Businesses are not only driven to decarbonize their operations but also have to consider indirect climate impacts from financing and investments as the urgency of climate rises all around. Those are called financed emissions—the GHG emissions associated with loans, investments, and other financial products. With increasingly stringent pressure from regulators, investors, and universal ESG benchmarks, managing financed emissions is now a necessity and not an option.
This post discusses what financed emissions are, why they’re important, and how firms—in particular, financial institutions—should measure and report them.
Financed emissions are indirect Scope 3 emissions associated with assets a financial institution has supported—including equities, bonds, or project finance. For instance, if a coal plant is financed by a bank, the carbon emissions of the plant are considered partially the financed emissions of the bank.
A significant portion of a bank’s greenhouse gas (GHG) emissions arises from the companies they finance. Studies indicate that Investment-linked emissions can represent at least 95% of a bank’s total carbon footprint, often overshadowing emissions from their own operations.
A CDP report from 2023 revealed that Investment-linked emissions are more than 700 times the size of a bank’s operating emissions.
60 of the world’s largest banks together financed activities that were worth $4.6 trillion of fossil fuel growth between 2016–2022 (Rainforest Action Network).
BlackRock’s financed emissions carbon footprint is approximately over 330 million metric tons of CO₂e—larger than the emissions of Poland as a whole.
These figures reveal the disproportionate contribution of financial flows to global carbon pollution.
Discounting Investment-linked emissions dilutes ESG credibility for firms that are pursuing net-zero emissions. Important reasons are:
Laws like the SEC’s climate disclosure regulation and the EU’s SFDR require more transparency on climate risks.
Institutional investors are increasingly requiring full-scope emissions reporting. The 86 members of the Net-Zero Asset Owner Alliance (NZAOA), for instance, are required to decarbonize their operating and financial emissions by 2050.
Reputational damage and charges of greenwashing may result from failing to disclose and address funded emissions.
Banking institutions secondarily finance some of the most carbon-heavy industries in the world:
PCAF provides the default method, which enables consistent carbon accounting. The process includes:
This is based on how much of a business a financial institution has invested overall.
PCAF offers data quality scoring between 1 (best quality) and 5 (estimated or proxy).
Various techniques are employed for:
Example: If Bank A finances $10 million in a $100 million oil project with 1 million tons of CO₂e emissions, then Bank A reports 10% or 100,000 tons of CO₂e as financed emissions.
At Clenergize , we offer a full range of AI-driven ESG solutions that assist banks, asset managers, and companies:
Our platform consumes investment and loan portfolio data and runs PCAF-compliant methodologies to automate tracking of financed emissions.
We provide real-time benchmarking against guidelines such as SBTi Financial Sector Guidance, NZAOA, and GFANZ.
Clenergize ESG+™ facilitates:
Our dashboards are connected to ISSB, CDP, and TPI frameworks for transparent stakeholder disclosures.
As climate finance frameworks mature, anticipate:
Financed emissions are the elephant in the room for financial institutions to achieve net-zero. With improving data quality and harmonization of standards, companies now have the tools required to quantify, manage, and decrease the carbon footprint of their capital.
With Clenergize ESG+™, we enable institutions to align capital with climate objectives.
Need to climate-align your investment portfolio? Reach out to Clenergize today to measure and lower your financed emissions.
