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PCAF explained: The standard to measure financed emissions

PCAF explained – what it is, how it works, and how the quality of data is measured and reflected in the results displayed.

What is PCAF and why is it important? 

It is critical for investors to play an active role in the decarbonisation of the economy by sending clear signal to investees on the importance of decarbonising their activities if they want to have good access to finance. Communicating financed emissions in a standardised way is a critical enabler allowing investors to play this role. 

The leading global standard for measuring and reporting financed emissions comes from the Partnership for Carbon Accounting Financials (PCAF), a partnership formed by major European financial institutions in 2015, also known as the PCAF Standard. It is aligned with the Greenhouse Gas Protocol, adding precision to ‘Category 15: Investments’ emissions in the protocol. 

The PCAF Standard lays out the data and equations to be used in calculating financed emissions across different asset types. The Standard also uses a data quality score to show the accuracy of the calculation based on the data used – for example whether it is based on estimated or reported data. 

The PCAF methodology underpins the way that Pathzero Navigator calculates financed emissions. 

Find out more about PCAF. 

General approach to calculate financed emissions using PCAF

The PCAF Standard uses the below general approach to calculating financed emissions: 

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Source: https://carbonaccountingfinancials.com/  

Generally speaking, the calculation is broken down into two main parts – calculating the emissions of the investee company, and then apportioning the right amount to the investor or lender based on how much of that company it has financed.  

Calculating estimates for the emissions of the investee company can be done using sector-based standard estimates or using reported data from that investee company. The fact that these are estimates of greater or lower accuracy is transparently disclosed through the use of PCAF scores.

Calculating the proportionate share of those emissions that are attributable to the investor or lender uses an attribution factor. The attribution factor calculates how much of the investee company (and therefore how much of its emissions) has been financed by the investor or lender. 

PCAF data quality score 

PCAF uses five-step data quality scale, enabling firms to report a quality score from 1 to 5.  

A score of 1 reflects the best quality data and means that the investee company has performed an emissions calculation that has been verified by a third-party auditor.   

A score of 5 is the lowest and estimates the emissions of the investee company based on sector and region averages or benchmarks.  

Source: https://carbonaccountingfinancials.com/ 
The exact data required to achieve each score of 1-5 in each asset type differs and is captured in another explanatory article for score 5 to 4 here and score 2 or 1 here. However, at a high level, the type of data required to achieve each PCAF data quality score of 1-5 is shown below: 

PCAF Score 

Type of data required 

Detailed calculated emissions, based on the Greenhouse Gas Protocol, that have been verified by a third-party auditor 

Detailed calculated emissions, based on the Greenhouse Gas Protocol, not verified by a third-party auditor 

Production-based data. For example, tonnes of steel produced 

Economic data – such as revenue, company value and the amount lent/invested 

Economic data – such as the amount lent/invested  

Reported data (%) 

This value represents the percentage of data used in the calculation that was reported directly by the investee company. A value of 100% means the calculation is entirely based on company reported data. A value of 0% means the calculation is entirely based on estimated data derived from physical or economic activity. Reporting can be done at the 21 emissions category level (as defined in the Greenhouse Gas protocol) or at the emissions scope level (1, 2, 3).  Learn more about how to enter actual emissions to gain a PCAF 1 or 2 on Pathzero Navigator. 

Please note that reported emissions percentages are calculated based on gross emissions, which means that PCAF data score 5 calculations are not included in these percentages (as PCAF 5 calculations only relate to financed emissions). Collections containing any assets reporting at a PCAF data quality 5 score may display a greater proportion of reported data than is reflected in the overall weighted PCAF score.

Learn more about Improving data quality from PCAF 5 to 1.

If you need more help, please contact us at support@pathzero.com.