Since 2015, more and more financial institutions have voluntarily started reporting on their financed emissions – thereby providing insight into their indirect climate impacts and ambitions to take climate action. Almost all of these institutions have done so based on the standards of the Partnership Carbon Accounting Financials (PCAF). As of this year, these institutions will need to take these standards more seriously, as the Corporate Sustainability Reporting Directive (CSRD) and corresponding European Sustainability Reporting Standards (ESRS) will require them to report on this.
The foundations of PCAF have been laid by ASN Bank, the socially responsible label of the Volksbank (Dutch bank). In 2015, thirteen other Dutch financial institutions vowed to also use their developed methodology to start tracking financed emissions – thereby creating PCAF. Over time, the partnership has grown to over 500 members and became the global leading reporting standard on financed emissions.
In parallel, the standard has grown to cover more asset classes, increasingly included more requirements, and has become more and more intertwined with other (voluntary) frameworks, such as the GRI Standards and GHG Protocol. Nevertheless, many institutions (especially the earlier adopters of PCAF) have continued to perceive PCAF as a voluntary framework that they could adopt partially and/or could make their own adaptations to.
With the introduction of the CSRD, reporting on financed emissions has become mandatory for most financial institutions, as financed emissions are generally one of their material impacts. Within the context of the CSRD, these are part of scope 3 GHG emissions under E1-6 (‘Gross Scopes 1, 2, 3 and Total GHG emissions’). Financed emissions are part of category 15 (‘Investments’) of the GHG Protocol, to which this standard refers. In addition, Application Requirement (AR) 46 to E1-6 explicitly states that financial institutions shall consider PCAF for their reporting under this standard. As almost all financial institutions have applied PCAF in the past, stakeholders will expect PCAF to be applied in their CSRD sustainability statements. The ESRS also require information to meet the qualitative characteristics of information (ESRS 1 Appendix B), among other things to enhance comparability. As such, there is an expectation that all financial institutions will apply PCAF in this respect and will ensure that the information is as comparable as possible.
Within this changed context, there is less room for financial institutions to continue to only adopt partially and/or make their own adaptations to the PCAF methodology. PCAF-prescribed elements (those that under the PCAF standard ‘shall’ be reported) and that we have often found to be missing, include for instance:
- disclosing absolute scope 3 emissions of loans and investments (for selected sectors);
- setting and applying a baseline recalculation policy; and
- the use of the most recent or otherwise appropriate data available to them.
One of the most noticeable and impactful adaptations that we encounter, is changing the allocation factor on the carbon footprint of residential mortgages; this changes from being based on the valuation at origination, to the latest valuation available to them. The latter typically results in a significantly lower carbon footprint due to rise in housing prices over recent years.
Because of the above, we expect that financial institutions will start to apply PCAF as consistently and complete as possible, at a minimum meeting all PCAF requirements that are included in the standard with ‘shall’.
Contact us
Tristan Helsloot
Partner, Sustainability Reporting and Assurance
KPMG in the Netherlands
Gerard de Weerdt
Senior Manager, Sustainability Reporting and Assurance
KPMG in the Netherlands
Vais Kargar
Manager, Sustainability Reporting and Assurance
KPMG in the Netherlands
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