Carbon Accounting Essentials
Financed Emissions Fundamentals

PCAF Principles

May 28, 2024
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PCAF Principles


PCAF's framework has earned a Built on GHG Protocol mark, meaning that the Standard conforms to and aligns with the requirements of the GHGP.

Accounting Principles

GHG Protocol

The GHG Protocol details five core principles:

  • Completeness
  • Consistency
  • Relevance
  • Accuracy
  • Transparency
PCAF Standard

The Standard builds on these and adds an additional five principles that are created for and tailored to financial institutions:

  • Recognition
  • Measurement
  • Attribution
  • Data quality
  • Disclosure

Let's take a closer look at the PCAF principles.


This principle requires financial institutions to account for financed emissions. The Standard specifically requires financial institutions to disclose using one of the following approaches for consistent reporting:

Financial Control Approach

The financial control approach requires an organization to report all emissions for activities in which they can directly influence financial and operating policies and benefit economically.

Operational Control Approach

The operational control approach requires an organization to report all emissions from operations where it — or one of its subsidiaries — can introduce and implement operational policies.

Using these approaches ensures financed emissions are accounted for in scope 3, category 15.

Institutions are also required to explicitly explain any information that is excluded.

Information may be excluded if there’s a lack of data or if activities are small and insignificant to that institution’s total financed emissions.


PCAF requires financial institutions to use PCAF methodologies to measure and disclose emissions for each asset class. Institutions must “follow the money” as far as possible to comprehend their climate impact.

At a minimum, they require the measurement of absolute emissions. When relevant, institutions can also report on emissions intensity. Institutions may also measure avoided and removed emissions if data and applicable methodologies are available.

Absolute Emissions

PCAF defines absolute emissions as "the total GHG emissions of an asset class or portfolio".

Emissions Intensity

PCAF defines emissions intensity as “absolute emissions divided by the loan and investment volume". Institutions should express emissions intensities on the sector, asset class, or portfolio level in metric tonnes of carbon dioxide equivalent per million dollars (or euros) invested or loaned:

tCO2e/M$ or tCO2e/M€

Avoided and Removed Emissions

Removed Emissions (or carbon removal) is the elimination of GHG emissions after they have entered the atmosphere.

Avoided Emissions are carbon emissions that are prevented from being emitted in the first place. They can be divided into two categories: (1) avoidance by carbon offsets and (2) avoidance through direct carbon reduction measures.

Note: If an institution chooses to disclose avoided or removed emissions, PCAF requires them to report it separately from their scope 1, 2, and 3 inventories.

A company's GHG accounting measurements must meet the following criteria:

  • Align with their normal financial accounting period
  • Be reported at least annually — at the same point in time
  • Provide an accurate representation of the reporting period's emissions
  • Communicate large changes that may have impacted the results
  • Disclose absolute emissions for scopes 1 and 2 and relevant scope 3 emissions — in line with the GHG Protocol's guidance for scope 3 emissions
  • Account for emissions data at the asset class or sector level

When calculating emissions, institutions must adhere to the following guidelines:

  • Account for gasses named in the Kyoto Protocol
  • Convert gasses to carbon dioxide equivalent (CO2e) using either the GHGP's AR5 or the latest assessment report from the Intergovernmental Panel on Climate Change (IPCC)
  • Express in metric tonnes of carbon dioxide equivalent (tCO2e) or another suitable metric equivalent


The financial institution’s emissions allocation must be proportional to their loan or investment. This is achieved by calculating the attribution factor.

The attribution factor is the financial institution's share of the borrower/investee's total annual GHG emissions that are allocated to loans or investments. The attribution factor is used to calculate financed emissions.

Calculating the Attribution Factor

To calculate financed emissions, divide the share of the outstanding amount of loans and investments of the financial institution by the total equity and debt of the underlying company or asset.

Calculate financed emissions by multiplying the financial institution's specific attribution factor by the borrower/investee's emissions.

Each asset class has a specific methodology to accurately measure emissions — all of which consider different scopes, require distinct data sets with various levels of validity, and have different calculation methods.

Lets navigate through the different asset class calculations.

The Standard applies the same attribution principles for all asset classes. It’s crucial for financial institutions to follow this method so they can have one common denominator for all asset classes, consider equity and debt equally important in calculations, and avoid double counting.

Double Counting

In GHG accounting, double counting happens when reporters count emissions more than once when calculating their financed emissions for one or more institutions.

Keeping an eye out for double counting is especially important for institutions with complex operations that may have both debt and equity in the same project or company. PCAF encourages institutions to minimize double counting as much as possible.

Data Quality

Financial institutions must also use the highest-quality data available for disclosures and make gradual plans to improve data quality.

High-quality data is necessary to accurately reflect an institution’s emissions and ensure information is usable enough for decision-makers.

However, high-quality data is difficult to come by, which PCAF recognizes. A lack of quality data is often encountered when acquiring data from investees or borrowers. When data is incomplete or unavailable, institutions can use proxy data to fill in the gaps.

Reporting Period

Reporters may also need to use data collected in different years.

For example:

An institution may need to use a combination of their 2020 and 2018 financial data if this is their latest information.

PCAF recommends using the most recent data available and aligning them as much as possible.

Data Quality Score

PCAF provides guidance for their data quality scores to help institutions rate the reliability of their information. The score itself ranges from one to five, with one being the highest-quality data and five being the lowest quality.

Data Quality Criteria

Data quality criteria vary with each asset class. Institutions must follow PCAF’s guidance and provide an explanation of how they’ve assessed their data’s quality. The data quality score for scope 1 and 2 emissions must also be separate from their scope 3 emissions.

Baseline Recalculation Policy

Institutions also need to establish a baseline recalculation policy in the event they need to recalculate base year financed emissions. Base year financed emissions are used for everything from target setting to scenario analysis. Recalculating this number may be necessary to improve the relevance and comparability of the data. In this policy, institutions also need to identify the events that would lead to a recalculation.


Publicly disclosing findings is critical so institutions can see how their financed emissions compare with peers and how they’re contributing to the Paris Climate Agreement’s goals. It also helps the financial sector as a whole get a clear view of its financial impact.

Following PCAF’s requirements, recommendations and methodology are the keys to keeping disclosures comparable and of the highest quality. Disclosure itself should be accessible both online and through other publicly available sources.

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Final Thoughts
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