What Are Financed Emissions?
Financed emissions refer to the greenhouse gas (GHG) emissions associated with loans, investments, and financial services provided by banks and financial institutions. These emissions fall under:
- Scope 3, Category 15 (Investments) in the GHG Protocol
- The largest portion of many financial institutions’ total emissions footprint
- A key driver of climate risk exposure and regulatory scrutiny
By measuring and addressing financed emissions, banks can decarbonize their portfolios, meet stakeholder expectations, and support the global transition to a low-carbon economy.
Why Banks Must Address Financed Emissions
Managing financed emissions is no longer optional for financial institutions. Banks that fail to account for and reduce their financed emissions face:
- Regulatory pressure from climate disclosure mandates such as ISSB, TCFD, and CSRD
- Investor scrutiny demanding transparency in climate-aligned financial decision-making
- Reputation risks as customers and stakeholders seek sustainable banking solutions
- Financial risks associated with high-carbon investments and stranded asset exposure
Proactively addressing financed emissions allows banks to:
- Align with global net zero finance initiatives
- Enhance risk management strategies for climate-related financial risks
- Strengthen ESG ratings and sustainable finance credentials
- Support clients in their decarbonization journeys
Measuring Financed Emissions: The PCAF Methodology
The Partnership for Carbon Accounting Financials (PCAF) provides the industry-standard methodology for calculating financed emissions. Banks must:
- Identify relevant asset classes, including corporate loans, mortgages, project finance, and investments
- Collect and assess GHG emissions data from financed entities
- Apply PCAF’s attribution methodology to assign a proportional share of emissions to the financial institution
- Report emissions in line with global disclosure frameworks such as CDP, TCFD, and ISSB
By leveraging the PCAF framework, banks can ensure transparent and standardized carbon accounting for their financial portfolios.
Aligning with Net Zero Targets and SBTi-FI
The Science-Based Targets Initiative for Financial Institutions (SBTi-FI) provides banks with a structured approach to aligning financed emissions with 1.5°C climate targets. Banks can:
- Set science-based targets for portfolio decarbonization
- Engage with clients to reduce emissions in carbon-intensive sectors
- Shift capital towards sustainable finance and low-carbon investments
- Develop transition plans for high-emitting sectors, ensuring financial stability in a net zero economy
By setting SBTi-aligned targets, banks can demonstrate climate leadership while ensuring compliance with global regulatory expectations.
Decarbonization Strategies for Financial Institutions
Banks must take proactive steps to manage and reduce financed emissions through:
- 1 Climate-Aligned Portfolio Management
- Prioritizing green lending and sustainable finance
- Assessing climate risks in investment portfolios
- Implementing sector-specific carbon reduction strategies
- 2 Client Engagement and Support
- Assisting clients in decarbonizing their operations
- Encouraging businesses to adopt SBTi-aligned reduction targets
- Providing sustainability-linked financial products
- 3 Divestment from High-Carbon Assets
- Phasing out financing for coal, oil, and gas projects
- Redirecting investments towards renewable energy and clean technologies
- Aligning with climate-conscious investor expectations
- 4 Strengthening Climate Risk Assessments
- Conducting scenario analysis and stress testing for carbon risks
- Integrating climate risk metrics into credit assessments and risk management frameworks
- Complying with TCFD-aligned disclosure requirements
Regulatory Compliance and Climate Disclosures
Banks must align with evolving climate reporting requirements to ensure transparency and accountability. Key frameworks include:
- PCAF – Standardized methodology for calculating financed emissions
- SBTi-FI – Science-based decarbonization targets for financial institutions
- TCFD – Climate risk disclosures integrated into corporate governance
- CDP – Public reporting of financed emissions and climate impact assessments
At Clenergize, we support banks in navigating these complex frameworks, ensuring compliance with global ESG regulations and investor expectations.
How Clenergize Supports Banks in Managing Financed Emissions
At Clenergize, we offer end-to-end solutions to help banks measure, report, and reduce their financed emissions. Our services include:
- Financed Emissions Accounting
- Applying PCAF methodologies to assess portfolio-wide carbon footprints
- Identifying high-risk sectors and carbon-intensive investments
- SBTi Target Setting and Validation
- Developing science-based decarbonization targets for financial institutions
- Preparing banks for SBTi validation and approval
- Climate Risk Management and Scenario Analysis
- Conducting stress testing and transition risk assessments
- Aligning financial decision-making with climate risk mitigation
- Sustainable Finance Strategy Development
- Structuring green bonds, sustainability-linked loans, and climate finance products
- Supporting banks in climate-aligned investment planning
- Regulatory Compliance and ESG Reporting
- Aligning disclosures with TCFD, CDP, ISSB, and CSRD requirements
- Enhancing climate-related financial disclosures for investors and stakeholders
Why Choose Clenergize for Financed Emissions Management?
Banks must align with evolving climate reporting requirements to ensure transparency and accountability. Key frameworks include:
- Expertise in global climate finance frameworks, including PCAF and SBTi-FI
- Comprehensive carbon accounting and decarbonization strategy development
- End-to-end ESG compliance support for banks and financial institutions
- Industry-specific guidance for climate-aligned lending and investment
- Proven track record in integrating sustainable finance principles
With Clenergize, banks and financial institutions can effectively measure, manage, and reduce their financed emissions, ensuring compliance with global sustainability frameworks while driving climate-aligned financial growth.
