Skip to content

Partnership for Carbon Accounting Financials Publishes Draft Global Carbon Accounting Standard

Partnership for Carbon Accounting Financials Publishes Draft Global Carbon Accounting Standard Background Decorative Image

On August 3, 2020, the Partnership for Carbon Accounting Financials (“PCAF”) released a draft standard outlining a proposed approach for global carbon accounting. This standard, the “Global Carbon Accounting Standard for the Financial Industry” (the “Standard”), is currently undergoing a stakeholder consultation period. PCAF is accepting feedback from financial institutions, policy makers, and other stakeholders until September 30, 2020. Comments may be submitted through PCAF’s online feedback survey. PCAF also presented a series of webinars to provide information on the draft Standard throughout September. The final version of the Standard is expected to be published in November 2020.1

PCAF is based upon the Paris Climate Agreement’s position that the global community should strive to limit global warming to 1.5°C above pre-industrial levels and that society should decarbonize and reach net zero emissions by 2050. The Standard is intended to help the financial sector facilitate a transition to decarbonization in line with the 1.5°C scenario by “standardiz[ing] the way financial institutions measure and disclose financed emissions and increas[ing] the number of financial institutions that commit to measuring and disclosing financed emissions.”

The Partnership for Carbon Accounting Financials

PCAF is a global partnership of banks and investors (collectively, “financial institutions”) that was founded in the Netherlands in 2015 as a response to the Paris Climate Summit. PCAF is led by a Steering Committee comprised largely of PCAF’s founding members, which include: ABN AMRO, Amalgamated Bank, ASN Bank, The Global Alliance for Banking on Values, Morgan Stanley, NMB Bank Limited, and Triodos Bank. Since its founding, PCAF’s membership has expanded to over 70 financial institutions and includes several types of banks, such as commercial, development, investment, and promotional banks, as well as insurance companies and asset owners and managers that collectively represent in financial assets. Recent additions to PCAF’s membership include Citi, Bank of America, and Morgan Stanley.

According to PCAF, inconsistencies in existing carbon accounting procedures impede comparability and accountability in the financial sector, undermining the process of disclosure, target-setting, strategy development and action to reduce greenhouse gas (“GHG”) emissions.2 The draft Standard was created to reduce these inconsistencies in carbon accounting, while also complementing the broad array of climate-related initiatives that currently exist, as demonstrated in Figure 1 below.3 The Standard specifically endorses the Task Force on Climate-related Financial Disclosures’ (“TCFD”) reporting and the science-based target setting methodology championed by the Science Based Targets initiative.4 PCAF’s endorsement of these quantified emission reduction targets in lending portfolios further encourages banks to reevaluate their capital allocation strategies, and may complicate GHG-intensive industries’ ability to access capital.

Partnership for Carbon Accounting Financials Publishes Draft Global Carbon Accounting Standard Table

For entities that desire a more active role in the PCAF process, participating institutions may also request to join PCAF’s “Core Team.” The Core Team is currently made up of ten to fifteen financial institutions that contributed to the development of the Standard and will refine the draft based on feedback received during the public consultation period.5 In addition, PCAF-participating institutions may also join regional implementation teams (focusing on Africa, Asia-Pacific, Europe, Latin America, and North America) that consider regional context, such as local financial products, and gather proxy data on the industries that operate in each region to facilitate reporting in the face of current data limitations, as discussed in more detail below. For example, the North American regional team has chosen to only include mortgages used for purchasing property in its “mortgage” asset class, considering loans for any other purpose to be “consumer loans.”6 It plans to create a seventh asset class covering consumer purpose lending, similar to the business loan asset class.allocation strategies, and may complicate GHG-intensive industries’ ability to access capital.

Draft Global Carbon Accounting Standard

The draft Standard sets forth an approach to assess and disclose GHG emissions resulting from “financed emissions”—the underlying emissions generated by the operations and entities in which a financial institution invests or to which it lends money.

Measurement and Attribution of GHG Emissions

The Standard provides detailed guidance on calculating and disclosing emissions for the following six asset classes: (1) listed equity and bonds; (2) business loans; (3) commercial real estate; (4) mortgages; (5) motor vehicle loans; and (6) project finance. All investments are eligible for assessment and the Standard does not focus on a particular industry.

The Standard expressly builds on the Greenhouse Gas Protocol (“GHG Protocol”),an initiative that works to establish standardized frameworks for measuring and managing GHG emissions from private and public sector operations, value chains, and mitigation actions. The Standard refines and expands the GHG Protocol’s accounting rules for Scope 3 emissions—generally, those indirect emissions from an entity’s value chain, not its own operations—for the “category 15 (investments)” grouping.

The Standard requires financial institutions to measure and report their GHG emissions using the “operational control” approach, meaning that financial institutions must include as part of their Scope 3 emissions assessment 100% of emissions associated with the operations over which the financial institution or one of its subsidiaries has control and the authority to implement operational policies. Under the Standard, financial institutions should measure and report these financed emissions for each of their asset classes annually, at a minimum. Consistent with the GHG Protocol, to minimize “double counting” of emissions that may occur when multiple financial institutions co-finance the same activity, GHG emissions are allocated proportionally to the financial institution’s lending or investment. The basic attribution rule requires financial institutions to calculate their portion of emissions using the ratio between the institution’s outstanding amount invested in the company and the value of the financed company. This ratio is called the “attribution factor.” An institution’s financed emissions for a particular company are then calculated by multiplying the attribution factor by the emissions of that company.

Data Availability & Portfolio Reviews 

The Standard recognizes that reliable data is not always available to calculate financed emissions, but takes the position that data limitations should not prevent financial institutions from accounting for financed emissions. To this end, the Standard encourages lenders and other investors to use proxy data, as needed, to first focus on the most carbon-intensive parts of their portfolios. This proxy data is generated using region and sector-specific average emission factors for different activities. The five regional teams described above work to source or develop this proxy data for their respective regions. To improve data quality, the Standard also provides guidance and data quality scoring for each asset class.

Disclosure of GHG Emissions

PCAF explains that the lack of a standard method for measuring and reporting financed emissions has historically deterred financial institutions from accounting for these emissions and, where financed emissions were accounted for, led to inconsistent disclosures across financial institutions.8 The Standard is intended to increase ease of reporting for financial institutions and address perceived inconsistencies in current GHG reporting that prevented institutions and stakeholders from readily comparing the GHG impacts associated with individual financial institutions. To this end, the Standard’s reporting guidelines are intended build upon and complement existing frameworks including: the TCFD; Global Reporting Initiative (“GRI”), Sustainable Accounting Standards Board (“SASB”), Generally Accepted Accounting Principles (“GAAP”), International Financial Reporting Standards (“IFRS”), and the GHG Protocol.

Participating financial institutions are asked to follow the requirements and guidelines listed in the Standard addressing reporting methodology, calculations, timeframes, and data quality concerns. The Standard prescribes a minimum disclosure level, and participating financial institutions that do not meet these minimum reporting requirements must provide an explanation for any reporting deficiency. 

Implications for the Transition to Low-Carbon Economy

PCAF’s ultimate goal is “[t]o trigger changes in capital flows and signals for all sectors.”10 The draft Standard is based on the idea that widespread adoption of standardized carbon accounting and disclosure guidelines should facilitate stakeholders’ understanding of how financial institutions’ loans and investments align with a transition to a low-carbon economy.11 PCAF hopes that the guidelines in its Standard, once finalized, will encourage financial institutions to increase their GHG emissions disclosures and ultimately shift their portfolios towards lower-emissions investments and financial products.12  

Perhaps the most ambitious low-carbon transition target announced by a US-based PCAF-participant to date has been Morgan Stanley’s recent commitment to reach net-zero financed emissions by 2050.13 Morgan Stanley highlighted its participation in PCAF and its aspirations for a leadership role in advancing financed emissions capacity building as key to its net-zero target efforts. The firm committed to helping its clients find solutions to emission-reduction challenges while acknowledging that its initial financed emissions reduction targets would only be set “[o]nce consistent, robust and comparable metrics and methodologies are available.”14

Other PCAF-participating institutions appear to be using PCAF guidelines to develop financial products that incentivize clients to engage in low-carbon solutions. Examples include: Triodos Bank’s development of a dedicated financial product for home owners that offers a lower interest rate when the energy efficiency of the house is improved; ABN AMRO’s development of tools to track CO2 emissions in real estate to support clients’ sustainability efforts.  Beneficial State Bank’s calculation of emissions from consumer vehicle loans and creation of financial products that incentivize clients to purchase low-emitting vehicles.15 The ultimate prospects for, and significance of, these and other initiatives announced by PCAF-participants remains to be seen.

PCAF’s online survey solicits feedback on many aspects of the draft Standard, including asset class definitions, methods of calculating the attribution factor for each asset class, certain exceptions to asset-specific attribution rules, and the potential to add correction factors to attribution calculations due to market price fluctuations. Further changes to the attribution rules may occur in the final standard, depending on feedback received during public consultation.

Importantly, the draft Standard is complex, and it appears to contain implicit policy choices that go beyond merely framing an ostensibly “consistent” and “clear” methodology to improve transparency and comparability. While the draft Standard is rigorous in its attribution/proportionality rules for listed equity and bonds, business loans, and commercial real estate—where a financial institution need only report its proportionate share of Scope 3 emissions for these categories—the rules look different for residential mortgages and consumer motor vehicle loans, for which the relevant financial institution must report 100% of those emissions despite having a less than 100% interest in the underlying asset. For example, the draft Standard would apparently treat the exact same emissions from the exact same motor vehicle differently, for reporting purposes, depending on whether it was part of a corporate fleet or used by an individual. While the draft Standard makes a technical case for these approaches, others may view it as a thumb on the capital allocation scale.

Companies and groups that have an interest in such issues may wish to closely scrutinize and comment on the implications of the various methodologies proposed in the draft Standard before it is finalized and widely adopted. Interested parties may access the full survey and provide feedback on the draft Standard here.

1 PCAF, The Global Carbon Accounting Standard for the Financial Industry: Draft version for public consultation 12 (Aug. 3, 2020) [“Standard”],

2 Standard at 7.

3 Standard at 11.

4 Standard at 6.

Global core team, PCAF,

PCAF North America, Harmonizing and implementing a carbon accounting approach for the financial sector in North America 26 (Oct 28, 2019),

7 Standard at 12.

8 Standard at 9.

Standard at 84.

10 Standard at 9.

11 Standard at 2 and 4.

12 About PCAF, PCAF, (“Measuring and disclosing the GHG emissions associated with the lending and investment activities of financial institutions is the foundation to create transparency and accountability, and to enable financial institutions to align their portfolio with the Paris Climate Agreement.”).

13 Press Release, Morgan Stanley, Morgan Stanley Announces Commitment to Reach Net-Zero Financed Emissions by 2050 (Sept. 21, 2020),

14 Id.

15 FAQs: How does PCAF make tangible impact in the real economy?, PCAF,

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.