What are financed emissions applicable to financial institutions?
Financed emissions are the greenhouse gas (GHG) emissions tied to the lending and investment activities of financial institutions. These emissions are indirect, falling under Scope 3, category 15 of the GHG Protocol, and reflect the environmental impact of the projects and companies that institutions finance.
Why do financed emissions matter?
Understanding financed emissions helps financial institutions measure their indirect contributions to climate change. By quantifying these emissions, institutions can:
- Comply with regulations like ISSB, GRI, and CSRD
- Align with global climate goals, such as the IEA NZE 2050 pathway
- Set meaningful environmental targets and track progress
- Prepare for the financial risks associated with climate change
How are financed emissions different from emission intensity?
Financed emissions measure the total amount of GHG emissions linked to an institution’s financial activities. Emission intensity, on the other hand, focuses on efficiency, calculating emissions relative to a specific metric, such as revenue or production output. Both metrics are important for understanding environmental impact but serve different purposes.
What challenges do financial institutions face in measuring financed emissions?
Measuring financed emissions comes with its own set of hurdles:
- Companies don’t always report accurate or complete emissions data
- Data quality is often inconsistent and may lack verification
- Industries have different reporting standards, making comparisons tricky
- Regulations and disclosure requirements are evolving rapidly, requiring constant updates
- Using manual or spreadsheet-based processes increases the risk of errors and makes auditing difficult
How can these challenges be addressed?
Financial institutions can tackle these issues by:
- Centralizing emissions data collection and validation
- Adopting standardized methodologies, such as those from the Partnership for Carbon Accounting Financials (PCAF)
- Using technology to streamline workflows, maintain audit trails, and improve transparency
- Continuously refining data processes to adapt to changing regulations
Why is benchmarking important in financed emissions?
Benchmarking allows financial institutions to compare their emissions performance against established pathways, such as the IEA NZE 2050. It provides a clear picture of how well their portfolios align with sustainability goals. Institutions can use benchmarking to set targets, monitor progress, and make informed investment or lending decisions.
How does OneSumX for ESG help with financed emissions?
OneSumX for ESG simplifies the complex process of measuring and reporting financed emissions. It offers:
- Tools to consolidate and validate emissions data from multiple sources
- Built-in templates aligned with industry standards, like PCAF
- The ability to analyze emissions at a detailed level, such as by contract or asset
- Features to benchmark performance against emissions reduction pathways
- Flexible integration with other reporting systems to streamline compliance
What are the benefits of getting financed emissions right?
When financial institutions measure and manage financed emissions effectively, they gain:
- Greater transparency and improved compliance with regulations
- A stronger ability to identify and mitigate climate-related risks
- Insights that support their clients’ transition to sustainable practices
- Progress toward achieving their net-zero commitments and aligning with stakeholder expectations
Understanding and addressing financed emissions isn’t just a regulatory requirement—it’s an opportunity for financial institutions to lead the way in sustainability and make a meaningful impact on the environment.