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Financed emissions: The problem to solve

Financed emissions are the greenhouse gas (GHG) emissions linked to the investment and lending activities of financial institutions such as investment managers, banks and insurers.

Financed emissions are essentially the carbon footprint associated with the activities of the companies or assets financed by the investor, appropriately apportioned. Financed emissions comprise the emissions of all the companies in the investment portfolio, or lending book, apportioned based on how much of these companies’ activities are financed by the financing entity or investor. 
The scope 1, 2 and 3 emissions of a portfolio company or an asset, once apportioned appropriately, constitute the financed emissions (Scope 3, category 15) of the company that has made the investment in that portfolio company or asset. 

Why should they be measured? 

For financial institutions, there are three key drivers behind the need to measure financed emissions:  

  • Business opportunities – value creation & risk management 
  • Protecting reputation and meeting stakeholder expectations 
  • Increasing regulatory requirements 

What are the challenges to measuring them? 

The key challenges for financial institutions, when measuring their financed emissions, include: 

  • Lack of internal resources 
  • Complicated fund structures making it onerous to access data 
  • Difficulty in assessing the data quality of disclosures received from their asset managers or investees 

Pathzero Navigator provides an easy, quick and intuitive platform to measure financed emissions. 

How are they measured? 
The foremost global approach for how to measure financed emissions was published by the Partnership for Carbon Accounting Financials (PCAF), which is explained in more detail in this article

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