PCAF awaits banks' capital markets emissions data
More widespread reporting of banks' "facilitated emissions" from underwriting and capital markets' activities is expected to appear imminently in annual accounts, according to the Partnership for Carbon Accounting Financials.
The ability to include facilitated emissions, as well as financed emissions that banks fund directly, will allow more banks to calculate accurate Scope 3 emissions and net-zero targets and help investors to rank and compare financial institutions.
"I would expect banks to be incorporating facilitated emissions in their annual non-financial reports by April or May," said Angelica Afanador, PCAF’s executive director.
PCAF, an initiative created in 2015 by Dutch financial institutions to improve transparency in financial services, is seen as the standard in carbon accounting and emissions calculation for the finance industry. More than 450 financial institutions are now PCAF signatories.
It published the Facilitated Emissions Standard – the first greenhouse gas accounting and reporting standard for capital markets – on December 1, after a delay of more than a year as banks argued over the best way to capture off-balance-sheet services, including flow activities.
The FES was immediately criticised by NGOs for using a 33% weighting factor, although it also includes the option to report facilitated emissions without weighting at 100% as long as it is reported separately with clear rationale. Several banks, including NatWest, report at 100%, while Barclays uses the 33% weighting.
Jeanne Martin, head of the banking programme at ShareAction said at the time the use of a 33% weighting would allow banks to ". . . under-report their climate impact by two-thirds for years to come".
While reporting facilitated emissions is currently optional, Afanador said a clear and harmonised method will increase disclosure and create a strong baseline that will improve comparability – and change capital allocation for banks and their investors.
"The publication of the standard for facilitated emissions really moves the needle towards transparency within the financial system because it provides guidance for measuring and reporting the emissions associated with capital markets transactions" she said.
The FES includes the primary issuance of capital markets' instruments and loan syndication to provide debt or equity-based financing, including new bonds for general purposes, common stock, equity and debt investments in private companies, preferred shares and syndicated loans.
Banks previously focused on financed emissions, which is financing that they have provided directly to issuers and hold on their balance sheets (such as loans) that allowed them to set emissions-reduction targets on high-emitting energy portfolios.
Increased disclosure and detail on facilitated emissions is eagerly awaited as capital markets have long been identified as having some of banks' biggest fossil fuel exposures. ShareAction said in May that half of the funding channelled by the 25 largest European banks to oil and gas companies with large expansion plans is in the form of capital markets facilitation.
While some reports are at a basic stage, and some are as brief as one page, others are offering a level of insight that has not previously been seen.
"The interesting reports are the ones that have narratives and context surrounding the numbers – this allows for greater levels of transparency" Afanador said.
New initiatives
PCAF recently announced several areas it is prioritising for 2024, which include developing methodologies for transition and green finance, fluctuations in absolute greenhouse gas inventory, additional insurance products and securitised and structured products.
PCAF signatories have also flagged other areas to explore for future standards that could include facilitated emissions for derivatives and hedge funds and consumer finance products.
"There may be other topics in facilitated emissions that the market wants to delve into. There's also interest in embodied carbon of real estate and also municipal and sub-sovereign bonds," Afanador said.