200 financials join forces in carbon accounting

Financial institutions are joining forces to achieve harmonised and transparent greenhouse gas (GHG) accounting.

Apartment buildings on the 'Zuidas', the Dutch financial district in Amsterdam. David Peperkamp

The financial industry's crucial role in facilitating the net zero carbon transition has been pointed out many times. Contrary to this, banks worldwide have invested $2 billion in the fossil fuel sector every day since the end of 2015, when the Paris Climate Agreement was signed.

But over that same period, more and more financial institutions have expressed their ambition to drive change and transition towards a low-carbon society.

As a first step towards a net zero carbon emission portfolio, financial institutions have to measure and disclose the emissions associated with their present lending and investment activities. For this, harmonised and transparent greenhouse gas (GHG) accounting is an imperative.

That is exactly what the Partnership for Carbon Accounting Financials (PCAF) aims to achieve. PCAF participants work together to jointly develop a global standard, the GHG Accounting and Reporting Standard for the Financial Industry.

According to the PCAF website 184 banks and investors have subscribed so far. In reality, PCAF’s Executive Director Giel Linthorst says, the number of commitments is already close to 200. “We grow on average by 10 financial institutions a month.”

An open network

In addition to banks, PCAF also focuses on investors, i.e. pension funds, asset owners and managers. In coming years the organisation plans to broaden its member base by attracting more insurance companies as well as private investment funds.

Moreover, the PCAF Standard is frequently used by financial institutions that are not formally committed to the organisation.

“We don’t mind that,” Linthorst emphasises. “It’s part of our theory of change that in the end the standard will be globally accepted, and embedded into regulation. If we achieve that, this initiative will not be necessary anymore.”

He adds: “We truly believe the financial sector can be held accountable by providing a transparent and comparable way to do emissions accounting. So we’ve created a really open network, a way of working together.”

This network connects experts working within financial institutions, “who struggle with these issues every day. And it really helps to work on solutions together and also with other stakeholders, like governments, to get access to better data.”

Global launch

PCAF was created in 2015 by a group of mainstream Dutch financial institutions, under the leadership of ASN Bank. Three years later it expanded to North America. Led by Amalgamated Bank, 12 financial institutions adapted the PCAF standard to the North American context.

In 2019 PCAF was launched globally, when leaders of 28 banks of the Global Alliance for Banking on Values decided to assess and disclose the GHG emissions of their loans and investments by using the PCAF approach. Since its start, the organisation has been managed and facilitated by Guidehouse, a global consultancy firm.

Last November, PCAF announced a collaboration with the Joint Impact Model (JIM), to make this new publicly accessible tool available to participating banks in developing countries. The JIM can be used to fill the gap in greenhouse gas emissions data for corporate lending portfolios in developing countries when real data is lacking or incomplete.

“PCAF provides the methodology for GHG accounting, while JIM is the tool for banks in developing countries applying the methodology,” Linthorst says. The combined approach will be tested by three banks in Q1 2022 before it is rolled out to other PCAF signatories in developing emerging markets.

It is obvious that more data is available in the US and Europe than in Africa. “But we always say that the main challenge is not the lack of data; it’s all about making it available. For instance, in the Netherlands financial institutions have started a collaboration with the national statistical office and grid operators.”

According to Linthorst, this approach is and will be copied by other countries. It helps them to get the anonymised data needed to decarbonise houses and other buildings in their portfolio.

Next kid on the block

Recently a sister organisation of PCAF was launched: the Partnership for Biodiversity Accounting Financials (PBAF), again an initiative of ASN Bank. “The next kid on the block for the financial sector,” according to Linthorst.

The new organisation builds on the methodology that was developed by PCAF. “Accounting for biodiversity still has to be developed globally, but this is very much needed looking at the loss of biodiversity across the world,” Linthorst says.

“By accounting, the financial sector can play a key role in mitigation of climate change and preventing more loss of biodiversity.”