PCAF: how to measure financed emissions in financial services

What PCAF is

PCAF, the Partnership for Carbon Accounting Financials, is a global initiative led by financial institutions to develop and implement a methodological standard for assessing and disclosing the greenhouse gas emissions associated with their lending and investment, the so-called financed emissions. Created in 2015 in the Netherlands by a group of banks, PCAF gained international traction quickly. More than 400 financial institutions worldwide, representing trillions of dollars in assets, now use its methodology to quantify the climate impact of their portfolios. That standardised approach is what makes it possible to compare and aggregate data at global scale, giving a solid base for managing climate risks and opportunities.

Asset classes covered

PCAF's relevance rests on covering a broad range of financial activities, with specific guidance for calculating financed emissions in the main asset classes. That breadth allows a holistic view of an institution's portfolio.

• Listed equity and corporate bonds. For listed shares and corporate bonds, the methodology focuses on the equity stake or the slice of debt the institution holds in a company, relative to the company's total value (enterprise value). The emissions of the investee or borrower (Scopes 1, 2 and 3 where available) are allocated in proportion to that stake.

• Business loans. Corporate lending is treated much like corporate bonds, with emissions attributed on the basis of the loan relative to the borrower's enterprise value.

• Project finance. This category covers lending to specific projects, such as power plants, infrastructure or property developments. Here emissions are attributed directly to the GHGs generated by the financed project's own operations. PCAF offers specific guidance, including the option of accounting for both the construction and the operating phase.

• Commercial real estate. For commercial property finance (office buildings, shopping centres), emissions are generally calculated from the energy use of the financed buildings, using consumption data, floor area and emission factors. The methodology can cover both operational emissions (from energy use) and embodied emissions (from construction and materials), though the latter are harder to measure.

• Mortgages. Residential property loans are accounted for much like commercial real estate, with adaptations for the residential segment. That usually involves estimates based on dwelling type, area, geography and energy consumption patterns, using property databases or sector estimates.

• Motor vehicle loans. For vehicle finance, emissions are attributed on the basis of the financed vehicles' use. That can involve calculating fuel combustion emissions, considering vehicle type (petrol, diesel, electric), average mileage and vehicle lifetime, using emission factors by fuel and vehicle type.

• Sovereign debt. The approach to sovereign debt is the most complex and still developing. PCAF currently recommends macroeconomic approaches, or approaches based on the debtor country's emissions relative to its public debt, though this category poses significant challenges in attributing emissions directly.

Covering these asset classes means the vast majority of an institution's lending and investment activity can be folded into the financed emissions calculation, giving a robust base for strategic sustainability decisions.

Emission attribution methodology

The backbone of PCAF is its attribution methodology, which establishes how the GHG emissions of a financed entity or asset are allocated in proportion to the share the financial institution holds or finances. The core logic is that the institution is responsible for a portion of its client's or project's emissions, in the same proportion as its participation in the financing or ownership.

The arithmetic is the same for every asset: financed emissions = attribution factor × the asset's emissions. The portfolio total is the sum, asset by asset.

The attribution factor is the key component. For most asset classes, particularly listed equity, corporate bonds and business loans:

attribution factor = amount financed or invested ÷ enterprise value

• Amount financed or invested: the institution's financial participation in the asset or entity (the market value of the shares held, the nominal value of the corporate loan or bond).
• Enterprise value (EV): the total value of the financed or invested company, calculated as market capitalisation plus net debt. Using enterprise value ensures that providers of equity and providers of debt share responsibility for the company's emissions in a way that reflects total risk and return more fairly.

For other asset classes the methodology adapts:

• Project finance: emissions are attributed on the basis of the institution's share of total project cost, or directly from project emissions where the institution is the sole or majority financier.
• Real estate (commercial and mortgages): emissions are calculated from the property's direct emissions (its Scopes 1 and 2) multiplied by the financing's percentage share of total property value.
• Motor vehicle loans: emissions are estimated from projected vehicle use (mileage, fuel consumption) and then attributed to the institution on the basis of the financing's share of total vehicle cost.

It is worth noting that PCAF emphasises using the Scope 1 and 2 emissions of the financed entities or assets, in line with operational responsibility. Scope 3 is treated as supplementary data, but its use is encouraged as data quality improves, given its importance in most value chains. Consistency in applying these attribution factors is what makes portfolios and institutions comparable.

Data quality scores (1 to 5)

Data quality is fundamental to the credibility of any emissions inventory, and PCAF recognises that through its data quality scores. The system grades the reliability of the data used in calculating financed emissions on a scale of 1 to 5, where 1 is the highest quality and 5 the lowest. The grade reflects the accuracy of the calculation and also tells institutions where to concentrate effort on improving their data.

• Score 1: verified or audited primary data. Data direct from the company or project, verified or audited by a third party. Examples include audited annual sustainability reports, independently verified GHG information, or data straight from certified meters for energy or other inputs. This is the ideal level, offering the highest confidence in accuracy.

• Score 2: reported primary data. Similar to Score 1, but the data has not been externally verified or audited. It is data supplied directly by the financed company, as disclosed in its own reports, without independent validation. Good quality, with a small margin of uncertainty compared with audited data.

• Score 3: modelled data with specific emission factors. Primary activity data is used (kWh of energy consumed, litres of fuel), but the emission factors converting that activity into GHGs are generic, specific to an industry or country rather than to the energy supplier or exact fuel type. That gives a good estimate, with some generalisation in the conversion factors.

• Score 4: predictive sector or geographic data. Here emissions data is based on proxies, sector estimates or averages for the industry, asset type or region, where no primary data is available. For example, estimating a building's emissions from its area, type and location using average energy consumption for similar buildings. Less precise, but still an estimate grounded in relevant data.

• Score 5: generalised proxies or broad estimates. The lowest data quality, where emissions are estimated from very general proxies, high-level and widely extrapolated estimates, or low-granularity databases. That can include applying average emission factors for an entire industrial sector without regard to sub-industry or exact operation. This level is used when no more precise information exists at all.

What this means for inventory quality. Assigning data quality scores lets institutions:

• Identify data gaps. See where collection is weak and which parts of the portfolio carry the greatest emissions uncertainty.
• Prioritise effort. Focus on improving data quality in the Score 4 and 5 categories, engaging clients to obtain primary data.
• Measure progress. Track data quality over time, towards a more robust emissions inventory.
• Adjust strategy. Understand that portfolios with a high proportion of Scores 4 and 5 rest on a less precise base for strategic decisions, calling for deeper client engagement.

By providing that structure, PCAF helps not only with measurement but with managing the uncertainty inherent in accounting for emissions across a complex financial portfolio.

The PCAF Brazil chapter

Brazil, with a robust financial market and a growing sustainability agenda, has shown significant interest in PCAF. PCAF Brasil was formally established in 2021 under the auspices of Febraban, the Brazilian banking federation, to adapt and promote the global methodology in the context of the Brazilian financial market. The initiative aims at standardisation and at strengthening local institutions' capacity to measure financed emissions.

The adaptations for the Brazilian market include:

• Regional emission factors. PCAF Brasil works on identifying and recommending emission factors specific to Brazil, taking into account the local power mix, industry characteristics and consumption patterns. That is decisive for agriculture and livestock, for instance, given their weight in the country and the specific factors for cattle, crops and land use.
• Local activity data. Encouraging the collection and use of activity data relevant to the Brazilian context, such as electricity consumption from renewable sources or energy performance data for buildings adapted to a tropical climate.
• Engagement with regulators. PCAF Brasil has been in dialogue with Brazil's central bank and other regulators to align the PCAF methodology with expectations and future requirements.

Against that backdrop, central bank Resolution 4,945, which governs the social, environmental and climate responsibility policy of financial institutions, is a key regulatory milestone. It does not mention PCAF explicitly, but it requires institutions to implement systems for managing social, environmental and climate risk, which naturally implies measuring and monitoring the climate impact of their portfolios. PCAF fits neatly as a tool for that demand, providing the methodology to quantify the climate dimension of risk. Being able to report financed emissions in a standardised way becomes a competitive differentiator and an indicator of compliance. PCAF, then, works as a practical enabler for implementing regulatory guidance and demonstrating commitment to the climate agenda in a local context.

The PCAF page tracks revisions to the methodology.

Relationship with the Net-Zero Banking Alliance and CDP

Adopting PCAF goes beyond an internal measurement practice; it is an integrating component of global climate commitments and disclosure requirements. The PCAF methodology is widely recognised and expected by other initiatives and frameworks, which amplifies its importance for financial institutions.

• Net-Zero Banking Alliance (NZBA). The NZBA is a UN-led initiative bringing together banks committed to aligning their lending and investment portfolios with net-zero pathways by 2050. A fundamental requirement for members is setting science-based targets, and for those targets to be credible and measurable, quantifying financed emissions is essential. The NZBA explicitly endorses and, across much of its guidance, recommends PCAF as the standard methodology for calculating signatory banks' financed emissions. For any bank in or aspiring to the NZBA, implementing PCAF is not an option but an operational necessity to meet its obligations and show progress against decarbonisation targets. The consistency PCAF provides lets banks compare performance, identify the biggest emission drivers in their portfolios and set reduction targets on a common basis.

• CDP (Carbon Disclosure Project). CDP is a global environmental disclosure platform collecting information from thousands of companies worldwide. Its financial services questionnaire has evolved to require more detailed data on financed emissions. In the sections on climate strategy and management for financial institutions, specific questions expect respondents to disclose their Scope 3 Category 15 (investments) emissions and to describe the methodology used. In many cases the CDP Financial Services questionnaire requires PCAF-compliant data, or expects the PCAF methodology to be the basis for disclosing financed emissions. That is because CDP seeks standardised, comparable data, and PCAF supplies exactly that. Institutions already using PCAF are better prepared to answer the questionnaire, raising their disclosure score and strengthening their standing with investors and stakeholders who use CDP data in their analysis. The integration between PCAF and CDP is natural, because both aim at transparency and standardisation in climate-related disclosure.

Taken together, adopting PCAF is not an isolated good practice but an essential bridge to meeting global commitments and reporting effectively on high-impact disclosure platforms, consolidating a financial institution's leadership on the sustainability agenda.

The CDP page details the financial services questionnaire.

How Mangue Tech helps banks and asset managers

Implementing PCAF and calculating financed emissions is complex work, demanding technical expertise, access to data and robust analytical tools. That is where Mangue Tech positions itself as a strategic partner for banks and asset managers, with specialised solutions to simplify and streamline the process.

Mangue Tech understands the challenges of collecting data from multiple sources, applying the PCAF methodology across several asset classes, and producing accurate, auditable reports. Our solutions are built for those specific financial sector needs, securing compliance, accuracy and efficiency.

Our work rests on three pillars:

1. Calculating financed emissions by portfolio.
   1. We build algorithms and models that apply the PCAF methodology automatically across your whole asset portfolio, covering listed equity and corporate bonds, business loans, project finance, commercial real estate, mortgages, motor vehicle loans and sovereign debt.
   2. Our platform processes large volumes of data from multiple financial instruments, attributing emissions correctly under PCAF guidance, even in complex and diversified portfolios.
   3. We provide detailed emissions analysis by asset class, sector, geography and client type, giving a clear view of the main carbon drivers in your book.

1. Integration with corporate emissions databases.
   1. Data quality is fundamental, and Mangue Tech makes integration with the main global and local corporate emissions databases straightforward. That includes data from companies reporting through CDP, SASB and GRI, as well as public data straight from sustainability reports.
   2. Where primary data is unavailable (data quality scores 4 and 5), we use sector databases and emission factors specific to the Brazilian and global context, following PCAF recommendations, to produce robust estimates.
   3. Our solution helps track and manage data quality scores, identifying gaps and prioritising client engagement to obtain more precise information.

1. PCAF-compliant reporting and disclosure support.
   1. We produce financed emissions reports fully compatible with PCAF requirements and formats, making transparent, standardised disclosure straightforward.
   2. We support the preparation of the data and information needed to answer high-impact sustainability questionnaires such as CDP Financial Services, so your disclosures accurately reflect your PCAF-based climate performance.
   3. Our reports can include scenario analysis, emission reduction projections and alignment with net-zero targets, supporting communication with stakeholders, regulators and investors.

Partnering with Mangue Tech lets banks and asset managers turn the challenge of measuring financed emissions into an opportunity to strengthen their sustainability strategy, meet regulatory requirements (such as central bank Resolution 4,945) and demonstrate leadership in an increasingly climate-conscious financial market. We make the path to precise, transparent, strategic measurement of your financed emissions easier.

See the financial services view.