Communities are abuzz with conversations about climate change, and with good reason. The most severe weather of the last decade has cost the United States more than $400 billion in damages, with eighteen $1 billion+ storms in the last year alone.
As governments commit to reducing greenhouse gas (GHG) and carbon emissions by half or more in the next ten years, the impetus will be on businesses to prove they are doing their part. This includes financial institutions who, more and more, are being required to look beyond their immediate operations to quantify their financed emissions around the world. Programs like the Task Force on Climate-Related Financial Disclosures (TCFD) have built frameworks for voluntary climate-related financial risk disclosures.
The Partnership for Carbon Accounting Financials (PCAF) and CDP announced in December 2021 a collaboration to enhance the capacity of the financial industry to measure and disclose their financed emissions using the PCAF Global GHG Accounting and Reporting Standard for the Financial Industry.
If you’re responsible for your institution’s ESG reporting and carbon accounting, read on.
What is the PCAF?
One of the challenges in carbon accounting is that there has been a variety of methodologies used by industries all over the world. It’s a veritable alphabet soup of acronyms, which makes it very hard for those reviewing the data to know if they’re comparing apples to apples.
Harmonizing these numbers gets even more complicated when assessing the emissions associated with a financial institution’s loans and investments.
The PCAF Global GHG Accounting and Reporting Standard for the Financial Industry aims to harmonize the methodology for quantifying financed emissions. Being able to accurately measure these emissions is the first step for financial institutions to manage risk and identify opportunities for further GHG reductions within their larger business sphere.
What is the CDP?
The CDP, formerly the Climate Disclosure Project, is a not-for-profit organization that manages a global environmental disclosure system. It works with businesses, cities, states and financial institutions. Each year, the CDP takes the data provided in its reporting process and scores companies and cities based on their disclosures and environmental leadership.
With over twenty years of data, the CDP now includes participation of more than a quarter of all North American companies and cities who report on climate change, water stewardship, and forest protection.
What is the PCAF and CDP Collaboration?
The CDP’s research shows that a financial institution’s financed emissions can be as much as 700 times greater than their operational emissions. In order for these institutions to fully understand the risk posed by potential or existing investments, they need to be able to quantify and compare emissions data.
Working together, PCAF and CDP will help close a critical gap in carbon accounting in the financial industry. The collaboration will offer capacity building through workshops, reports and case studies. The aim of these supports is to help financial institutions to better understand their climate risks and opportunities.
Once data is collected from participating institutions, the CDP and PCAF will be able to provide a data quality score to reporting companies. This will further help identify areas for improvement, so the quality of reports can improve year over year to help financial institutions further reduce risk in the future.
How Can Financial Institutions Benefit from the PCAF and CDP Collaboration?
Financial institutions who have an established ESG program, or those looking to introduce carbon accounting into their decision making, will benefit from this collaboration in a number of ways. These include:
- Standardized accounting methodologies to better support risk analysis and areas for improvement
- Support from established partners to help financial institutions implement these accounting methodologies
- A better understanding of how financed emissions impact the global climate crisis
- A ranking of data quality and improvement over time so investors can confidently select climate-conscious business partners
Where to Start Assessing Your Financed Emissions
Financial institutions are reliant on the quality of their numbers, and assessing your financed emissions should be no different. You want to be able to report your carbon accounting confidently every year.
At the same time, you want to be able to compile and update your numbers easily using proven methodologies, resulting in high quality data that can be shared with investors.
FigBytes is a leading enterprise sustainability and ESG reporting software, and a CDP-accredited partner. Our software uses published and verified emission factors so that financial institutions can confidently report their financed emissions. Using FigBytes can streamline your reporting and support future audits with transparent and standardized methodologies.
*If you’re looking to improve the quality of your ESG reporting, or meet new disclosure requirements in your financed emissions carbon accounting, reach out to FigBytes today to speak with an expert.