Can I measure financed emissions with Trace?

The simple answer is YES. Trace can help you measure emissions from any of the 15 categories in the GHG Protocol.

However, due to the complexity and breadth of the data required to measure financed emissions, the Trace team will recommend which methodology to deploy and will input the activity data for you and publish the emissions in the Trace MEASURE dashboard.

Financed emissions methodologies

The calculation of financed emissions involves assessing greenhouse gas (GHG) emissions associated with capital (debt or equity) invested by the reporting company. 

Two widely used frameworks are the GHG Protocol and the Partnership for Carbon Accounting Financials (PCAF). Each methodology provides distinct approaches, asset class coverage, and data requirements for emissions reporting.

Please talk to our Sustainability team about what data we require to measure your financed emissions.

GHG Protocol Methodology

The GHG Protocol provides general guidance for calculating GHG emissions, including Scope 1, Scope 2, and Scope 3. It outlines the framework for financial institutions to estimate emissions from their investments and lending portfolios under Scope 3, Category 15 (Investments).

Asset Classes/Financial Products Covered

The GHG Protocol focuses on investments and financial products under Scope 3, Category 15:

1. Debt investments
2. Equity investments
3. Project finance
4. Real estate investments
5. Corporate bonds
6. Mortgages

Data Requirements

• Reported Data: Actual Scope 1, Scope 2, and Scope 3 emissions disclosed by investees.
• Economic Metrics: Financial metrics such as revenue or total investment value to allocate emissions.
• Emission Factors: Industry or region-specific factors to estimate emissions for activities or economic contributions.

PCAF Methodology

Link to Standards here. PCAF offers a sector-specific, standardized framework to calculate financed emissions across asset classes. It emphasizes transparency, comparability, and the improvement of data quality over time.

There are 3 Parts to the Standards:

1. Financed Emissions - Banks Investors etc

2. Facilitated Emissions - Relevant for Capital Market Issuances

3. Insured Emissions - Re/Insurance Underwriters

Asset Classes/Financial Products Covered

PCAF covers a wide range of asset classes, including:

• Business loans and unlisted equity
• Project finance
• Listed equity and corporate bonds
• Mortgages
• Motor vehicle loans
• Commercial real estate loans
• Sovereign bonds

Asset class exclusions: Managed Funds

Trace does not measure the emissions derived from investments into funds where fund emissions cannot be provided by the fund manager.

Current Challenges in Measuring Emissions for Managed Funds:

• Lack of Transparency: Measuring emissions for managed funds is not feasible without “look-through” access to the underlying assets.
• PCAF Limitation: PCAF methodology explicitly notes it cannot currently address funds without access to their underlying holdings.
• High Uncertainty: Any attempt to estimate emissions without knowing the specific assets would rely on rough assumptions about typical holdings, leading to highly uncertain results.

Future Improvements - The Role of “Trickle-Up” Reporting:

• The consensus is that as more underlying assets report their emissions, this data will “trickle up” to funds holding those assets.
• Over time, this will enable funds to disclose emissions accurately, assuming widespread adoption of emissions reporting.

Interim Practices:

• Funds are considered “information black holes” without access to detailed holdings.
• If possible, collaborate with fund managers to gain look-through access or a detailed list of fund holdings for analysis.
• In line with carbon accounting principles, disclose available data transparently and clearly explain any limitations or gaps in reporting.