Financed emissions and PCAF: a guide for banks

For banks, insurers and asset managers, financed emissions are almost always the largest part of the footprint — typically 99%+ of the total. They are Scope 3 category 15 under the GHG Protocol and are calculated using the PCAF Standard.

What financed emissions are

Financed emissions attribute a share of a borrower's or investee's emissions to the financing party. For a corporate loan:

Attributed emissions = Borrower emissions × (Outstanding loan amount / Enterprise value including cash)

The methodology varies by asset class. PCAF covers:

• Listed equity and corporate bonds
• Business loans and unlisted equity
• Project finance
• Commercial real estate
• Mortgages
• Motor vehicle loans
• Sovereign debt

PCAF Data Quality Score

Every calculation is assigned a data-quality score from 1 (best) to 5 (worst):

1. Audited emissions data from the borrower.
2. Non-audited emissions data from the borrower.
3. Estimated emissions from primary physical activity data.
4. Estimated emissions from economic activity data (revenue).
5. Estimated emissions from average sector data.

Regulators and CDP expect banks to disclose the weighted average score and to have a plan to improve it.

Why it matters

• CSRD / ESRS E1 — banks must disclose financed emissions.
• ECB supervisory expectations — climate-related risk management is a supervisory priority.
• Pillar 3 ESG — CRR mandates disclosure of ESG risks, including transition risk on the loan book.
• SBTi Financial Institutions Framework — targets are set on financed emissions.
• Net-Zero Banking Alliance — commitment to align portfolios with 1.5°C.

Practical implementation

Sequence:

1. Portfolio classification by PCAF asset class.
2. Data collection — start with sector-average (score 5), improve iteratively.
3. Calculation engine — attribute emissions using PCAF formulas.
4. Portfolio decarbonisation — set sector-specific targets, engage borrowers.
5. Origination integration — climate assessment at the credit committee.

Portfolio decarbonisation levers

Banks reduce financed emissions through:

• Engagement — Sustainability-Linked Loans tied to borrower KPIs.
• Green origination — new business in low-carbon sectors and green loans.
• Transition finance — capital for hard-to-abate borrowers with credible plans.
• Portfolio composition — sector limits, exclusion policies.

How Redigo Carbon supports banks

Redigo Carbon provides the technology to:

• Measure the carbon footprint of SME and corporate borrowers.
• Aggregate to portfolio-level PCAF-aligned financed emissions.
• Originate and monitor SLLs at scale.
• Feed CSRD / Pillar 3 disclosures with audit-ready data.

Related reading: What is Sustainable Finance? and Scope 3 emissions explained.