 

For private market investors, further guidance on measuring GHG emissions is offered by the Initiative Climat International (iCI), a community of private equity investors focused on streamlining the process of managing climate-related risks. 

The initiative was founded by the UN-backed Principles for Responsible Investment (PRI). It has developed a core methodology titled ‘Greenhouse Gas Accounting and Reporting for the Private Equity Sector’.

The iCI complements the PCAF Standard by offering a rigorous model of GHG emissions measurement and management with the specific needs of private market investors in mind. 

Why should financial institutions join PCAF?

Joining PCAF offers financial institutions a free and open-access methodology for the management of financed emissions. 

Through alignment with a global standard, firms are able to set decarbonisation targets that are informed by a consistent model of baseline assessment. This helps to build confidence around the real-world impacts of a firm’s emissions reduction activities for both internal and external stakeholders. 

Access to a global standard encourages more firms to measure and report their financed emissions, while also making disclosures more comparable and actionable.

PCAF also created the Strategic Framework for Paris Alignment, which offers specific resources to help align an investment firm’s targets with the goals of the Paris Agreement.

How can financial institutions join PCAF?

The first step to join PCAF is for financial institutions to submit their ‘commitment letter’. This is a commitment to measure and report financed emissions inline with the PCAF Standard.

Firms have the freedom to define their particular scope of coverage – for example one particular asset class or their entire portfolio. And they must make their first PCAF disclosure within 3 years of signing.

There’s no cost to join PCAF, and the organisation offers technical support where possible to help you and your firm implement the methodology.

Learn how to join PCAF

The Pathzero solution

Pathzero unites private market participants including asset owners, asset managers and portfolio companies on a common platform enabling the disclosure of carbon emissions and the actions being taken to address them.

Request a consultation