Financed emissions are becoming an important topic for financial institutions trying to meet their climate goals. With regulations getting stricter and stakeholders asking for more transparency, getting a handle on financed emissions is essential.
We recently held a webinar on this topic where we talked about key regulations, the growing focus on climate risks, and why managing financed emissions matters for different industries. You can watch it On Demand here or have a read at our recap on the key highlights of the webinar here.
In this blog, we’ve compiled the most frequently asked questions about financed emissions. Aiming to help you, whether you’re just starting to track your portfolio’s carbon footprint or refining your reporting processes.
1. What are finance emissions, and why are they important?
Financed emissions are the greenhouse gas (GHG) emissions linked to a financial institution’s lending, investing, and underwriting activities. They matter because they highlight the indirect emissions that financial institutions can influence through their decisions.
2. What is the difference between Scope 1, Scope 2, and Scope 3 emissions, and where do finance emissions fit?
Scope 1 and Scope 2 emissions are direct emissions from a company’s operations and purchased energy. Scope 3 emissions include all other indirect emissions in a company’s value chain, which for financial institutions often includes finance emissions. Discover more resources on Scope 1-3 emissions.
3. How can financial institutions accurately measure finance emissions?
This usually involves collecting primary emissions data from portfolio companies and following frameworks such as the GHG Protocol and PCAF (Partnership for Carbon Accounting Financials) to ensure consistency and accuracy.
Accurate measurement is key to managing emissions effectively. Using tools like our Sustainability Cloud makes it easier to collect data, streamline reporting, and stay on track.
4. What are the main challenges in measuring and managing finance emissions, and how can they be addressed?
Common challenges include incomplete or inconsistent data and difficulties in engaging portfolio companies. Solutions involve prioritizing primary data, using standardized frameworks, and engaging with portfolio companies to improve data quality.
Integrating advanced technology, like our Sustainability Cloud, into your sustainability strategy can save time and improve accuracy.
5. What are Science-Based Targets (SBTs), and how do they apply to finance emissions?
Science-based targets (SBTs) provide a pathway for companies to reduce GHG emissions in accordance with climate science. Financial institutions can set SBTs that align their portfolio emissions with the goals of the Paris Agreement.
6. How do regulatory trends impact finance emissions reporting?
Regulators worldwide are stepping up their demands for climate disclosures. Financial institutions need to be ready to comply with rules like the EU Taxonomy and US SEC proposals, which encourage transparency and a push toward greener portfolios.
7. What are some key regulatory frameworks influencing financed emissions and climate disclosures?
Important frameworks include the EU Taxonomy, SFDR, and the TCFD (Task Force on Climate-related Financial Disclosures). Stay on top of key frameworks and standards.
8. What steps should financial institutions take to engage portfolio companies in GHG emissions reporting?
Start by educating them on why emissions reporting matters, offering clear guidance, and setting up standardized reporting processes. Engaging portfolio companies isn’t always easy, but our advisory services can help you create strategies that drive collaboration and better data collection.
9. How can finance emissions data be used for climate-related risk management?
Finance emissions data can help financial institutions understand their exposure to climate-related risks, such as transition risks, regulatory changes, and reputational risks. This allows them to make more informed lending and investment decisions.
Our Sustainability Cloud and advisory services are designed to simplify your journey. Whether you’re tackling data challenges, aligning with regulatory frameworks, or developing a long-term climate strategy, we’re here to help.
Ready to take the next step? Connect with our team to learn how we can support your financed emissions management goals.
