Introduction to Financed Emissions
This article provides an overview of financed emissions. To learn how to measure your financed emissions in the Gravity platform, read this article.
Recall that Scope 3 emissions are the emissions from an organization’s value chain partners (read more about Scopes here). A special kind of Scope 3 emissions specific to financial organizations are financed emissions – in short, the emissions from the companies they own or lend to.
Organizations such as banks and asset managers and owners produce greenhouse gas emissions themselves, but they’re also responsible for a portion of the emissions of their portfolio companies. And since these “financed emissions” can be up to 700 times greater than the emissions of the financial institution itself, it’s important to understand how to account for them.
Gravity supports the calculation of financed emissions; we follow the state-of-the-art methodology for classifying and measuring financed emissions – the Partnership for Carbon Accounting Financials, or PCAF. The PCAF guidelines are specific to individual asset classes (e.g., loans, project finance, etc.), but they share a common rough structure.
A financial institution first measures the emissions of its portfolio companies. They then multiply those emissions by a proportion representing the financial institution’s responsibility over these companies (e.g., a PE firm’s equity stake in a portfolio company). Finally, they include this number as part of their Scope 3 emissions.
In the platform, you’ll see a Financed Emissions section in the broader Value Chain section on the Measure page. Read this article to learn how to add assets and measure your financed emissions.