Financed emissions and PCAF

What are financed emissions?

Financed emissions are the share of a borrower's or investee's emissions attributed to the institution that finances it. They cover lending and investments on the balance sheet, such as loans, bonds, listed and unlisted equity, project finance, commercial real estate, mortgages and vehicle loans. Related measures cover facilitated emissions, from underwriting and arranging deals, in PCAF Part B, and insurance-associated emissions, in Part C. See the 15 scope 3 categories.

How does PCAF attribute financed emissions?

The core formula is the attribution factor times the borrower's or investee's emissions. For listed companies, the attribution factor is the outstanding amount divided by enterprise value including cash (EVIC). For private companies, it is the outstanding amount divided by total equity plus debt. For mortgages and vehicle loans, it is the outstanding loan divided by the property or vehicle value at origination. Borrowers' scope 1 and 2 are always included, and their scope 3 is included for sectors where PCAF requires it. The standard sets a data hierarchy: verified reported emissions, unverified reported emissions, estimates from physical activity data, and estimates from revenue or assets using sector averages, giving data quality scores from 1 to 5.

Financed emissions: a bank's portfolio

A bank measures four exposures, in euro millions and tonnes of CO2 equivalent.

The cement loan is 2% of the money lent but 24% of the financed emissions: 50/2,000 of the cement maker's 400,000 tonnes. The utility bonds attribute a small share of a large emitter. The logistics loan finances a quarter of a small company, but its emissions are estimated from revenue, so its data quality score is 4. The bank reports 41,500 tonnes, an emissions-weighted data quality score of 3.0, and intensity per euro million lent, and explains that a change in the cement maker's share price, which moves EVIC, would change the result without any change in emissions.

What changed in the 2025 PCAF update?

The third edition of Part A, published in December 2025, extends coverage from seven to ten asset classes, adding use-of-proceeds structures such as green bonds, securitisations and structured products with a look-through to the underlying loans, and sub-sovereign debt. It adds an optional method for undrawn loan commitments, recommends explaining changes in absolute financed emissions and adjusting intensity metrics for inflation, and requires any avoided emissions to be reported separately rather than netted. Part C, on insurance-associated emissions, also has a 2025 second edition. For how issuers account for labelled debt, see green bonds and sustainability-linked loans.

What do IFRS S2 and the ESRS require?

IFRS S2 requires banks, insurers and asset managers to disclose financed emissions by industry and asset class, with the method used. Its December 2025 amendments, effective from 2027, allow category 15 to be limited to financed emissions, excluding derivatives, facilitated and insurance-associated emissions, and drop the GICS requirement. ESRS E1 includes financed emissions within scope 3. See the IFRS S2 amendments and ESRS E1.

What can financed emissions show, and what not?

They show a portfolio's exposure to emissions-intensive activities and help set and track targets. But they move with valuations and lending volumes, rise when a bank finances a high emitter's transition, and depend heavily on estimated data. The Net-Zero Banking Alliance, through which many banks had set targets, voted to cease operations in October 2025, though many banks keep their own targets and transition plans. Banks often add forward-looking metrics, such as financing for low-carbon activities. See climate transition plans, and for the credit loss side, climate risk in expected credit losses.

This guide is general information. It is not tax or legal advice for your situation.