Financial institutions running their first greenhouse gas inventory typically find that office buildings and travel together account for under one percent of the total. The rest is financed emissions — the emissions of the activities they lend to or invest in — reported under Scope 3 Category 15.
The underlying principle
The PCAF methodology allocates a borrower's or investee's emissions in proportion to the institution's financing against total enterprise value. That multiplier, the attribution factor, generates the most questions in practice, because enterprise value for unlisted companies is not readily available.
Data quality scoring is the heart of it
PCAF defines a five-level data quality scale, from level 1 — verified reported emissions from the borrower — down to level 5, estimated from loan size and sector averages.
The important point: an institution does not need to reach level 1 across the portfolio. What it must do is report data quality transparently and show an improvement plan where it is material. Verifiers pay more attention to consistency of scoring than to the scores themselves.
What causes problems in practice
- Inconsistent borrower sector classification. Lending systems accumulated over years often carry stale or incomplete industry codes, which directly drives emission factor selection.
- Mismatched cut-off dates. Loan balances at year end sit against borrower emissions data that is usually a year older; the difference must be disclosed.
- Double counting in syndicated facilities. Multi-lender arrangements need a consistent allocation basis.
- Handling restatements. When a borrower restates its own emissions, the institution needs a stated policy on whether and when it restates in turn.
Why verification matters particularly here
Financed emissions figures underpin publicly announced reduction targets and influence credit allocation at policy level. When most of the underlying data is estimated, credibility does not rest on numerical precision — it rests on the rigour and consistency of the method, which is exactly what independent verification can test.
This article is published for general information and does not constitute professional advice on any specific matter. To discuss your organisation’s situation, please contact our team.
