Practical Applications of Emission Accounting Standards: From the GHG Protocol to PCAF 

To properly understand the calculation and disclosure logic of financed emissions for financial institutions, it is essential to first grasp the evolution of international standards.
This teaching material follows the sequence “from accounting principles → application methods → disclosure requirements” to introduce, in order, the relationships among four core frameworks:

GHG Protocol → Scope 3 Standard → PCAF → IFRS S2

On this basis, it then focuses on Chapter 5: practical calculation of emissions from financing and lending activities.

I. GHG Protocol: The Foundational Language of Greenhouse Gas Accounting

The GHG Protocol is the foundation of all carbon accounting systems and is regarded as the “accounting principles” for greenhouse gas inventories and reporting. It defines the three scopes of corporate emissions:

1. Scope 1: Direct emissions from sources owned or controlled by the company.

2. Scope 2: Indirect emissions from the generation of purchased or acquired electricity, steam, heating, or cooling.

3. Scope 3: Other indirect emissions resulting from the company’s value chain activities.

This framework establishes the completeness and comparability of corporate GHG accounting and forms the basis for all subsequent standards.

II. Scope 3 Standard: The Extended Framework for Value Chain Emissions

The Scope 3 Standard (Corporate Value Chain Accounting and Reporting Standard) divides indirect emissions into fifteen categories (Categories 1–15). Among them, Category 15 – Investments explicitly requires financial institutions to quantify and disclose the climate impacts arising from their lending and investment activities.

This Scope 3 design formally establishes the methodological foundation for financial institutions to calculate financed emissions and eventually evolves into the standard adopted by the financial sector — PCAF.

III. PCAF: Accounting Standard for Financial Institutions’ Financed Emissions

PCAF (Partnership for Carbon Accounting Financials) is a global initiative jointly launched by financial institutions and endorsed by the GHG Protocol as an accounting framework.
It specifies how financial institutions should calculate the climate impact of their loans and investments, and provides attribution formulas and data quality scores for different asset classes.

PCAF emphasizes two key principles: Consistency and Actionability.

Since this teaching material focuses on Chapter 5 (Financed Emissions Calculation), subsequent sections will further explain the operational calculation methods for PCAF and financed emissions.

IV. IFRS S2: Incorporating Financed Emissions into the Financial Disclosure System

IFRS S2 (Climate-related Disclosure Standard) belongs to the disclosure layer.
Its purpose is not to redefine emission calculation methods, but to require enterprises (including financial institutions) to disclose Scope 1–3 emissions, reduction strategies, and climate risk management in their financial statements.

The relationship among IFRS S2, GHG Protocol, and PCAF is as follows:

1. GHG Protocol: Defines the accounting principles.

2. Scope 3 Standard: Establishes the categories of value chain boundaries and activities.

3. PCAF: Provides methods for financial institutions to calculate attribution factors.

4. IFRS S2: Requires that calculated results be formally disclosed in financial reports.

V. Summary of the Logical Framework

These four frameworks form a complete chain of “principles → calculation → disclosure”:

GHG Protocol: Accounting Foundation → Scope 3: Value Chain Categories → PCAF: Financial Calculation → IFRS S2: Disclosure Requirements

VI. Learning Focus of This Teaching Material

This teaching material guides learners from theory to practice, helping them understand and apply:

1. How to interpret emission scopes based on the GHG Protocol.

2. How to determine financial activity responsibility through Scope 3 Category 15.

3. How to conduct the quantification of financed and loan-related emissions using the PCAF Second Edition (2022) and the latest consultation drafts for 2024–2025.

4. How to ultimately incorporate the results into the IFRS S2 disclosure framework.

Among these, Chapter 5 “Financed Emissions Calculation” is the core of this material.
It provides in-depth analysis of the operational logic, attribution formulas, and case exercises for different financial asset classes, supporting financial institutions in establishing a consistent and verifiable financed emissions accounting system that can be disclosed.

Chapter 1 Introduction: Importance and Global Trends of Financed Emissions 

1.1 Overview

Concept and Scope of Financed Emissions

Financed emissions refer to the greenhouse gas emissions generated by the investment and lending activities of financial institutions. These emissions typically fall under Scope 3, Category 15 “Investments”, requiring institutions to account for emissions associated with the companies they finance or invest in. Since these emissions often far exceed an institution’s own operational emissions[1], they are regarded as the core indicator reflecting the real climate impact of the financial industry.

Compared with general enterprises that only need to examine direct emissions from operations and energy purchases, financed emissions originate from the portfolio allocation and investment decisions of financial institutions, including loans, equity holdings, and debt investments. These emissions reflect the systemic impact of financial institutions on macroeconomic activities and the global climate transition. In fact, they are seen as the key lever for enabling large-scale decarbonization.

According to PCAF (Partnership for Carbon Accounting Financials) 2022 global disclosure, the financed emissions of most banks are several dozen to several hundred times higher than their operational emissions. For example, a commercial bank’s office operations may emit only a few hundred tonnes of CO₂e annually, while its investment and lending portfolio—especially if it involves high-carbon sectors such as manufacturing or transportation—can easily generate tens of thousands of tonnes of CO₂e. Therefore, measuring financed emissions is not merely a disclosure requirement, but the foundation for financial institutions to assess transition risk and evaluate investment strategies.

Standard Frameworks Supporting Financed Emissions Accounting

At the methodological level, the GHG Protocol categorizes such emissions under Scope 3 Category 15 (Investments), requiring financial institutions to account for both lending and investment-related emissions. PCAF builds upon this framework to provide more granular asset class categories and attribution factor formulas, particularly for calculating emissions from Business Loans & Unlisted Equity. The core calculation formula is as follows:

Financed emissions of financial institutions = Borrower’s annual Scope 1 and Scope 2 emissions × (Outstanding loan amount ÷ Borrower’s enterprise value including cash

 (EVIC: Equity + Debt + Cash))      [1]. 

Financial institutions should attribute a portion of a borrower’s annual greenhouse gas emissions based on the ratio of the institution’s outstanding loan amount to the borrower’s overall enterprise value. If actual emissions data from the borrower are not available, proxy data or sector emission intensity may be used for estimation.

This approach ensures comparability across different loan portfolios and aligns with PCAF’s Data Quality Score framework, which prioritizes the use of: borrower-reported emissions data > activity-based data > modelled or economic data > proxy data.

[1] Source: ：PCAF (Partnership for Carbon Accounting Financials), Global GHG Accounting and Reporting Standard for the Financial Industry, Second Edition, 2022, Chapter 5.2.

Financed emissions = Borrower’s (Scope 1 and 2 emissions) × (Outstanding amount / Enterprise value including cash (EVIC))
(Source: PCAF Global GHG Accounting & Reporting Standard, 2nd Edition, 2022, p.69)

1.2 International Trends

With global policy developments and the widespread adoption of frameworks such as TCFD, IFRS S2, and the EU’s CSRD, financial institutions are now required to disclose financed emissions to meet the expectations of investors and supervisory authorities. Recent research indicates that major updates to the GHG Protocol and the Science Based Targets initiative (SBTi) are anticipated in 2027, which will further enhance the requirements for Scope 3 categories and data quality and boundary settings [3], [4].

In recent years, global financial systems have increasingly emphasized climate-related risks and the integration of financed emissions data into core supervisory frameworks. This has resulted in a comprehensive policy chain that spans “from accounting to disclosure.”

At the disclosure framework level, since the release of the TCFD (Task Force on Climate-related Financial Disclosures) recommendations in 2017, it has become the primary reference for national financial regulators and corporate climate-related disclosures. Its four pillars—Governance, Strategy, Risk Management, and Metrics & Targets—have now been incorporated into the supervisory expectations of most financial authorities worldwide.

Building on this foundation, IFRS S2 (Climate-related Disclosures Standard) officially replaced TCFD in 2023 as the unified global framework. IFRS S2 requires financial institutions to disclose their Scope 1–3 emissions, and it specifies the need to highlight emissions arising from financial activities, including lending and investment. For banks and insurers, this implies the need to quantify “the greenhouse gas emissions associated with lending and investment activities,” making the PCAF methodology an essential reference, and aligning IFRS S2 closely with PCAF principles.

In the European context, CSRD (Corporate Sustainability Reporting Directive)—together with its technical standards ESRS (European Sustainability Reporting Standards)—has been fully implemented beginning in 2024. It requires large financial institutions to disclose double materiality, including the contribution of capital allocation to climate goals and climate-related risks. At the same time, the EU Taxonomy further strengthens the transparency and comparability of financial institutions' sustainable investment activities.

At the target-setting level, the SBTi (Science Based Targets initiative) has already required banks and investment managers to set near-term and long-term net-zero targets for their financing and investment portfolios, consistent with PCAF’s emissions accounting standards. SBTi is expected to release major updates in 2027, which will impose stricter requirements for Scope 3 classification, data quality assessment, and boundary definition, ensuring alignment and credibility in financed emissions target-setting.

Overall, global trends indicate that financial institutions are transitioning from voluntary disclosure to mandatory disclosure, as reflected in the following developments:

1. TCFD → IFRS S2: A shift from recommendation-based frameworks to standardized accounting requirements.

2. CSRD → ESRS: EU legislation driving mandatory and harmonized sustainability reporting.

3. PCAF → SBTi: Alignment between methodologies and target-setting frameworks.

This series of international regulatory changes underscores the increasingly critical role of the financial sector in global net-zero transitions—the direction of capital flows will determine the speed at which the real economy decarbonizes. As a result, financial institutions must not only disclose their financed emissions but also establish scientific and transparent data systems to support both investment decision-making and regulatory compliance.

1.3 Structure Overview

This material first introduces the GHG Protocol’s requirements for Scope 3 Category 15 (Investments), followed by an explanation of the methodologies in the PCAF Standard (Second Edition). It also summarizes the major updates in the 2024–2025 exposure drafts and concludes with calculation procedures and reporting guidance.

The overall structure is designed around the theme “from principles to practice, from accounting to disclosure”, aiming to help financial institution personnel systematically understand the core concepts and operational steps of financed emissions. The content is organized as follows:

• Chapter 1: Background and Global Trends

Explains the importance of financed emissions and investment/lending emissions, outlines key international policy developments, and clarifies the central role of financial institutions in the net-zero transition.

• Chapter 2: Fundamentals of Scope 3 Category 15 (Investments)

Introduces the GHG Protocol’s definition, boundary-setting principles, and attribution rules for investment-related activities, explaining why financial institutions must account for indirect emissions associated with their investment and lending portfolios.

• Chapter 3: PCAF Global GHG Accounting Standard (Second Edition, 2022)

Provides a systematic explanation of PCAF’s seven asset classes—listed equity and corporate bonds, business loans and unlisted equity, project finance, commercial real estate, mortgages, motor vehicle loans, and sovereign debt—along with calculation methodologies, attribution approaches, and the Data Quality Score framework.

• Chapter 4: Updates and Alignment in the Latest PCAF Exposure Drafts (2024–2025)

Summarizes the key enhancements in the latest consultation drafts, including guidance on Use of Proceeds, structured products, subordinated debt, reinsurance emissions, and forward-looking indicators. It also highlights alignment with IFRS S2 and CSRD disclosure requirements.

• Chapter 5: Financed Emissions Calculation Exercises

Provides practical calculation walkthroughs, illustrative case studies, and guidance on selecting appropriate data sources. It also demonstrates how to apply proxy data or sector-based emission intensity factors when direct emissions data is unavailable.

• Chapters 6–7: Data Quality and Disclosure Requirements

Explains how to evaluate data quality in accordance with PCAF’s five-level Data Quality Score framework, and demonstrates sample disclosure formats aligned with IFRS S2, TCFD, and CSRD reporting requirements.

• Chapter 8: Conclusion and Outlook

Reflects on the role of financial institutions within the net-zero financial ecosystem and outlines future directions for enhancing data transparency and integrating climate risk management.

Through this structure, learners can progress across four layers—
Foundational Principles → Method Application → Data Quality → Disclosure Integration,
achieving a comprehensive understanding of the accounting logic, calculation methodologies, and international disclosure practices for financed emissions, thereby establishing a solid foundation for internal assessments and sustainability reporting.

2.1 Categories of Scope 3 Emissions

The GHG Protocol, jointly developed by WRI and WBCSD as a multi-stakeholder initiative, aims to establish globally recognized greenhouse gas accounting and reporting standards. Under the Protocol, corporate emissions are categorized into Scope 1 (direct emissions), Scope 2 (purchased electricity and other indirect energy emissions), and Scope 3 (value chain emissions).
Scope 3 comprises 15 categories of activities, including investments, supply chain procurement, and downstream customer use.

In greenhouse gas accounting, Scope 3 represents the broadest and most challenging portion of a company’s value chain emissions. It includes all indirect emissions that occur outside a company’s organizational boundary but are associated with its economic activities.
These emissions typically arise from suppliers (upstream) or customers (downstream), and are therefore also referred to as Value Chain Emissions.

According to the GHG Protocol: Corporate Value Chain (Scope 3) Accounting and Reporting Standard, the 15 categories of Scope 3 emissions are:

These fifteen categories constitute a complete value chain emissions profile for a company. Among them, Category 15: Investments is particularly important for financial institutions because it covers loans, financing activities, equity, bonds, insurance underwriting, and all financial activities that indirectly give rise to emissions.

For manufacturers or general service providers, Scope 3 emissions mainly focus on the procurement of goods and the use-phase emissions of products. However, for banks, insurers, and asset managers—whose core business functions revolve around capital allocation—Category 15 becomes their primary emissions source. In other words, the value chain emissions of financial institutions are largely equivalent to their financed emissions.

According to the guiding principles of the GHG Protocol, when companies calculate Scope 3 emissions, they should adhere to two fundamental principles:

1. Completeness:
   Emissions should reasonably cover all material activities along the value chain. Any exclusions must be clearly explained in the report along with the rationale.

2. Consistency:
   The same calculation methods and boundary definitions should be applied across reporting years and business units to ensure comparability of results.

These principles were later extended into the PCAF Standard. For example, the use of “outstanding loan amount” as the basis for allocating emissions and the use of a Data Quality Score were adopted to enhance transparency.

Therefore, understanding the structure of Scope 3 provides the foundational basis for calculating financed emissions. It enables financial institutions to view their financing activities through a comprehensive value-chain lens, making it clear how their business operations influence real-economy emissions. It also supports the application of PCAF methodologies and aligns with IFRS S2 disclosure principles.

2.2 Category 15: Investments

From a technical perspective, investments are categorized as downstream customer services. Therefore, investors must report investment-related activities for the reporting year. This emissions category applies to financial institutions such as banks, insurers, and asset managers. Regardless of whether the institution’s core purpose is financing, investment, or fiduciary services, investments represent a major channel through which financial institutions indirectly support corporate operations and bear associated Scope 1–3 emissions.

According to the GHG Protocol Scope 3 Standard, Category 15 (Investments) is defined as:
When a financial institution provides capital to an investee, it is considered to be indirectly enabling the economic activities of that investee, and the institution should calculate and disclose emissions attributable to these financial activities.

For financial institutions, Category 15 covers the following:

1. Business Loans:
   Loans issued to corporate clients, including general corporate loans and project loans.

2. Project Finance:
   Financing specific infrastructure or energy-related projects with clearly defined use of proceeds and emissions boundaries.

3. Equity and Debt Investments:
   Investments in equity or bonds issued by client companies, including those held by asset managers or insurers.

4. Asset Management Services:
   Emissions arising from assets managed or administered on behalf of clients.

Among these activities, banks and lenders face the most significant emissions from loan-based financing, as lending directly influences corporate borrowers' operational emissions. Financial institutions must allocate emissions proportionally based on the ratio of the outstanding loan amount to the borrower’s enterprise value including cash (Equity + Debt + Cash). This approach reflects the principle of “financed emissions,” where emissions are allocated relative to the degree of financial exposure.

Attribution Factor Formula :

Financed emissions = Borrower’s total emissions × (Outstanding amount / Enterprise value including cash, EVIC)

This formula is specified in the PCAF Standard (2022, Version 2) and is also consistent with the activity-based allocation method used in GHG Protocol Category 15. It is currently the mainstream global methodology for financed emissions calculation in the financial sector.

Additionally, under the GHG Protocol, if a financial institution cannot obtain actual emissions data from the borrower, it may use proxy data or sectoral emission intensity benchmarks (Sector Emission Intensity) to estimate emissions. Although these methods fall into lower data quality tiers (Lower Data Quality Level), they remain acceptable starting points when actual data cannot yet be obtained. 

Compared with general non-financial corporations, the application of Category 15 differs in the following ways:

1. For manufacturing and service industries, “investment emissions” are typically non-core activities (e.g., pension funds or strategic investments) and therefore have relatively limited impact.

2. For financial institutions, however, lending and investment constitute their core business activities. As a result, Category 15 is not a peripheral item but rather their primary source of carbon emissions.

Therefore, within the GHG accounting framework for the financial sector, Category 15 represents the core concept of financed emissions. The establishment of this category not only clarifies the emission responsibility boundaries for financial institutions but also provides a clear technical foundation and consistency framework for subsequent PCAF accounting standards, SBTi target setting, and IFRS S2 disclosure requirements.

2.3 GHG Protocol – Update Overview

The GHG Protocol is undergoing a comprehensive revision, with updates expected across the Corporate Standard, Scope 2 Guidance, Scope 3 Standard, and the new Land Sector and Removals Guidance. Public consultation and working group activities will continue through 2026, with final standards expected in 2027[9].

This revision represents the largest update to the GHG Protocol since 2004, aiming to align with recent international climate-disclosure frameworks (e.g., IFRS S2, CSRD, SBTi, CDP) and ensure consistency and comparability in accounting and reporting.
The official revision work currently focuses on four major directions:

1. Corporate Standard (GHG Accounting and Reporting for Corporations)

• Strengthening rules for organizational boundaries, including definitions and applicability of control vs. equity share approaches.

• Introducing guidance for transition activities and emissions associated with supply-chain collaboration.

• Establishing unified core principles for carbon removals.

2. Scope 2 Guidance (Indirect Emissions from Purchased Energy)

• Re-examining the coexistence and applicability of market-based and location-based methodologies.

• Enhancing standards for energy attribute certificates (EACs) and requiring disclosures consistent with geographical, temporal, and quantity attributes.

3. Scope 3 Standard (Value Chain Emissions Accounting)

• Updating the Data Quality Hierarchy and boundary definitions to align with the completeness expectations of IFRS S2.

• Strengthening calculation methods for Category 15 – Investments and Category 2 – Capital Goods, with anticipated alignment with the PCAF Standard.

• Clarifying the treatment of avoided emissions and upstream offsetting, and developing consistent definitions and disclosure principles for these contentious topics.

4. Land Sector and Removals Guidance (Land Use, Biogenic Carbon Stocks, and Carbon Removals)

• Incorporating land use, biogenic carbon accounting, and carbon removals for the first time into a unified GHG accounting framework.

• Providing rules on how companies should account for land-sector contributions within both operational and value-chain boundaries.

According to the GHG Protocol official announcement, the revision process—initiated in 2023—includes four stages: Research, Public Consultation, Drafting, and Final Publication.

Throughout this process, the GHG Protocol has actively collected feedback from corporations, governments, financial institutions, and academia.

For the financial sector, this revision has three major implications:

1. Alignment with PCAF:
   Scope 3 Category 15 will more explicitly reference PCAF’s seven asset classes and its data quality hierarchy, ensuring that financial institutions adopt consistent methodologies for financed emissions accounting.

2. Enhancing Data Transparency:
   New requirements will expect companies to disclose activity-level data sources, assumptions, uncertainty assessments, and data quality scores.

3. Improving Disclosure Consistency:
   The updated standard will strengthen alignment with IFRS S2 and CDP reporting frameworks, enabling smoother integration of GHG data into mainstream disclosure systems.

In summary, the updated 2027 GHG Protocol will evolve beyond a “GHG inventory standard” into a global measurement and disclosure framework that is fully integrated with target-setting.

For financial institutions, early understanding of the revised principles—and the harmonization with PCAF and IFRS S2—will be essential steps to building future-ready climate disclosure capabilities.

3.1 PCAF & GHG Protocol

The PCAF Global GHG Accounting and Reporting Standard for the Financial Industry provides financial institutions with guidance on measuring and disclosing financed emissions. The second edition was released in December 2022, adding updated methodologies for sovereign exposure accounting and carbon removals.

PCAF (Partnership for Carbon Accounting Financials) is a global initiative dedicated to developing a unified approach for financial institutions to quantify the climate impact of loans and investments.
Since financial institutions influence real-economy emissions through financing activities, PCAF builds upon the GHG Protocol Scope 3 Category 15 (Investments) methodology and transforms it into a more operational, financial-sector-specific accounting and disclosure framework.

In essence, the GHG Protocol is the “principles layer,” defining emission categories and general accounting rules, while PCAF serves as the “application layer,” specifying how financial institutions should measure financed emissions in practice. PCAF methods undergo official review by the GHG Protocol team.

PCAF’s key characteristics include:

1. Industry-led initiative

Launched in 2015 by six Dutch banks, PCAF has since expanded into a global partnership of more than 340 financial institutions with combined assets exceeding USD 85 trillion.

2. Alignment with the GHG Protocol

All PCAF methodologies are designed to align with the GHG Protocol’s requirements for Scope 3 Category 15 (Investments) and are reviewed and approved by the GHG Protocol team.

3. Asset-class-specific approach

PCAF provides detailed calculation methods and reporting frameworks for different financial products, including business loans, project finance, mortgages, auto loans, sovereign bonds, corporate bonds, and equity investments.

4. Data Quality Score

PCAF applies a five-level data quality hierarchy to ensure transparency and comparability even when institutions lack high-quality borrower-reported emissions data.

5. Promoting disclosure consistency

PCAF facilitates consistency in financed emissions reporting across asset classes and supports alignment with TCFD and IFRS S2 disclosure requirements.

Key updates introduced in the 2022 second edition include:

• Addition of a methodology for “Sovereign Debt”, expanding applicability to investments in government bonds.

• Introduction of “Emission Removals” accounting guidance, clarifying how financial institutions should recognize carbon removals or storage associated with financed activities in their disclosures.

• Clear requirements for selecting and disclosing the “Reporting Date”, including methodological choices, data quality considerations, and uncertainty explanations to improve comparability and auditability of disclosures.

PCAF’s standard operationalizes the principles of the GHG Protocol through methodologies tailored to financial-sector activities. It serves as an extension and practical complement to the GHG Protocol and also provides a data foundation aligned with frameworks such as IFRS S2, SBTi, and CDP.
Therefore, for financial institutions aiming to quantify financed emissions, set reduction targets, or prepare transition planning disclosures, PCAF offers the most essential and authoritative methodological reference.

3.2 Framework Structure

The PCAF standard is organized into six chapters:
introduction, materiality, setting business objectives, accounting principles and requirements, calculation methods for different asset classes, and reporting requirements.
Chapter 5 further provides methodological guidance for seven asset classes, including:
listed equity and corporate bonds, business loans and unlisted equity, project finance, commercial real estate, mortgages, motor vehicle loans, and sovereign debt.

The PCAF Global GHG Accounting and Reporting Standard for the Financial Sector (Second Edition, 2022) aims to offer financial institutions a consistent, comparable, verifiable, and transparent framework for calculating financed emissions.
The standard is built upon the GHG Protocol’s accounting principles and transforms them into financial-sector–specific applications, enabling financial institutions to quantify and understand how capital allocation affects real-economy emissions.

Under its methodological design, PCAF adopts “Asset Class” as the structural foundation.
The core rationale is that lending and investment activities in the financial sector are highly diverse; applying one uniform methodology would fail to accurately reflect financed emissions.
Therefore, PCAF provides tailored guidance for each asset class, with corresponding attribution rules, data source requirements, and data-quality grading.

For example:

• For business loans, emissions are attributed using the ratio “outstanding loan amount / enterprise value including cash (EVIC)”.

• For mortgages and commercial real estate, emissions are attributed based on “loan amount as a share of property value”.

This approach ensures internal consistency while reflecting the unique characteristics of different financial products.

Aligned with the GHG Protocol’s accounting principles, PCAF emphasizes three core requirements:

1. Consistency

All asset classes must apply the same annual accounting boundary and reporting period to avoid temporal inconsistencies or repeated calculations.

2. Traceability

All emissions calculations must be traceable, with methodologies clearly documented to ensure that users and auditors can reproduce the results.

3. Data Quality

PCAF establishes a five-level data quality score (Level 1–5) to assess the reliability of input data.
Lower-quality data (Level 5, e.g., proxy estimates) should be gradually improved over time as institutions obtain more accurate emissions information.

Another major feature of the second edition is its integration of disclosure and governance requirements.
PCAF places emphasis not only on calculation results but also on the transparency and consistency of the process.
Financial institutions must disclose the following in their reports:

• The coverage and emission boundaries of each asset class;

• The methodologies and assumptions used in calculations;

• Data quality levels and explanations of uncertainties;

• Reasons for year-over-year changes in emissions trends or accounting boundaries.

This disclosure structure is closely aligned with frameworks such as IFRS S2, TCFD, and CDP, ensuring that financial institutions can satisfy multiple disclosure requirements using a unified data foundation.

Furthermore, PCAF views target setting as a critical extension of the standard.
It recommends that financial institutions use their calculated financed emissions as the basis for establishing reduction targets and aligning with the Science Based Targets initiative for Financial Institutions (SBTi-FI).
This implies that PCAF is not merely an accounting standard—rather, it is a practical foundation for net-zero finance.

Overall, the value of the PCAF standard lies in:

• Translating the principles of the GHG Protocol into methodologies applicable to the financial sector;

• Converting financed emissions into comparable and decision-useful indicators;

• Strengthening market transparency and accountability through data quality disclosure requirements;

• Enabling financial institutions to establish a unified language for assessing and managing the climate impacts of their lending and investment portfolios—thereby supporting risk assessment, target setting, and continuous disclosure.

3.3 Asset Class Methodologies

The PCAF Standard specifies calculation formulas and boundary definitions for each asset class.
For example, equity and corporate bond investments allocate emissions based on the investor’s share of the company’s market value.
For commercial real estate, mortgages, and vehicle loans, emissions must be estimated using actual property-level or vehicle-level emission data and then apportioned based on the outstanding loan amount.
The standard also incorporates methodologies for sovereign debt and emphasizes that reporting institutions should use economic activity data whenever possible.

3.4 Reporting Requirements

Chapter 6 outlines the reporting requirements for financial institutions regarding asset class coverage, absolute emissions, methodologies used, and data quality information.
The PCAF Disclosure Checklist (to be published in 2025) specifies that institutions must address general disclosure items such as emission sources, coverage, absolute emissions, and the avoidance of double counting.
If any item is not applicable or cannot be disclosed, the institution must provide justification.

4.1 New Methodologies

To respond to the rapid evolution of financial services, PCAF launched a public consultation from late 2024 to early 2025, introducing seven new methodological approaches.
This update represents the first major revision since the publication of the second edition in 2022.
It aims to address the growing diversity of financial instruments, disclosure requirements, and alignment with IFRS S2.
PCAF emphasizes that these new methodologies are intended to enhance the consistency and feasibility of carbon accounting for innovative financial tools, while avoiding “accounting blind spots” arising from financial innovation.

The seven newly proposed methodologies included in this consultation cover the following domains:

1. Use of Proceeds Accounting Method

• Applicable to use-of-proceeds–based loans and bonds, such as green bonds and sustainability-linked securitized loans.

• The accounting principle attributes emissions based on the actual financed activities, rather than the borrower’s overall average emissions.

• The objective is to correct past approaches where aggregated corporate emissions led to distorted attribution of climate benefits from green finance products.

2. Securitization and Structured Products

• Applies to asset-backed securities (ABS) and structured investment products (structured notes).

• Emissions attribution is based on the proportional share of risk and income across different tranches.

• Also incorporates the Avoid Double Counting principle to ensure that financial institutions and investors do not both report the same emissions.

3. Sub-sovereign Debt

• Focuses on loans or debt investments provided to local governments or regional development banks and other publicly operated entities.

• The methodology addresses reporting gaps that previously only covered national-level sovereign debt.

• Accounting may reference local GDP or fiscal expenditure structure to allocate relevant emissions.

4. Avoided and Forward-looking Emissions Indicators

• Introduces forward-looking indicators (such as the decarbonization potential of financed activities or technology transition impacts) to quantify the contribution of financial products toward low-carbon transition.

• Examples include assessing avoided emissions from renewable energy loans or investments (tCO₂e avoided) or estimating expected future emission reductions.

• This methodology is expected to align with SBTi’s framework on Financed Avoided Emissions, helping to establish a common language and accounting logic.

5. Inventory Changes Analysis

• Designed to track changes in emissions intensity across different sectors within an investment portfolio.

• Financial institutions are encouraged to disclose both changes in portfolio emissions intensity (Δ Intensity) and changes caused by portfolio composition adjustments (Δ Portfolio) at year-end, enabling supervisors and stakeholders to distinguish structural vs. performance-related emission shifts.

6. Undrawn Loan Commitments

• Addresses emissions associated with financial commitments that have been contractually agreed but not yet drawn down, aligning with IFRS S2 disclosure requirements for Undrawn Exposure.

• Recommends estimating emissions based on committed amounts multiplied by sector-average emissions intensity and expected drawdown ratios.

7. Reinsurance and Project Insurance

• Provides new methodological guidance for insurers, explaining how to account for emissions associated with reinsurance portfolios and project-specific insurance contracts.

• Recommends using an “attributable share” approach based on reinsurance proportionality and the insured project’s emissions profile, while encouraging aggregated disclosure of emissions from the overall reinsurance portfolio.

The introduction of these seven new methods signifies PCAF’s rapid response to emerging financial market innovations. Their core direction can be summarized into three major features:

1. Enhanced Comparability: Ensures that emission accounting for new financial products remains consistent with existing asset classes.

2. Increased Forward-looking Capability: Measures not only current emissions but also evaluates the potential decarbonization contribution of financed activities.

3. Stronger Alignment with International Disclosure Standards (IFRS S2 & CSRD): Enables these methods to be directly applied to corporate climate-related financial disclosures, improving transparency and credibility.

PCAF plans to publish the official Supplementary Update by the end of 2025 and will continue to coordinate with the GHG Protocol, SBTi, and IFRS ISSB to ensure consistency between accounting and disclosure standards across the global financial system.

4.2 Use of Proceeds Accounting

To account for emission attribution for use-of-proceeds bonds and loans, PCAF introduces a new methodology [18].

Historically, many financial institutions attributed financed emissions based on the proportion of loans or investments relative to the company’s total enterprise value. However, as the sustainable finance market expands, an increasing number of Use of Proceeds–based financial products have emerged, such as:

• Green bonds

• Sustainability bonds

• Sustainability-linked loans (SLLs)

• Project-based loans

A key feature of these instruments is that the use of proceeds is explicitly tied to specific long-term or low-carbon activities, such as renewable energy construction, energy-efficiency retrofits, waste management, or green transportation.
If traditional financed emission methods continue attributing emissions based on the borrower’s overall average emissions intensity, it would misrepresent the actual decarbonization impact supported by the financing, causing the mitigation benefits of “use-of-proceeds financing” to be understated.

To address this issue, PCAF proposes a new accounting approach—Use of Proceeds Accounting—in its 2024–2025 consultation draft, creating a tailored attribution framework for such financial instruments. The core principles include:

1. Purpose-based Attribution

Emissions are no longer attributed based on the borrower’s overall corporate boundary, but instead calculated based on the specific purpose of the financing.

Example:
If a bank provides a NT$1 billion loan dedicated to constructing a new energy-efficient factory, emissions should only be attributed to the construction project itself, rather than to the entire corporate group.

2. Project-level Emission Intensity

Emissions can be calculated using project-specific emission factors or intensity estimates based on the project’s life cycle (construction phase, operation phase), such as:

Financed Emissions= Project Annual Emissions × Loan Amount ÷ Total Project Investment

If the financed project generates decarbonization benefits, the institution should additionally disclose “Avoided Emissions” or “Net Benefit” to reflect the positive contribution of the investment.

3. Alignment with Green Taxonomies

PCAF recommends that financial institutions reference sustainable activity classification systems—such as the EU Taxonomy or local sustainable finance taxonomies (e.g., the Taiwan Sustainable Finance Taxonomy)—to verify that the activity qualifies as an eligible use of proceeds.
This ensures consistency between accounting boundaries and policy frameworks.

4. Disclosure Requirements

Institutions should clearly disclose in their reports:

• The specific sustainability categories associated with the use of proceeds;

• The accounting method used to attribute emissions;

• Whether avoided emissions or mitigation benefits are included;

• If other general financing activities coexist, the institution must explain how double counting is avoided.

Implications for Financial Institutions

Introducing this methodology has three major implications for financial institutions:

1. Enhancing the Quantifiability of Green Finance
   Enables transparent calculation of emissions and climate benefits attributable to specific projects, serving as evidence of green finance performance.

2. Supporting Sustainability Bond and Loan Disclosure Requirements
   Ensures alignment with international frameworks such as ICMA’s Green Bond Principles (GBP) and the disclosure expectations under IFRS S2.

3. Advancing Climate Finance and Transition Objectives
   Helps institutions build a complete chain of “financing actions → emissions impact → disclosure,” thereby demonstrating their contribution to low-carbon transition.

In short, the core principle of “Use of Proceeds Accounting” is:

Emissions follow the use of proceeds.
This marks a shift in how financial institutions attribute financed emissions—moving from a static proportional allocation toward a new stage of dynamic, purpose-based attribution.
This allows financed emissions to not only reflect responsibility but also demonstrate the impact of action and intent.

4.3 Securitization and Structured Products

To ensure that emissions are allocated appropriately to each tranche investor and to avoid double counting, the PCAF Standard introduces methods for securitization and structured financial products. These products—commonly seen in modern financial markets—include asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), collateralized loan obligations (CLO), and structured notes. A common feature of these instruments is that the underlying assets are pooled and tranched, with each tranche receiving different levels of risk exposure and return.

Given the complexity of multiple layers of investment and financing relationships in these structures, financed emissions attribution often becomes ambiguous or leads to double counting. To address this challenge, the 2024–2025 PCAF consultation version proposes the “Securitization and Structured Products Accounting Method”, which clearly defines the attribution logic.

I. Core Principles of the Method

1. Bottom-up approach to trace underlying asset emissions (Bottom-up Attribution)

All financed emissions should be based on the emissions of the underlying asset pool.
For example: portfolios of auto loans, mortgages, or corporate loans.
If complete underlying data cannot be obtained, sectoral emission intensity should be used as a proxy.

2. Pro-rata allocation by tranche ownership (Pro-rata by Tranche Ownership)

Each tranche investor is allocated financed emissions according to its proportion of nominal value or risk exposure share in the tranche.

Formula:

Financed Emissions Allocated to Investor =

 Total Emissions of Underlying Assets × (Investor’s Tranche Holding ÷ Total Issuance Amount) 

If a product contains multiple credit risk grades (e.g., AAA, BBB, Equity), it is recommended that allocations reflect the adjusted nominal exposure after credit enhancement, ensuring that the attribution aligns with economic reality.

3. Avoid Double Counting

If the emissions from the same underlying asset have already been disclosed by the originator, the issuer or the investor should avoid reporting or allocating such emissions again in their own disclosures.

PCAF recommends adopting a “Layered Reporting” approach, meaning:

• Originator: Discloses all emissions from the underlying assets.

• Issuer: Discloses only the proportional share of emissions corresponding to the portion of the underlying assets it holds.

• Investor: Reports only the emissions associated with the share of securities it owns.

4. Ensuring Transparency and Traceability

Financial institutions should disclose the types of underlying assets, structural features, calculation methods, and data quality assessments, and clarify whether estimates rely on third-party verification or modelling.

II. Data Quality and Accounting Treatment

PCAF recommends that securitized products be assigned a data quality score based on the granularity of data obtained from underlying assets:

• If complete underlying-asset emission data is available (e.g., auto-loan pools), the score may be Level 2.

• If only industry averages or regional proxies are available, the score may be Level 4–5.

• Financial institutions should improve the completeness and accuracy of underlying-asset data to ensure comparability and verifiability.

Meanwhile, if the underlying assets themselves relate to Use of Proceeds (UoP)—such as renewable-energy or energy-efficiency project loans—then the accounting method for UoP (Section 4.2) should be applied to calculate project-level emissions or avoided emissions, so as to reflect the actual contributions of the financed activity.

3. Disclosure and Supervisory Practice Applications

In terms of disclosure, PCAF requires financial institutions to clearly report the following:

1. The structure of securitized products and the types of underlying assets;

2. The proportional attribution of emissions based on each investor’s ownership share;

3. Whether multiple levels of investment exist (e.g., issuance and simultaneous investment by the same entity);

4. The calculation methods used and the quality ratings of the underlying data;

5. The specific approach applied to avoid double counting.

These disclosure principles align with the IFRS S2 requirement for “Transparency of Financed Exposure,” helping investors and regulators trace the climate-related risk sources embedded in financial products.

4. Practical Implications

The introduction of an accounting methodology for structured products has three major implications for financial institutions:

1. Improving Market Accounting Accuracy:
   Enhances the completeness of financed emissions calculation for financial products, addressing historical challenges in measuring or disclosing such information.

2. Strengthening Risk Differentiation Ability:
   Enables the identification of climate-related risks across different layers of investment, supporting portfolio management and risk oversight.

3. Enhancing Disclosure Consistency:
   Ensures transparent allocation of emissions responsibilities among originators, issuers, and investors, consistent with the principle of “disclose once per unit of emissions.”

Overall, the PCAF methodology for structured products marks a shift toward higher complexity and precision in financed emissions accounting.
Through the bottom-up tracing of underlying assets and the top-down application of layered attribution, financial institutions can more accurately quantify the climate impacts embedded in securitized assets.
This supports the implementation of lifecycle carbon responsibility management across the entire financing chain—from lending to investment.

4.4 Sub-sovereign Debt

A methodology is proposed for debt issued by local or regional governments.

Sub-sovereign debt refers to bonds and loans issued by local governments, regional development banks, public utilities, or quasi-sovereign entities. Although these financial instruments are funded by public-sector capital, their attribution of emissions differs from that of sovereign debt, as it must account for the scope of local economic activities and the extent of fiscal authority exercised at the sub-national level.

Under the PCAF Second Edition (2022), emissions attribution methodologies were provided only for sovereign debt at the national level, and did not extend to local governments or regional public finance institutions. This limitation resulted in a significant accounting gap, given that sub-sovereign entities often play a critical role in infrastructure development, energy supply, and transportation investment, sectors with substantial emissions impact.

To address this gap, PCAF introduced the “Sub-sovereign Debt Accounting Method” for the first time in its 2024–2025 public consultation, establishing a dedicated framework for measuring and attributing emissions associated with sub-sovereign financing. This new method aims to ensure that emissions linked to local and regional public-sector borrowing are consistently and transparently captured within financed emissions accounting frameworks.

I. Scope of Application

This methodology applies to the following situations:

1. Municipal Bonds
   Bonds issued by cities, counties, or local autonomous governments, typically used to finance infrastructure development, transportation projects, or water and electricity utilities.

2. Regional Government Bonds
   Bonds issued by provincial, state, or regional governments, such as those issued at the sub-national level above municipalities.

3. Public Entities and Development Banks
   Bonds or loans issued by public institutions or development-oriented financial entities, including regional water authorities, transportation and construction agencies, public utilities, and regional development funds.

If the investment target is a state-owned enterprise that is government-controlled but maintains independent financial statements (e.g., a state-owned power company), its classification may be determined as either corporate debt or sub-sovereign debt based on its legal and institutional characteristics.
In such cases, financial institutions are required to clearly disclose the classification rationale applied in their reporting.

II. Principles for Emissions Attribution

PCAF recommends that emissions attribution for sub-sovereign debt follow the three-step approach outlined below:

1. Boundary Definition

• The emissions boundary shall be defined based on the administrative jurisdiction or fiscal authority of the debt-issuing entity.

• If the local government is responsible only for specific public functions (e.g., transportation or water supply), only emissions directly associated with those functions shall be included.

2. Establishment of a Regional Emissions Basis

• The regional greenhouse gas (GHG) inventory published by official authorities or other credible institutions shall be used as the primary emissions baseline.

• Where sub-national emissions data are unavailable, national-level emissions may be allocated proportionally based on indicators such as regional GDP or population share.

3. Attribution Calculation

Investors shall attribute a share of the region’s annual emissions in proportion to their bond holdings relative to the total outstanding debt of the issuing local government. The attribution formula is as follows:

Investor Attributed Emissions

= Total Regional Emissions × (Bond Holdings ÷ Total Outstanding Sub-sovereign Debt) 

If the debt issued by the local government has a specific use of proceeds (e.g., renewable energy projects or transport electrification), the Use of Proceeds Accounting approach may be applied to calculate project-level emissions instead. 

 III. Data Quality and Proxy Calculation

PCAF classifies sub-sovereign debt as a “high-uncertainty asset class” due to the significant variation in the availability of emission data at the sub-national level. To enhance transparency, it is recommended to use data sources in the following order:

• Level 1–2:
Greenhouse gas inventories disclosed by local governments (e.g., municipal environmental reports).

• Level 3–4:
National-level emissions allocated to regions based on GDP, energy consumption, or population ratios.

• Level 5:
Estimates derived from regional economic activity models (e.g., EEIO models or input–output models).

Financial institutions should disclose the data quality score applied, the assumptions used, and explain how they plan to gradually improve the availability of sub-national emission data.

IV. Disclosure and Application

At the disclosure level, PCAF recommends that financial institutions clearly present the following:

• Debt issuers (e.g., “Kaohsiung City Government,” “Taiwan Power Company (state-owned enterprise)”);

• Applicable accounting boundaries and emissions estimation methodologies;

• Whether allocation is based on GDP, population, or energy consumption shares;

• Data quality scores and explanations of uncertainty.

If the debt instruments are used for infrastructure investment or renewable energy development, institutions may additionally disclose their mitigation potential and avoided emissions to support sustainable finance objectives and net-zero disclosure requirements.

V. Practical Implications

The introduction of the sub-sovereign debt approach carries three major implications:

1. Filling gaps in sovereign debt accounting:
   It enables financial institutions to more comprehensively assess their public-sector investment exposure.

2. Reflecting the impact of local climate policies:
   Many low-carbon transition actions (e.g., electric buses and district heating systems) are led by local governments; incorporating their emissions more accurately reflects investment risk.

3. Supporting cross-jurisdictional regulatory consistency:
   It provides a standardized method for calculating financed emissions at the local level, aligning with disclosure requirements for local governments under IFRS S2 and CSRD.

In short, PCAF’s sub-sovereign debt methodology not only expands the coverage of financed emissions accounting in the financial sector, but also, for the first time, quantitatively integrates the climate impacts of public-sector financing activities into the global accounting framework.

This enables financial institutions to gain a comprehensive understanding—across central and local levels—of how capital flows contribute in practice to regional decarbonization efforts and climate risk exposure.

4.5 Avoided Emissions and Forward-Looking Emissions Indicators

This section provides financial institutions with guidance for assessing the decarbonization effects of their investment activities [21].

Traditional financed emissions accounting focuses primarily on current emissions enabled by capital provision (Financed Emissions), but it does not sufficiently capture the climate mitigation impact generated when financial institutions support low-carbon transition projects. To address this limitation, PCAF introduced two new concepts—Avoided Emissions and Forward-looking Emissions Indicators—in its 2024–2025 public consultation. These concepts enable financial institutions to simultaneously assess both financing responsibility and financing contribution.

I. Avoided Emissions: Mitigation-Focused Projects

Avoided Emissions refer to the potential emissions that are reduced or avoided as a result of investments in low-carbon or alternative solutions, relative to conventional high-carbon scenarios. Examples include:

• Investing in solar power plants to avoid emissions from coal-fired electricity generation;

• Supporting electric vehicle leasing programs to avoid emissions during the use phase of internal combustion engine vehicles;

• Financing energy-efficient building retrofit projects to reduce indirect emissions resulting from electricity consumption.

PCAF recommends that financial institutions estimate avoided emissions using the Counterfactual Comparison Method, which compares emissions outcomes between the financed low-carbon project and a credible baseline scenario.

Avoided Emissions = (Baseline Scenario Emissions) − (Project Scenario Emissions) 

Here, the “Baseline Scenario” refers to the conventional emissions pathway that would occur in the absence of the investment, while the “Project Scenario” refers to the actual or expected emissions after the investment is implemented.

To avoid overstating decarbonization benefits, PCAF explicitly stipulates that:

1. Avoided emissions must be limited to real-world emission reductions, and must not include the purchase of carbon credits or offset volumes.

2. The logic and assumptions underlying the baseline scenario must be transparently disclosed, for example by referencing sectoral benchmarks from the IEA or IPCC.

3. If a project simultaneously delivers emission reductions and removals, these impacts must be reported separately to avoid double counting.

II. Forward-looking Emissions Indicators

The purpose of Forward-looking Indicators is to enable financial institutions not only to assess current emissions, but also to evaluate the future emissions pathways and transition risks of their investment portfolios. PCAF proposes the following three indicative metrics:

1. Change in Portfolio Emission Intensity

ΔI = (It - It-1) / It-1

This indicator reflects the year-on-year change in the carbon intensity of a financial institution’s investment portfolio and is used to track progress toward decarbonization.

2. Share of Low-carbon Financing

This metric measures the proportion of an investment portfolio allocated to renewable energy, energy efficiency, or transition activities, thereby indicating the direction of capital allocation by the financial institution.

3. Alignment with Net-zero Pathways

Through scenario analysis or sectoral decarbonization pathways—such as the Sectoral Decarbonization Approach (SDA)—this indicator assesses whether a financial institution’s investment portfolio is aligned with 1.5°C or 2°C temperature pathways.

Collectively, these indicators allow financial institutions to quantitatively present their future climate performance and directly align with climate target progress disclosure requirements under SBTi and IFRS S2.

III. Data and Disclosure Requirements

PCAF recommends that when financial institutions disclose avoided emissions and forward-looking indicators, they should simultaneously present the following information:

1. Methodological sources and underlying assumptions, such as references to IEA, IPCC, or national emissions benchmarks;

2. Data quality ratings and uncertainty analysis;

3. Baseline scenario design and emissions boundaries;

4. Corresponding financial amounts and time horizons, such as loan tenors or investment durations;

5. Where avoided emissions are included, clear identification that these represent non-accounted emissions reductions, i.e., emissions reductions not directly reflected in financed emissions.

In addition, PCAF recommends that in sustainability reports or climate disclosures, financial institutions present financed emissions and avoided emissions separately to prevent conflation. The two may be displayed side by side to demonstrate a balanced perspective between financing responsibility and positive climate contribution.

IV. Practical Implications

1. Quantifying Low-carbon Contributions:
   This approach helps financial institutions translate decarbonization impacts into concrete, measurable indicators, thereby supporting performance evaluation of sustainable finance products.

2. Forward-looking Risk Assessment:
   It enables investment decision-making to incorporate climate transition pathway analysis, facilitating early identification of risks associated with high-carbon assets.

3. Disclosure Consistency:
   Avoided emissions and forward-looking indicators are expected to become extended disclosure items jointly recognized under IFRS S2 and CSRD, helping to enhance the depth and comparability of climate disclosures across the financial sector.

In summary, PCAF’s methodology on avoided emissions and forward-looking emissions indicators marks a shift in financial accounting—from a retrospective focus on emissions responsibility toward a forward-looking assessment of decarbonization potential.

This approach not only enables financial institutions to measure their current carbon footprints, but also to quantify their contribution to the net-zero transition, thereby achieving the dual objectives of accountability and contribution-based disclosure.

4.6 Portfolio Stock Change Analysis

This section discusses how to address the impact of portfolio stock fluctuations on emissions accounting [22].

As financial institutions progressively expand their sustainable investment and lending portfolios, disclosure of absolute emissions alone is no longer sufficient to fully reflect progress in the low-carbon transition. Accordingly, PCAF introduced Portfolio Stock Change Analysis in its 2024–2025 consultation documents to help financial institutions trace and decompose the drivers of changes in financed emissions within their portfolios.

This approach emphasizes decomposing year-on-year changes in portfolio emissions into two primary components:

1. Emission Intensity Change of Investee Companies

This component reflects substantive improvements in corporate decarbonization or operational efficiency, as evidenced by changes in the emissions intensity of investee entities.

2. Portfolio Composition Change

This component captures the reallocation of capital across industries, regions, or asset classes, reflecting shifts in the financial institution’s investment strategy.

Portfolio Emission Change Equation

(Equation to be presented in the subsequent section.)

ΔE_portfolio = Σ_i (E_i^t - E_i^{t-1}) 

= Σ_i (ΔE_intensity,i + ΔE_composition,i)

This equation is used to analyze the sources of year-on-year changes in financed emissions of a financial institution’s portfolio, decomposing the total change in emissions (ΔE_portfolio) into two primary drivers:

1. Emission Intensity Change of Borrowers or Investee Companies
   This component reflects emission intensity improvements driven by the investee entities themselves, capturing genuine corporate decarbonization actions.

2. Portfolio Composition Change
   This component reflects capital reallocation by the financial institution across industries or regions, capturing the effects of portfolio restructuring rather than real-economy emission reductions.

Through this decomposition approach, financial institutions can distinguish whether observed emissions reductions are attributable to actual emission reductions at the investee level or merely the result of portfolio rebalancing effects, thereby improving the accuracy and transparency of low-carbon transition performance reporting.

By applying this analysis, financial institutions can clearly identify who is reducing emissions and who is transferring exposure, and can use this insight to explain the true progress of the low-carbon transition to investors and supervisory authorities.

4.7 Undrawn Loan Commitments

It is recommended to apply the calculation approach newly introduced under IFRS S2 [23].

In practice, banks often enter into credit facilities or loan commitment agreements with corporates, under which the committed amounts are not necessarily fully drawn within the reporting period. If such undrawn amounts are ignored, a financial institution’s potential emissions exposure may be underestimated.

To address this issue, PCAF has introduced an Undrawn Commitment Accounting approach, which requires institutions to estimate emissions based on the nature of the loan and the expected drawdown rate, as follows:

E_undrawn = E_sector,avg × (Undrawn Amount) × (Expected Drawdown Rate)

This formula is proposed in the PCAF (Partnership for Carbon Accounting Financials) 2024–2025 public consultation draft and is used to estimate the potential emissions associated with undrawn credit commitments. Its primary purpose is to capture the portion of carbon exposure that has not yet materialized but remains embedded in banking or investment activities.

Explanation of Parameters

The explanation of each parameter follows in the subsequent section.

The calculated E₍undrawn₎ (tCO₂e) should be disclosed in the financial institution’s financed emissions reporting, with clear identification of the assumption sources and ranges of uncertainty, in order to distinguish potential exposure from actual emissions associated with drawn amounts.

Explanation:

• E₍sector,avg₎ represents the average emissions intensity of the relevant sector (tCO₂e per unit of currency exposure).

• Expected Drawdown Rate may be estimated based on historical data or credit terms, for example 50%.

Financial institutions should disclose the assumptions and uncertainties underlying these estimates and clearly state that the resulting figures represent “Potential Financed Emissions”, rather than realized financed emissions.

4.8 Reinsurance and Specialized Insurance

This section provides methodologies for calculating insurance-related emissions associated with reinsurance portfolios and specialized insurance projects [24].

For insurance institutions, underwriting activities may also indirectly support high-carbon industries. Accordingly, PCAF’s latest consultation documents introduce insurance-related emissions (Insured Emissions) for the first time, explaining how insurance exposure should be translated into emissions responsibility.

The key principles are as follows:

1. Attribution Principle

Emissions should be attributed to insurance policies based on underwriting responsibility.

2. Proportional Allocation for Reinsurance and Co-insurance

For reinsurance or co-insurance arrangements, emissions associated with a policy should be allocated in proportion to each insurer’s share of underwriting.

3. Boundary Definition

Only specialized insurance policies—such as insurance for energy, transportation, and industrial facilities—are included. Life insurance and health insurance are excluded.

4. Estimation Approach

Where project-level emissions data for the insured activity are available, they should be used directly. Otherwise, emissions should be estimated using sector-average emissions intensities or Environmentally Extended Input–Output (EEIO) models.

Example Formula

(To be presented in the following section.)

E_insured = E_project × Share of Insurance Coverage

This formula is used to calculate the attributed emissions of insurance or reinsurance institutions associated with specialized insurance policies (e.g., energy facilities, transportation projects, or infrastructure developments).

According to the PCAF (Partnership for Carbon Accounting Financials) 2024–2025 public consultation draft, when the insurance sector conducts insured emissions accounting, insurers should allocate the annual greenhouse gas emissions of the insured project in proportion to their underwriting share.

Explanation of Parameters

(The explanation of each parameter follows in the subsequent section.)

Reinsurance and Specialized Insurance

Where direct emissions data for the insured project are unavailable, estimates may be derived using sectoral emissions intensity benchmarks or Environmentally Extended Input–Output (EEIO) models. Financial institutions should disclose the methodologies and assumptions applied to ensure transparency and comparability of the calculations.

This approach enables the insurance sector to quantify the carbon exposure of its product portfolio, thereby providing a complementary disclosure to financed emissions reporting.

4.9 Alignment with International Frameworks

The updated guidance emphasizes that methodologies should be aligned with IFRS ISSB, CSRD, and the GHG Protocol in order to avoid double counting and enhance transparency [25].

PCAF’s methodological design consistently maintains alignment with international accounting and disclosure frameworks.

The 2024–2025 consultation draft places particular emphasis on alignment with the following three frameworks:

Through this alignment, financial institutions can ensure data consistency across carbon accounting, risk management, and financial disclosure, thereby avoiding double counting or disclosure mismatches and enhancing cross-framework comparability and credibility.

5.1 Accounting Principles

The calculation of financed emissions is based on the Attribution Approach. Financial institutions allocate emissions in proportion to the share of their asset or loan exposure (Outstanding Amount) relative to the borrower’s Enterprise Value Including Cash (EVIC). This proportional share is then applied to the borrower’s annual Scope 1 and Scope 2 emissions. This approach ensures that financial institutions assume emissions responsibility commensurate with their capital exposure [26].

Formula:

Financed Emissions = (S1 + S2)_borrower × (Outstanding Amount ÷ EVIC)

Where: 

 EVIC = Equity + Debt − Cash(Enterprise Value Including Cash) 。

If a fixed point in time (e.g., year-end balances) or average values are used as the basis for loan amounts, this can help avoid distortions caused by short-term portfolio fluctuations.

In cases where data are unavailable, financial institutions may use proxy data for estimation; however, the underlying assumptions and data quality scores must be clearly disclosed.

These five principles together constitute what PCAF refers to as the Carbon Accounting Integrity Framework, representing the minimum standard for ensuring consistent financed emissions accounting across the financial sector. 

II. Supplementary Application Principles

In addition to the five core principles outlined above, this handbook highlights three supplementary principles that are often overlooked in practice but are critical for assurance and disclosure purposes:

(1) Boundary Definition

• Financial institutions should define the boundary based on on-balance-sheet exposure amounts (Exposure on Balance Sheet) and ensure consistency with the financial reporting period (e.g., the fiscal year).

• For group-level institutions, the scope of consolidation—covering subsidiaries and branches—should be clearly defined to avoid double counting.

• For investment products (e.g., bond funds or equity funds), attribution boundaries should be determined based on investment share or management control, as applicable.

Illustrative Example:

If a bank holds NTD 200 million in corporate loans as of December 31, and the borrower’s EVIC is NTD 1 billion, the bank’s attribution ratio is 20%.

If the borrower’s annual Scope 1 and Scope 2 emissions total 10,000 tCO₂e, the bank’s attributed financed emissions are:

(2) Avoiding Double Counting

Double counting is one of the most common sources of error in financial carbon accounting, particularly in the context of syndicated loans, refinancing, and structured finance.

Accordingly, PCAF recommends applying the Single Attribution Rule, as outlined below:

• Syndicated Loans:
  Each participating bank should account only for its actual participation share. For example, if Bank A underwrites 30% and Bank B underwrites 70%, each bank attributes financed emissions according to its respective share.

• Refinancing:
  If the original loan has been terminated, emissions after refinancing should be attributed solely to the new lending institution, thereby avoiding duplicate attribution.

• Structured Finance:
  Emissions should be allocated based on the actual risk and economic interest held. For holdings of asset-backed securities (ABS) or mortgage-backed securities (MBS), attribution should be calculated according to exposure to the underlying assets.

This principle ensures that total emissions at the financial system level are not overstated and helps maintain consistency and comparability across institutions.

(3) Data Traceability

To ensure credibility, all financed emissions calculations must be fully traceable and supported by a complete audit trail:

• Each input variable (e.g., borrower emissions, outstanding amount, EVIC) should clearly indicate its data source, reference date, and version.

• All formulas and assumptions must be traceable to original disclosures or data platforms, such as CDP, Bloomberg, MSCI ESG, or governmental emissions registries.

• When proxy data are used, the corresponding data quality score should be explicitly disclosed (Data Quality Levels 1–5).

• Historical versions of data and methodologies should be retained across reporting years to support internal review and third-party assurance.

Assurance Recommendation

Institutions are advised to establish an internal “GHG Data Log”, documenting for each financing exposure the data source, estimation method, and responsible owner, thereby facilitating subsequent verification, recalculation, or external assurance.

III. Overview of the Financial Institution Calculation Process

The following workflow outlines the core steps a financial institution should follow when calculating financed emissions:

1. Define Reporting Boundary and Period

• Use the annual reporting period as the baseline.

• Include all relevant loans and investments outstanding during the reporting year.

2. Identify Asset Classes

• Classify exposures in accordance with PCAF’s seven asset classes, including:
  corporate loans, project finance, commercial real estate, mortgages, motor vehicle loans, sovereign debt, and listed equity investments.

3. Collect Emissions and Financial Data

• Data sources may include company disclosures, ESG databases, estimation models, or proxy values, depending on data availability.

4. Apply Attribution Factors

• Calculate attribution using Outstanding Amount / EVIC, or other PCAF-approved attribution methodologies where applicable.

5. Aggregate and Validate Results

• Aggregate financed emissions across asset classes.

• Perform validation checks to identify double counting, omissions, or inconsistencies.

6. Disclosure and Data Quality Grading

• Disclose results with appropriate data quality scores and uncertainty explanations, in line with PCAF data quality requirements.

IV. Data Quality and Assurance Recommendations

Financial institutions should clearly disclose the quality and source of each data input used in financed emissions calculations. Data management and disclosure should follow the PCAF Data Quality Score framework (Scores 1–5) to ensure transparency, consistency, and auditability.

Specifically, institutions are expected to:

• Assign a data quality score to each exposure based on the origin and reliability of emissions data (e.g. reported data, modeled data, or sector proxies).

• Clearly distinguish between primary data, estimated data, and proxy data.

• Use data quality scores as a management and improvement tool, enabling year-on-year enhancement of data coverage and accuracy.

This approach supports:

• Improved comparability across portfolios and institutions,

• Enhanced credibility of financed emissions disclosures, and

• Greater readiness for internal audit, third-party assurance, and regulatory review.

Financial institutions should set annual improvement targets—for example, “reduce the proportion of Data Quality Level 3 or below to under 20% within three years”—to continuously enhance data reliability and reporting consistency.

• The core logic of PCAF accounting lies in proportional attribution and data traceability.

• Through clearly defined boundaries and robust double-counting prevention mechanisms, financial institutions can ensure that calculation results are both scientifically sound and auditable.

Subsequent sections of Chapter 5 will further elaborate on specific asset classes (e.g., corporate loans, project finance, real estate), providing detailed formulas and worked examples to help practitioners directly apply financed emissions accounting frameworks in real-world operations.

Financial institutions should set annual data quality improvement targets, for example: “reduce the proportion of Data Quality Level 3 and below to under 20% within three years,” in order to continuously enhance data reliability and reporting consistency.

• The core logic of PCAF accounting lies in proportional attribution and data traceability.

• Through clearly defined boundaries and robust double-counting prevention mechanisms, financial institutions can ensure that calculation results are both scientifically sound and auditable.

Subsequent sections of Chapter 5 will further delve into specific asset classes (such as corporate loans, project finance, and real estate), providing detailed formulas and worked examples to help practitioners master a financed emissions accounting framework that can be directly applied in practice.

5.2 General Workflow

Financed emissions accounting is an integrated process that combines financial data and emissions data, requiring consistency in the accounting period, asset scope, and method selection.

Based on the PCAF Second Edition (2022) standard and the latest practical guidance, financial institutions should follow the six steps below:

Step 1: Identify Asset Class

First, clearly define the asset scope to be included in the calculation.

Financial institutions should assess their own business structure and determine which PCAF asset class each exposure belongs to (e.g., corporate loans, project finance, mortgages, vehicle loans, listed equity).

Key points:

• Each asset class corresponds to a specific calculation method and attribution logic.

• If a single credit facility covers multiple purposes (e.g., working capital plus equipment financing), the exposure should be allocated proportionally across asset classes.

• It is recommended to base classification on balance sheet categories to ensure consistency with financial reporting.

Step 2: Collect and Match Data

For each asset class, collect the necessary emissions data and financial data.

Sources of emissions data:

• Public disclosures by borrowers (e.g., CDP, ESG reports, annual reports).

• Third-party databases (e.g., Bloomberg, Refinitiv, MSCI ESG, Sustainalytics).

• Where data are unavailable, apply sector emission intensity or estimate using EEIO models.

Sources of financial data:

• Outstanding amount of the loan.

• Enterprise Value Including Cash (EVIC), total project cost, mortgage LTV, or asset value.

Matching principles:

• Data periods should be consistent with the reporting year.

• When proxy data are used, the data quality level (Level 1–5) should be clearly disclosed.

Step 3: Choose Calculation Method

Based on the asset class and data availability, select the appropriate calculation method.

Step 4: Apply the Attribution Factor

Attribute the previously collected emissions data according to the financial institution’s exposure share.

The Attribution Factor should be selected based on the relevant asset class, using the appropriate formula, for example:

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Step 4: Apply Attribution Factor

This step ensures that financial institutions attribute only the emissions that correspond to their own capital exposure, thereby avoiding double counting or over-attribution.

Step 5: Calculate and Aggregate Results

(Calculate and Aggregate Results)

After calculating financed emissions at the individual asset level, results are aggregated to derive total portfolio financed emissions.

Process:

1. Calculate financed emissions for each borrower or project individually.

2. Aggregate total emissions by asset class (tCO₂e).

3. Calculate the Weighted Average Emission Intensity (WAEI).

Weighted Average Emission Intensity (WAEI) Formula 

WAEI = Σ_i (E_i) ÷ Σ_i (A_i)

This formula is used to calculate the Weighted Average Emission Intensity (WAEI) of a financial institution’s investment or lending portfolio, serving as a key indicator of overall portfolio carbon efficiency.

Further explanations of each parameter in the formula are provided below.

The unit of WAEI results is typically expressed as tCO₂e per unit of monetary exposure (e.g., per million currency units). This metric can be used to compare carbon intensity across different asset portfolios and to track year-over-year trends.

Step 6: Validate and Report

Finally, financial institutions should ensure the transparency, consistency, and verifiability of the calculation results.

Key Validation Areas:

• Consistency: The reporting period should be aligned with the financial reporting period.

• Data Quality: Each data point should be clearly labeled with its corresponding Data Quality Level.

• Avoidance of Double Counting: Verify that syndicated loans and structured finance products are not double-counted.

• Traceability: Maintain clear records of data sources, versions, and key assumptions.

Disclosure Recommendations:

• Disclose, on an annual basis, total financed emissions, asset-class breakdowns, and data quality distribution.

• Where applicable under IFRS S2 or CSRD, disclose financed emissions alongside climate risk indicators and decarbonization strategies.

Workflow Overview (Illustrative)

[Step 1] Identify Asset Class
↓
[Step 2] Collect and Match Data
↓
[Step 3] Choose Calculation Method
↓
[Step 4] Apply Attribution Factor
↓
[Step 5] Calculate and Aggregate Results
↓
[Step 6] Validate and Report

5.3 Calculation by Asset Class

PCAF classifies financed emissions of financial institutions into seven asset classes. Among these, five categories are most directly relevant to banking lending and credit activities, including:
Business loans and unlisted equity, project finance, commercial real estate, mortgages, vehicle loans, and listed equity.

This section explains the calculation logic and practical application for each asset class.

5.3.1 Business Loans & Unlisted Equity

This asset class represents the core lending and investment exposure of financial institutions.

PCAF recommends applying the Attribution Factor Approach, whereby the borrower’s Scope 1 and Scope 2 emissions are allocated to the financial institution in proportion to its financial exposure, reflecting the institution’s actual contribution to the financed emissions.

Calculation Formula

Financed Emissions = (S1 + S2)_borrower × (Outstanding Amount ÷ EVIC)

Where EVIC = Equity + Debt − Cash

(Enterprise Value Including Cash)

• S1 + S2:
  The borrower’s annual Scope 1 and Scope 2 greenhouse gas emissions (tCO₂e).
  
  

• Outstanding Amount:
  The loan balance of the financial institution within the reporting period
  (may be measured using end-of-period balance or average outstanding balance).
  
  

• EVIC (Enterprise Value Including Cash):
  The company’s total enterprise value, calculated as:
  Equity + Debt − Cash.
  
  

Note:
EVIC is a financial attribution denominator jointly recognized by PCAF and the GHG Protocol.
It represents the shared capital exposure of both investors and creditors to the overall enterprise value, and is therefore used as the basis for allocating financed emissions.

Data Sources and Application Guidance for EVIC 

Financial institutions should disclose the methodology used to calculate EVIC and ensure temporal consistency, meaning that EVIC should be measured over the same reporting period as the outstanding loan balance.

Estimation Methods When Data Are Unavailable

If the borrower does not disclose emissions data, the following alternative estimation approaches may be applied, ranked from higher to lower data quality:

Financial institutions should disclose, in their reports, the estimation methods used and the corresponding data quality levels (Data Quality Level 1–5), and progressively replace proxy data with borrower-reported data over time.

Practical Example

Assume a bank provides a loan of NT$200 million to Company A. The company’s combined Scope 1 and Scope 2 annual emissions total 10,000 tCO₂e, and its EVIC is NT$1 billion. Then:

Financed Emissions = 10,000 × (2 ÷ 10) = 2,000 tCO₂e

Accordingly, the bank’s attributable financed emissions amount to 2,000 tCO₂e.

Verification and Disclosure Recommendations

1. Documentation: Retain records of the sources of borrower emissions data (e.g., CDP disclosures, ESG reports, EEIO model input tables).

2. Period Consistency: Ensure that loan amounts and emissions data correspond to the same fiscal year.

3. Disclosure Examples:

   • Disclose in the financial institution’s annual report: “Total financed emissions from the corporate loan portfolio: 120,000 tCO₂e, representing 45% of total financed emissions.”

   • Provide supplementary notes listing major industry composition and the distribution of data quality levels.

5.3.2 Project Finance

Project finance refers to a financing arrangement based on a specific asset or project. Its key characteristics include clearly defined use of funds, with cash flows and collateral assets directly linked to the project itself. The PCAF recommends applying the Use-of-Proceeds Accounting principle, under which only the portion of the project directly financed by the financial institution is included.

Calculation Formula

Financed Emissions = Project Emissions × (Loan Amount ÷ Total Project Cost)

Where:

Practical Application and Scope

Project finance is commonly used in large-scale infrastructure development and energy transition projects, such as solar and wind power plants, industrial energy efficiency improvements, transportation infrastructure, and water resource facilities. In such projects, the loan amount provided by the financial institution is typically closely linked to the total project cost, allowing the financed share to accurately reflect the institution’s contribution to project-related emissions.

Example

Assume a bank provides a loan of NTD 300 million to the “Hsinchu Solar Power Plant Project,” with a total project cost of NTD 1 billion. The power plant’s emissions during its annual operating period amount to 5,000 tCO₂e.

According to the PCAF methodology, the bank’s financed emissions are calculated as follows:

Financed Emissions = 5,000 × (3 ÷ 10) = 1,500 tCO₂e

Therefore, the bank’s attributed (financed) emissions amount to 1,500 tCO₂e.

If the project replaces a coal-fired power plant with renewable energy, the baseline emissions (E_baseline) are 60,000 tCO₂e, while the solar power plant’s own emissions (E_project) are 5,000 tCO₂e. The avoided emissions are therefore:

E_avoided = 60,000 − 5,000 = 55,000 tCO₂e

Financial institutions may disclose both financed emissions and avoided emissions in their reports to present the project’s Net Emission Impact.

E_avoided = E_baseline − E_project

Where:

• E_baseline represents the reference emissions that would have occurred if the project had not been implemented (e.g., the average emission intensity of a coal-fired power plant).

• E_project represents the actual emissions of the project itself (e.g., emissions from a solar power generation system).

• The assumptions, emission factors, and calculation boundaries for both should be disclosed to ensure comparability and transparency.

5.3.3 Commercial Real Estate & Mortgages

This asset class covers commercial real estate (CRE) financing and residential mortgage loans. PCAF recommends using operational energy consumption of buildings as the basis, converting energy use into greenhouse gas emissions, and then attributing emissions according to the financial institution’s share of the building value or the loan-to-value (LTV) ratio.

Commercial Real Estate (CRE) – Calculation Formula

Financed Emissions = Building Emissions × (Outstanding Loan ÷ Property Value)

Where:

• Building Emissions: Greenhouse gas emissions (tCO₂e) converted from the building’s annual energy consumption (e.g., electricity, natural gas).

• Outstanding Loan: The outstanding loan balance provided by the financial institution for the property.

• Property Value: The market value or appraised value of the building.

Mortgages – Calculation Formula

Financed Emissions = Building Emissions × LTV

Where LTV (Loan-to-Value) represents the proportion of the loan amount relative to the total value of the property, and is used to reflect the financial institution’s level of economic exposure to the property.

Data Sources and Estimation Methods

If on-site emissions data are unavailable, regional average Energy Use Intensity (EUI) may be used and multiplied by the building’s floor area to estimate annual energy consumption. This consumption is then converted into tCO₂e using local electricity and natural gas emission factors.

For mortgages, an average residential emissions factor (kgCO₂e/m²/year) may be applied and multiplied by the dwelling’s floor area to estimate emissions.

Example

[Commercial Real Estate Case]

Assume a bank provides a loan of NTD 500 million to an office building with a total market value of NTD 1 billion.

The building’s annual electricity consumption is 3,000,000 kWh, and the regional electricity emission factor in Taiwan is 0.474 kgCO₂e/kWh.

The building’s annual emissions (Building Emissions) are therefore calculated as:

Building Emissions = 3,000,000 × 0.474 ÷ 1000 = 1,422 tCO₂e

The financial institution’s financed emissions are calculated as follows:

Financed Emissions = 1,422 × (5 ÷ 10) = 711 tCO₂e

Therefore, the bank’s attributed emissions amount to 711 tCO₂e.

[Mortgage Case]

Assume an individual purchases a residential property with a total price of NTD 15 million, and the bank provides a mortgage of NTD 12 million (LTV = 0.8).

The dwelling has a floor area of 100 m², and the average emissions factor is 30 kgCO₂e/m²/year.

The building’s annual emissions (Building Emissions) are calculated as:

Building Emissions = 100 × 30 ÷ 1,000 = 3 tCO₂e

The financial institution’s financed emissions are therefore:

Financed Emissions = 3 × 0.8 = 2.4 tCO₂e

Thus, the bank’s attributed emissions amount to 2.4 tCO₂e.

Additional Notes

This methodology can be applied to annual reporting of emissions associated with building-related loans. It can also serve as a basis for climate risk management, energy-efficient building investment decisions, and the design of low-carbon financial products.

If data sources or estimation methods differ, assumptions and emission factors should be clearly disclosed to ensure transparency and comparability.

5.3.4 Motor Vehicle Loans

Motor vehicle loans are one form of retail financing provided by financial institutions and fall under the “Retail Loans” category among the seven asset classes defined by PCAF.
For this type of loan, emissions attribution should consider the vehicle’s entire lifecycle emissions, including the manufacturing phase, use phase, and end-of-life (disposal) phase.

Financial institutions should attribute emissions in proportion to the outstanding loan balance relative to the vehicle’s value, reflecting their share of responsibility for the vehicle’s full lifecycle carbon footprint.

Calculation Formula

Financed Emissions = Vehicle Lifetime Emissions × (Outstanding Loan ÷ Vehicle Value)

Parameter Definitions

• Vehicle Lifetime Emissions: Total greenhouse gas emissions generated over the vehicle’s full lifecycle, including manufacturing, use, and end-of-life stages (tCO₂e).
  
  

• Outstanding Loan: The remaining loan balance provided by the financial institution for the vehicle.
  
  

• Vehicle Value: The total purchase price or assessed value of the vehicle.
  
  

Parameter Definitions 

Internal Combustion Engine Vehicles (ICEV)

Fuel combustion emission factors are applied, for example:

• Gasoline: 2.31 kgCO₂ per liter

• Diesel: 2.68 kgCO₂ per liter

If the vehicle’s average fuel efficiency (km/L) is available, then:

Euse​=(Distance traveled÷Fuel efficiency)×Emission factor÷1000 

If the manufacturing stage is included, it is recommended to add approximately 6–8 tCO₂e per vehicle (depending on manufacturer and model).

Electric Vehicles (EV)

Grid electricity emission factors (kgCO₂e/kWh) are applied, for example Taiwan: 0.474 kgCO₂e/kWh (2024).
If the vehicle’s average electricity consumption is 0.15 kWh/km, then:

Euse=Distance traveled×0.15×0.474÷1000E_{\text{use}} = \text{Distance traveled} \times 0.15 \times 0.474 \div 1000Euse​=Distance traveled×0.15×0.474÷1000

For the manufacturing stage, battery production emissions may be added, typically about 3–6 tCO₂e per vehicle.

Example

[Internal Combustion Engine Vehicle (ICEV) Case]

Assume a financial institution provides a loan of NTD 0.9 million for a gasoline vehicle, with a total vehicle value of NTD 1.2 million (Loan-to-Value, LTV = 0.75).
The vehicle’s average fuel efficiency is 12 km/L, the expected lifetime driving distance is 150,000 km, and the gasoline emission factor is 2.31 kgCO₂/L.

Euse=(150,000÷12)×2.31÷1000=28.9 tCO₂eE_{\text{use}} = (150{,}000 \div 12) \times 2.31 \div 1000 = 28.9 \ \text{tCO₂e}Euse​=(150,000÷12)×2.31÷1000=28.9 tCO₂e

If manufacturing-stage emissions of 6 tCO₂e are included, then:

Elifetime=28.9+6=34.9 tCO₂eE_{\text{lifetime}} = 28.9 + 6 = 34.9 \ \text{tCO₂e}Elifetime​=28.9+6=34.9 tCO₂e Financed Emissions=34.9×0.75=26.2 tCO₂e\text{Financed Emissions} = 34.9 \times 0.75 = 26.2 \ \text{tCO₂e}Financed Emissions=34.9×0.75=26.2 tCO₂e

Therefore, the bank’s attributable financed emissions are 26.2 tCO₂e.

[Electric Vehicle (EV) Case]

Assume a financial institution provides a loan of NTD 1.6 million for an electric vehicle, with a total vehicle value of NTD 2.0 million (LTV = 0.8).
Electricity consumption is 0.15 kWh/km, the driving distance is 150,000 km, and the grid emission factor is 0.474 kgCO₂e/kWh.

Euse=150,000×0.15×0.474÷1000=10.7 tCO₂eE_{\text{use}} = 150{,}000 \times 0.15 \times 0.474 \div 1000 = 10.7 \ \text{tCO₂e}Euse​=150,000×0.15×0.474÷1000=10.7 tCO₂e

If manufacturing-stage emissions are 9 tCO₂e (including battery production), then:

Elifetime=10.7+9=19.7 tCO₂eE_{\text{lifetime}} = 10.7 + 9 = 19.7 \ \text{tCO₂e}Elifetime​=10.7+9=19.7 tCO₂e Financed Emissions=19.7×0.8=15.8 tCO₂e\text{Financed Emissions} = 19.7 \times 0.8 = 15.8 \ \text{tCO₂e}Financed Emissions=19.7×0.8=15.8 tCO₂e

Therefore, the bank’s attributable financed emissions are 15.8 tCO₂e.

Additional Notes

• If the vehicle is operated under an operating lease model by a leasing company, emissions should be allocated in proportion to the lease term relative to the vehicle’s expected useful life.

• If the vehicle uses renewable energy or is associated with carbon offset/neutrality certificates, the mitigation benefits may be disclosed separately, but must not be deducted from financed emissions.

• It is recommended to update fuel and electricity grid emission factors annually to reflect changes in the actual regional power generation mix.

5.3.5 Sovereign Debt

Sovereign debt represents financing or investment exposure at the government level and is not directly linked to corporate activities. Therefore, PCAF recommends allocating emissions based on national-level emissions divided by GDP (Gross Domestic Product). This approach reflects the relative climate exposure of financial institutions’ investments in government bonds across different countries and supports cross-country comparison of emissions within international investment portfolios.

Calculation Formula:

Financed Emissions = National Emissions × (Investment Amount ÷ National GDP)

Parameter Definitions:

Data Sources and Application Recommendations

1. National Emissions Data may be obtained from the following databases:

   • EDGAR (Emissions Database for Global Atmospheric Research)

   • UNFCCC National Inventory Reports (official reports regularly disclosed by Parties to the Convention)

2. GDP data may be sourced from the World Bank or IMF annual statistics. Ensure that GDP and investment amounts are expressed in the same currency unit.

3. If sovereign bonds from multiple countries are held, financed emissions should be calculated separately for each country and then aggregated to obtain total portfolio emissions.

Example

Assume a financial institution invests NTD 500 million in Japanese government bonds. The relevant data are as follows:

• Japan’s total national greenhouse gas emissions (2023):
  1,000 MtCO₂e (10⁹ tCO₂e)

• Japan’s nominal GDP (2023):
  USD 4.2 trillion (approximately NTD 130 trillion)

The financed emissions attributable to the financial institution are calculated as:

Financed Emissions = 1,000,000,000 × (5,000,000,000 ÷ 130,000,000,000,000)

Financed Emissions = 38.5 tCO₂e

Therefore, the financed emissions associated with the institution’s NTD 500 million investment in Japanese government bonds are approximately 38.5 tonnes of CO₂e.

Summary Table

Educational Application Recommendations

To strengthen learners’ understanding, it is recommended to incorporate “asset-class mapping exercises” into classroom teaching. Learners should be asked to match different financial products (such as corporate loans, mortgages, and renewable energy project finance) with the appropriate formulas, attribution denominators, and data sources. This approach helps enhance practical judgment skills and improves consistency in reporting.

5.4 Data Quality and Proxy Handling

Under the PCAF accounting framework, data quality is a core factor affecting the credibility of financed emissions results. Because financial institutions deal with borrowers of varying sizes—and because some SMEs or clients do not disclose emissions data—it is often necessary to rely on proxy data for estimation.

To ensure transparency and consistency, PCAF has established a Data Quality Score (DQS) system, which is used to reflect the accuracy, reliability, and robustness of the data applied.

Data Quality Score, Level 1–5

Example

Assume a bank calculates financed emissions for three borrowing companies. The classification of data quality levels for each borrower is shown in the table below.

Calculation Example

Using Company B as an example:

• Annual electricity consumption: 500,000 kWh

• Taiwan grid emission factor: 0.474 kgCO₂e/kWh

The company’s emissions are calculated as:

E=500,000×0.474÷1,000=237 tCO₂eE = 500{,}000 \times 0.474 \div 1{,}000 = 237 \text{ tCO₂e}E=500,000×0.474÷1,000=237 tCO₂e

If the company’s EVIC is NTD 1 billion and the bank’s loan amount is NTD 100 million, the attributable (financed) emissions are:

Financed Emissions=237×(1÷10)=23.7 tCO₂e\text{Financed Emissions} = 237 \times (1 \div 10) = 23.7 \text{ tCO₂e}Financed Emissions=237×(1÷10)=23.7 tCO₂e

This dataset is classified as Level 2, indicating higher data quality than proxy-based estimation.

Data Quality Improvement Strategies

Teaching Material Design Recommendations

It is recommended to incorporate a “Data Quality Classification Practice Sheet” into the course, enabling learners to assess and assign the appropriate Data Quality Score (DQS) level under different scenarios, for example:

5.5 Attribution and Aggregation

After completing the emissions calculations for each asset class (e.g., corporate loans, project finance, real estate, mortgages, motor vehicle loans, and sovereign debt), financial institutions must perform portfolio-level aggregation to present key indicators such as Total Financed Emissions and Emission Intensity.

The objectives of this step are to:

1. Quantify the financial institution’s overall climate exposure;

2. Track year-to-year changes and decarbonization progress;

3. Serve as a data foundation for sustainability disclosures (e.g., IFRS S2 and TCFD).

Main Steps (Aggregation Process)

Calculation Formulas

1. Total Financed Emissions

2. Emission Intensity per $M invested

Emission Intensity = Total Financed Emissions ÷ (Total Outstanding Amount ÷ 1,000,000)

Example

Total Financed Emissions

Total Financed Emissions = 12,000 + 5,500 + 1,200 + 300 = 19,000 tCO₂e

Emission Intensity

Emission Intensity
= 19,000 ÷ ((5,000+2,000+3,000+1,000)/1,000)\big((5,000 + 2,000 + 3,000 + 1,000) / 1,000\big)((5,000+2,000+3,000+1,000)/1,000)
= 1.9 tCO₂e per NTD million invested

Interpretation

Therefore, for every NTD 1 million invested by the bank, an average of 1.9 tonnes of CO₂e is attributed as financed emissions.

Exposure Attribution Matrix (Illustration)

Establishing this matrix helps avoid double counting or omission of emissions across departments, and also serves as a reference basis for audit and IFRS S2 disclosure.

Reporting Recommendations

In the annual report, it is recommended to disclose:

• Financed emissions by asset class (tCO₂e)

• Total financed emissions and emission intensity

• Data quality coverage by category (proportion of Level 1–3)

It is further recommended to complement the disclosure with visualizations, such as:

• A pie chart showing the emission share of the asset portfolio

• A line chart illustrating year-on-year emission trends

5.6 Worked Examples

To facilitate learners’ understanding of the calculation logic and attribution principles of financed emissions, this section presents two representative worked examples. These examples illustrate the calculation approaches for corporate loans and renewable energy project finance, respectively.

Both examples are aligned with the PCAF Global GHG Accounting and Reporting Standard for the Financial Industry (Second Edition, 2022) and demonstrate the practical application of asset-class-specific methodologies.

Example 1: Corporate Loan

Basic Information

Calculation Formula :

Financed Emissions = (S1 + S2) × (Outstanding Loan ÷ EVIC)

Worked Calculation :

Financed Emissions = 1,000 × (20,000,000 ÷ 100,000,000) = 200 tCO₂e

Result

The bank’s attributed financed emissions amount to 200 tonnes of CO₂e.

Explanation

This result indicates that the bank’s outstanding loan represents 20% of the borrower’s Enterprise Value Including Cash (EVIC).
Accordingly, the bank is attributed 20% of the borrower’s total Scope 1 and Scope 2 emissions, reflecting its proportional exposure to the borrower’s carbon footprint under the PCAF attribution principle.

If the borrower does not disclose verified emissions data, proxy estimation methods—such as EEIO-based estimates or industry-average emission intensities—may be applied in accordance with PCAF data quality guidance.

Example 2: Renewable Energy Project Finance

Basic Information

Calculation Formula :

Financed Emissions = Project Emissions × (Loan Amount ÷ Total Project Cost)

Worked Calculation :

Financed Emissions = 50,000 × (1,000,000,000 ÷ 5,000,000,000) = 10,000 tCO₂e

Result

The bank’s attributed financed emissions amount to 10,000 tonnes of CO₂e.

Explanation

This formula indicates that the bank finances 20% of the total project capital structure.
Accordingly, 20% of the project’s annual emissions are attributed to the bank, in line with the proportional attribution principle under the PCAF Project Finance methodology.

If the project delivers emission-reduction benefits (e.g., replacing coal-fired power generation), avoided emissions may be calculated separately to assess the project’s net climate contribution.
However, avoided emissions must not be deducted from financed emissions.

Teaching Application Recommendations

In classroom settings, the two worked examples may be designed as group exercises:

1. Require students to input assumptions and perform calculations independently using Excel.

2. Guide students to explain why financial institutions assume proportional (attributed) emissions, rather than total project emissions.

3. Discuss how changes in loan amount, project cost, or EVIC affect the emission attribution ratio.

Instructional Design Suggestion

It is recommended to complement the teaching materials with a “Financed Emissions Calculation Flowchart”, illustrating:

Input data → Apply formula → Calculate attribution ratio → Aggregate results → Disclose outcomes

This visual aid helps learners clearly understand the full logic from data input to climate disclosure.

5.7 Reporting Template and Disclosure Recommendations

The PCAF Standard emphasizes the disclosure principles of consistency and transparency.
After completing financed emissions calculations, financial institutions should present the results for each asset class in a structured reporting format, clearly disclosing:

• Calculation outcomes

• Data sources

• Data quality levels

This approach facilitates external assurance, regulatory review, and enables investors and stakeholders to understand the underlying data assumptions and methodological choices.

This reporting format can simultaneously support:

• PCAF annual disclosure

• TCFD or IFRS S2 climate-related disclosures

• Internal ESG reporting and management purposes

Example Reporting Template

Notes / Explanatory Guidance

• Data Source: The “Data Source” column should clearly specify whether the data are derived from company disclosures, third-party databases, or proxy / estimation models.

• DQ Score: The “DQ Score” should correspond to the data quality levels defined in Section 5.4 (Levels 1–5).

• Calculation Method: The “Calculation Method” should align with the formula types explicitly defined in Section 5.3.

• Remarks: The “Remarks” field may be used to explain assumptions, exceptions, or special calculation circumstances.

Disclosure Recommendations

1. Core Disclosure Items

• Financed emissions by asset class (tCO₂e)

• Data quality coverage by asset class (share of Levels 1–3)

• Emission intensity metric (tCO₂e per million invested)

• Primary methodologies used (e.g., EVIC-based method, loan ratio method)

2. Supplementary Items

• Year-over-year trend analysis

• Emissions hotspot analysis

• Improvement strategies (e.g., data quality enhancement or development of low-carbon financial products)

3. Transparency Requirements

• Disclosure of key assumptions, data sources, and emission factors

• Clear identification and justification when proxy data are used

• Disclosure of attribution rules when multiple financial institutions participate in syndicated lending

Suggested Report Structure

(Section header for outlining recommended report length and organization)

Suggested Teaching Activity: Mock Disclosure Exercise

At the end of the course, instructors may conduct a “mock disclosure exercise” as follows:

1. Provide students with a simplified set of lending and investment data.

2. Require students to calculate financed emissions using the previously introduced formulas and complete the reporting tables.

3. Conclude with instructor guidance on how to integrate the results into a disclosure-ready report aligned with the PCAF annual disclosure framework.

Chapter 6: Data Sources and Data Quality Management 

6.1 Data Quality Levels

To ensure the accuracy and verifiability of financed emissions calculations, PCAF recommends that financial institutions establish a clear data quality tiering system based on data sources and reliability. Under the PCAF framework, emissions data are classified into three main categories based on their origin and robustness.

PCAF Scoring Framework

PCAF encourages financial institutions to assign a Data Quality Score (DQS) to each data point. The 1–5 scale is used to reflect the reliability and transparency of data sources.

Management Principles

Financial institutions should establish internal procedures to ensure data quality consistency and transparency, and disclose the following in annual reports or disclosures:

1. Data Coverage: Explain, by asset class, the proportion of reported data, model-based estimates, and proxy data used.

2. Improvement Plan: Outline plans to progressively increase the share of Level 1–2 data over time.

3. Verification Process: Define responsibilities for data acquisition, review, and updates.

4. Cross-Department Collaboration: Integrate lending, risk management, and sustainability teams to improve data availability and quality.

6.2 Selection of Reference Date

Because investment portfolios may fluctuate during the reporting year, the guidance recommends either selecting a fixed point in time (e.g., December 31) or using an annual average value for calculation purposes [26].

Principle Explanation

The PCAF standard states that, when calculating financed emissions, financial institutions should select a clear and consistent reference date to ensure that outstanding loan balances or investment amounts correspond to the same reporting year as the associated emissions data.

Since investment portfolios and loan balances may change over the reporting period, failure to clearly define a reference date may lead to distorted attribution ratios. Therefore, PCAF recommends adopting one of the following two approaches:

Calculation Example

Assume that a bank’s corporate loan outstanding balances during the 2024 reporting year are as follows: 

If the borrowing company’s annual emissions are 10,000 tCO₂e, the financed emissions can be calculated using different approaches as follows:

1. Fixed Reference Date Method

Financed Emissions = 10,000 × (1,100 ÷ 10,000) = 1,100 tCO₂e

2. Annual Average Method 

Financed Emissions = 10,000 × ((900 + 1,100) ÷ 2 ÷ 10,000) = 1,000 tCO₂e

Disclosure Recommendations

In the report, the financial institution should clearly explain:

1. Which approach is used (fixed reference date or annual average);

2. The rationale for the choice (e.g., asset balance volatility or reporting-period requirements);

3. Consistency across asset classes, and disclose any inter-period adjustments if multiple asset types are involved.

Note [26]:

According to PCAF Global GHG Accounting and Reporting Standard, 2nd Edition (2022), Chapter 4, financial institutions are recommended to select either a fixed reference date or an annual average over the financial reporting period to ensure data consistency. 

Chapter 7: Disclosure and Reporting Requirements  

7.1 PCAF Standard Requirements

Financial institutions should disclose in their reports:

• The consolidation approach used (operational control or financial control);

• The coverage by asset class;

• The absolute financed emissions for each asset class; and

• The calculation methodologies applied.

In addition, institutions must explain the approaches used for avoided emissions and removals, as well as provide information on data quality and materiality thresholds.

Disclosure Principles

The PCAF standard explicitly requires financial institutions, in their annual reports or sustainability disclosures, to clearly state the scope, methodology, and data quality of their greenhouse gas accounting in order to ensure transparency and comparability.

According to the PCAF Global GHG Accounting and Reporting Standard, 2nd Edition (2022), financial institutions should, at a minimum, disclose the following eight key items (introduced in the subsequent sections).

Example of Disclosure Table

Supplementary Explanations

1. Consistency between PCAF and IFRS S2
   IFRS S2 requires financial institutions to disclose the climate-related risks and opportunities associated with their investment and financing activities, while PCAF provides a quantitative and operational basis for measuring financed emissions. It is recommended to use the two frameworks in combination to enhance the depth and robustness of disclosures.

2. Assurance Readiness
   It is recommended that key assumptions, emission factors, and the distribution of data quality levels be provided in the appendices of reports to support external assurance activities, such as ISO 14064-3 verification or reasonable assurance engagements.

3. Continuous Improvement
   PCAF encourages financial institutions to progressively expand asset coverage and increase the proportion of Level 1–2 data over time, and to disclose improvement progress as part of ongoing sustainability performance indicators.

Note [17]: Adapted from the PCAF Global GHG Accounting and Reporting Standard, 2nd Edition (2022), Chapter 6 and Appendix A.

7.2 Disclosure Checklist

The 2025 PCAF Disclosure Checklist provides a standardized “Yes / No” question set to assess whether reports comply with PCAF requirements. The checklist covers items such as general disclosure principles, scope of coverage, absolute emissions, avoided and removed emissions, recalculations, and materiality thresholds. For any item answered “No,” institutions are required to provide a justification and include an explanation in publicly disclosed reports [27].

Overview

Starting in 2025, PCAF has introduced an updated Disclosure Checklist, offering financial institutions a standardized Yes/No review tool to verify whether disclosures align with the principles and requirements of the PCAF Global GHG Accounting and Reporting Standard, 2nd Edition (2022).

The primary objectives of the checklist are to:

1. Ensure consistency and comparability of disclosed information;

2. Serve as an internal quality control and self-assessment tool prior to external assurance;

3. Encourage institutions to provide supplementary explanations and improvement plans where disclosures are incomplete.

Checklist Structure

Example: PCAF Disclosure Checklist (Simplified Version) 

Footnote [27]
In accordance with the PCAF Global GHG Accounting and Reporting Standard (2022, 2nd Edition), Appendix B, for any item answered “No” (Not Compliant), financial institutions should provide a clear explanation and a concrete improvement timeline, and disclose the corresponding Improvement Plan in their annual public report.

Teaching Application Recommendations

1. Conduct an in-class “mock review” exercise in which students are divided into groups to role-play “disclosure reviewers” and “report preparers,” and discuss item by item whether the disclosure meets the standard.

2. Convert the disclosure checklist into an Excel format to serve as an internal annual self-assessment tool for financial institutions.

3. Guide students to understand the risks behind each “No” item, such as information gaps, compliance risks, and reputational risks.

7.3 Alignment with Other Frameworks

Financial institutions should ensure that financed emissions disclosures are aligned with policy and reporting frameworks such as TCFD, IFRS S2, and CSRD, and should also take into account SBTi target-setting requirements. In addition, forthcoming updates to the GHG Protocol may require mandatory disclosure of material Scope 3 categories, particularly where a single category exceeds 5% of total emissions [28].

Chapter 8. Conclusion and Outlook 

8.1 Continuous Improvement

Financed emissions constitute a key metric for financial institutions in managing climate-related risks and capturing net-zero transition opportunities. The PCAF Standard provides the financial sector with a practical and operational methodology, aligned with the GHG Protocol, enabling institutions to quantify and disclose the carbon footprint of their investment and lending portfolios. As new approaches—such as Use of Proceeds–based methodologies and securitized financial products—continue to emerge, the scope of financed emissions accounting is expected to expand and become more comprehensive [29].

8.2 Preparing for the Future

The GHG Protocol and SBTi are expected to release revised standards by 2027, which will impose more stringent requirements on data quality and traceability [30]. Financial institutions should proactively review and upgrade their data management systems, strengthen engagement with clients and value-chain partners, and align internal decarbonization targets accordingly, in order to ensure timely compliance with forthcoming standards and to continuously enhance transparency while keeping pace with evolving international regulatory trends.

[1] [6] [7] [8] Chapter15.pdf

https://ghgprotocol.org/sites/default/files/2022-12/Chapter15.pdf

[2] Scope 3 Inventory Guidance | US EPA

https://www.epa.gov/climateleadership/scope-3-inventory-guidance

[3] [4] [28] [30] Key updates to GHG Protocol and SBTi: What companies need to know | Carbon Direct

https://www.carbon-direct.com/insights/key-updates-to-ghg-protocol-and-sbti-what-companies-need-to-know

[5] [9] Corporate Standard - Standard Devlopment Plan - 2024.12.20

https://ghgprotocol.org/sites/default/files/2025-01/CS-SDP-20241220.pdf

[10] [11] [12] [15] The Global GHG Accounting and Reporting Standard for the Financial Industry

https://carbonaccountingfinancials.com/files/downloads/PCAF-Global-GHG-Standard.pdf

[13] [14] [26] Financed Emissions: A Comprehensive Guide to Reporting

https://www.atlasmetrics.io/blog/financed-emissions

[16] [17] [27] PCAF-Disclosure-Checklist-Part-A-Financed-Emissions-May-2025.pdf

https://carbonaccountingfinancials.com/files/disclosure_checklist/PCAF-Disclosure-Checklist-Part-A-Financed-Emissions-May-2025.pdf

[18] [19] [20] [21] [22] [23] [24] [25] [29] Key Updates from PCAF: Enhancing Emissions Accounting for FIs

https://www.gc-insights.com/report/key-updates-from-pcaf:-enhancing-emissions-accounting-for-fis