PCAF: How Financial Institutions Measure its Real Climate Impact

The real climate impact of the financial sector does not come from office buildings or business travel. It comes from what financial institutions make possible. When banks lend, investors allocate capital, and insurers underwrite risk, they influence emissions across the entire economy. For a long time, there was no common way to measure this responsibility. That gap is what the Partnership for Carbon Accounting Financials, also known as PCAF, set out to fill.

PCAF is a global initiative that provides a standardized framework for financial institutions to measure and disclose the greenhouse gas emissions associated with their activities. It focuses on the core places where finance and emissions intersect: lending and investment portfolios, capital markets activities and insurance underwriting. Over the past decade, it has become the main reference for “financed emissions” and related metrics, used by banks, asset managers, pension funds, development banks and insurers around the world.

The starting point for PCAF is the Greenhouse Gas Protocol. The GHG Protocol defines Scope 1, 2 and 3 emissions, and Scope 3 Category 15 covers “investments”; the part of the inventory where most financial-sector climate impact shows up. PCAF’s Global GHG Accounting and Reporting Standard for the Financial Industry builds directly on this. The financed-emissions standard (Part A) has been reviewed by the GHG Protocol and confirmed to conform with the Scope 3 Standard’s requirements for Category 15. The newer additions in the second edition, such as sovereign debt and guidance on emission removals, are explicitly noted as pending further GHG Protocol review.

The PCAF Standard is now structured in three parts: Part A on financed emissions, Part B on facilitated emissions and Part C on insurance-associated emissions. Together, they give the financial industry a coherent language for talking about the different ways institutions enable emissions. Financed emissions are those linked to loans and investments that sit on a balance sheet over time. Facilitated emissions are linked to transactions where the institution helps raise capital, such as bond issues or syndicated loans, without necessarily holding the exposure long-term. Insurance-associated emissions are linked to the underwriting portfolios of insurers and reinsurers.

At the heart of all three lies a common idea: attribution. PCAF does not claim that a financial institution is responsible for all of a client’s emissions; instead, it attributes a share that reflects the institution’s economic involvement. In financed emissions, that share is determined by the ratio between the outstanding amount of a loan or investment and the total value of the company or project, often measured as enterprise value including cash, or EVIC. If a bank finances ten percent of a company’s capital structure, it reports roughly ten percent of that company’s emissions as financed emissions. This logic is applied across seven asset classes, from listed equity and corporate bonds to business loans, project finance, real estate, mortgages, motor-vehicle loans and sovereign debt.

Facilitated emissions adapt the same principle to capital markets. Here, the relevant quantity is not the outstanding amount on the balance sheet, but the amount the institution helps facilitate in a given transaction. PCAF introduces the concept of “facilitated amount” and leans on existing market practice around league-table credits to split responsibility between active and passive bookrunners and lead managers. On top of this it applies a fixed weighting factor of 33 percent, recognising that facilitators play a real but more indirect role than lenders or investors who hold long-term exposure. The result is a metric that is comparable across institutions while still clearly differentiated from financed emissions.

Insurance-associated emissions are conceptually similar, but adapted to the specific nature of insurance and reinsurance. Insurance does not create ownership or control in the way equity or debt does; instead, it enables activities to go ahead by taking on risk. PCAF’s insurance standard focuses on two segments, commercial lines and personal motor lines, and defines attribution factors that reflect how central insurance is to a company’s activities or to the cost of running a vehicle. In commercial lines, the ratio of premiums to company revenue is used. In personal motor, the premium is compared to the total cost of owning and operating a vehicle. In both cases, insurers report only a fraction of the underlying emissions, but they do so consistently and transparently across the portfolio.

A defining strength of PCAF is its insistence on data quality transparency. Emissions are not just reported as a single number; they are accompanied by a score that indicates how robust the underlying data is. A high score reflects company-specific reported or well-estimated activity data, while lower scores indicate reliance on sector averages or other proxies. Institutions are encouraged to publish weighted-average data-quality scores by asset class or sector, making it clear where estimates dominate and where they have been able to obtain high-quality data. This framing recognises that financed-emissions accounting is a journey: the point is not to pretend that all numbers are perfect, but to be explicit about their limitations and to improve them over time.

PCAF also touches on removals and avoided emissions, but in a more limited and careful way than a casual reference to “offsets” might suggest. Part A includes guidance on emission removals associated with financed activities, and PCAF has since drafted additional guidance on financed avoided emissions and forward-looking metrics, which is currently under public consultation. These elements are designed to complement, not replace, broader GHG Protocol work on land-sector removals and avoided emissions, and PCAF requires that any such values be reported separately from the core financed-emissions inventory.

Because PCAF is aligned with the GHG Protocol, its data feeds naturally into the wider ecosystem of climate disclosures and target-setting frameworks. Financial institutions use PCAF outputs to support Science Based Targets initiative (SBTi) commitments, to populate climate metrics recommended by the Task Force on Climate-related Financial Disclosures and now codified in ISSB/IFRS standards, and to respond to CDP and EU regulatory requirements. Metrics such as Weighted Average Carbon Intensity, or WACI, are calculated using the emissions data produced under PCAF, making the framework a practical foundation for both regulatory compliance and internal risk management.

In this way, PCAF has become more than just a technical standard. It is a shared language that allows financial institutions to understand and compare their climate impact, to identify where transition risks and opportunities lie, and to design strategies that actually shift capital towards a net-zero economy. As the framework continues to evolve, through new guidance on sovereign debt, securitisations, financed avoided emissions and beyond, it is likely to remain at the centre of how the financial sector measures its role in the climate transition.

If you are interested in learning more about PCAF, please see our full introduction course on the topic here.