WEBVTT

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As we move through the agenda, we will start.

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First, please move to the next slide. We start with the use of precise structures methodology, which is a methodology that allows, uh.

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financial institutions to account for the specific investments in.

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through use of procedures structures. both sections, because after that, we will do Q&A, and we'll have another section on finance the Void Admissions and forward-looking Metrics.

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Both of these sections take about 45 minutes, which is 30-35 minutes of presentations, and 10-15 minutes of Q&A.

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So please, as we go through the presentations, you can already post your questions in the Q&A function of this meeting.

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And then we'll try to address as many as possible.

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And then the second half of the meeting, we focus on finance, devoid of emissions and forward-looking metrics.

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Uh, the two speakers of today that are with me here.

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There are some Europees, uh… working for FMO, but he was also co-chairing, together with Samuel Mary from PIMCO.

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The two working groups that developed the methodologies that we're going to discuss today.

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And my name is Kasper Nowak, I'm PKF's Technical Director, which means that from the Secretariat side, I'm overseeing the standard development.

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together with our core team, and to ensure that it runs in line with our governance process, and that the methodologies that we develop and bring to market.

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are technically sound. So, without further ado, I want to hand over to Sam.

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Uh, to tell you more about the use of precise structures methodology.

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Thanks, Cusper. Thanks, Casper. I, uh… yeah, thanks. Let's, uh, start… With the overview, I don't see myself, but uh… Um, thanks. With the use of proceeds accounting, and the reason why we looked into, um.

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the… developing these new methods. So, user proceeds accounting allows financial institutions to account for the specific assets being financed.

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Um, the main additions to Part A is the addition of a new asset class titled User Proceed Structures.

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But I also wanted to highlight a new subsection in the project finance asset class called Accounting for Projects Without a Separate Benance Sheet.

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And together, these additions aim to further implement the Follow-the-money approach for greenhouse gas accounting.

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Which means that the money should be followed as far as possible to understand and account for the climate impact in the real economy.

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Next slide, please.

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So let's dive into the, um, user perceived structures method.

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Um, so, this method contains… includes all on balance sheet debt and equity to user perceived structures.

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Which are structures that contain a pool of one or multiple underlying assets.

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Um, and I just, uh, wanted to briefly check, is it possible that I can see myself on screen and the video, um, customer, or not?

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We see you all very well, so I'm sorry, it's good.

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Or do you see me on the video? Okay, alright, thanks. Great.

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Um… so, yeah, let's… what are… so what are user-precedent structures? These are structures that contain a pool of one or multiple underlying assets.

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In the next slide, I will look into… I will go a bit more deeply into the scope of what the method entails, but to give you already an idea.

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Use of procedure structures are equity funds, debt funds.

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green bonds, green loans, so quite a variety of different structures.

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And because it is a wide variety of different structures, we also have to use quite general terms.

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And in the diagram that you see below, I will explain some of these terms that we were using.

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So let's first look at the term investor. So, investor is the term used to… for a financial institution that provides debt or equity to a user perceived structure.

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So, this is, uh, again, it's a general term, but for some use of C structures, you can think about, of.

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Green loans, an investor might be called a lender, and you might be even familiar with.

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other terms for this particular role, but investors used for sake of simplicity for all user-proceed structures.

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And investors use this method to calculate the finance emissions related to their debt or equity provision.

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Then we look at issuer at the top. So an issuer is the general term to cover a party that creates.

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issues or manages a user perceived structure. And you might be familiar with the term issuer from green bonds, for example, or other label bonds.

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But this also might be called for equity in debt funds, might be called a fund manager.

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And for green loans, we might call an issuer and customer or investee, or a borrower, and again, there might be certain contexts where you're familiar with an even different term.

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So it's important to keep in mind issuer is, like, a really general term that we use for that specific role, but you might be familiar with a different term in the context that you're working with.

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So an issuer can use the user structures method to calculate the finest emissions of the structure itself.

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So, for example, for an equity fund, a fund manager might use the use of proceed structures method to calculate the emissions.

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of an equity fund that they're managing.

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Then, um, let's move to… sorry, the previous slide.

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Um, let's move to the different user proceed structures.

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There's two types, this is a really important distinction in the user procedure method between separate and integrated user perceived structures.

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Based on whether the underlying assets are on the issuer's balance sheet.

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So first, we have separate structures. There are several entities, for example, equity funds.

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Where the athletes are not on the issuer's balance sheet.

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And then we have integrated structures where they are part of the issue with balance sheet.

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So, this could, for example, be two ways. If you have, for example, a green bond issued by corporate.

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Um, to… to fund a solar project, then maybe those physical assets.

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I'd be on the balance sheet as such, so the project itself.

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If you think about a financial institution is issuing a green bond, it might not be the physical assets, but it might be the loan that's on the assets, on the asset side of the balance sheet.

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The distinction is important for multiple accounting reasons, but here I already highlighted a very important one, which we'll talk about later.

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separate structures shall be account for using this method, so they're the equity funds use this method.

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Uh, full stop. For integrated structures, this is a bit more nuanced. They should be accounted for.

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Because, you know, one of the things that also was highlighted in the consultation feedback.

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was that data availability is a main concern, so we want to show that it is very much recommended to use the user receiving structures method.

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Um, but at also issue-level data may be used when sufficient data is not available.

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I also want to, um, highlight at this point the facilitator role. So, facilitators may facilitate the issuance of certain user proceed structures, like green bonds.

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But the calculations may be covered by future additions to Part B that's the left top part.

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And then finally, finishing up this slide, looking at the underlying assets.

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The underlying assets may belong to any other asset class, so you can have an equity fund investing in companies, you can have a green bond investing in projects, or companies at the same time.

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You could even have a multi-layered structure where you have an equity fund investing into green bonds, so user proceeding structure investing into other user proceed structures.

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Um, so it's, it's, it's really… a lot of things are possible.

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Next slide, please.

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So, as I mentioned previously, um… this table will go a little bit more in detail on the scope of the method, and this was also an important point from the consultation feedback.

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We still have, in the standard diagram decision tree, essentially, to determine whether something is in scope and how something should be accounted.

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Um, but, um, consultation feedback was also to make a bit more clear, a bit more explicit what is in scope and what is out scope of the method.

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And, um, we now included this table, a more detailed table at the beginning of the method to give users an impression.

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what is generally included, and for specific structures that might not be covered here, you can always use the more detailed decision tree later on in the standard text.

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So, already mentioned equity funds and debt funds are in scope as separate structures. Something similar is special purpose vehicles.

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Without control of underlying assets, so sort of investment vehicles to invest in a.

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a minority stake into in other, uh, in other companies, for example.

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Then we have loan allocated to multiple specific assets. So, for example, green loans, if you're.

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A financial institution provides a green loan to be used for multiple specific projects. It's an integrated structure.

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And then, um, label bonds, such as green bonds, allocated to specific assets. So, a green bond issued.

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Again, for Zoom projects. Now, it is important to highlight that the name of the instrument is not as important as the fact that it's allocated to specific assets. So.

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Most green bonds are probably… can be qualified as user-perceived structures, but the name itself doesn't… it's not really a determinant here.

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What is important is that there is some evidence that the money is really allocated to specific assets.

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So, you know, if we go to the next… the row below, if it's not allocated to specific assets.

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You know, for example, with some sustainability-linked loans or bonds.

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then there are not user-proceed structures. Um, and it might be other types of bonds that might be called differently. In the end, if they're not allocated to specific assets.

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You cannot qualify them using structures, and you have to use.

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Issue-level accounting based on the applicable SLS method.

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So, something similar, uh, general purpose loans, working capital loans, general corporate bonds, I mean, these names kind of imply also what the instrument is.

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that these are not used for sea structures, but it's good to keep in mind, because even for working capital loans, there might be, for example, the intention to use this money for.

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something specific. In the end, if the instrument is not structured to be allocated to specific assets, the user perceived structures method should not be used, and.

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issue-level accounting should be, um, should be used.

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Then we have 3 special cases here at the end.

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The first is a project-finder structured view of special purpose vehicle. So this is actually what the previous project finders method already captured. So, a project finance where there's a separate balance sheet with other data equity.

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This is technically a separate user perceived structure, but since there is a separate project finance method.

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a user doesn't need to go and use the user perceived structures method, but can simply use the project finance method.

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Then we have a top-level holding with control over underlying companies, so think of a mother company with multiple underlying entities.

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In this case, what you have is that the underlying companies, the financials are consolidated, and the emissions, if a… at least if financial operational control of the greenhouse gas protocol is used, emissions are also consolidated.

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So essentially, this should be treated then as one big corporate.

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So then, whilst technically user per seat structure, in fact, you should not use the user per seat structures method, but you should account for it as one big corporate.

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And then based on whether it's listed or listed, you use the right BGF method.

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And then finally, we have another edge case on debt-based user structures with one fully allocated asset, and this could be, for example, be one mortgage.

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And this is interesting, because. A mortgage, indeed, you can think of as an integrated user per seat structure. Money is provided to a consumer to buy one specific asset.

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So technically, these are integrated user proceed structures, but, you know, because there are specific methods, for example, for mortgages.

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A lot of the complexities, again, of the user-free structures method are not really that applicable, and a user can simply use the mortgage method.

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Directly. Next slide, please.

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So then, um… let's go into some of the equations to actually calculate fast divisions. So, the default approach, this is… this is first for a separate use of perceived structures.

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So the default approach is using asset level data.

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And, um… What is important to note here is the concept of double attribution. So.

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If we think of an equity fund, we're going to calculate the investor share in the equity fund.

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And then multiply that with the share of the equity fund in the underlying assets.

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And then we use the emissions of the underlying assets.

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And aggregate it all together to come to one final submissions number.

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So the, uh, accounting approach for each underlying asset is based on what type of asset it is.

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So, if it's a project finance, then the project finance method is applicable, and this also then determines.

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What the commission scope should be covered for this specific underlying asset, how the attribution factor is calculated, and also the different ways emissions can be estimated.

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The second option is, um, when a use of proceed structure defines a mission to actually report it. So, for example, a fund manager.

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Users to usual proceed structures method and actually reports the final submissions of the equity fund directly.

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And so, of course, great. And then, in that case, we can use it directly, and only… we only need to then multiply with the attribution share in the overall funds of the investor.

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It is, of course, important to note that we need to make sure that the emissions that are reported.

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are in line with Beaker method. We don't want to have… if the emissions are, for example, unattributed.

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Then we can not use these… can you not use this data.

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Uh, for our own reporting. Now, one, uh, like I mentioned previously, already one very important part of the consultation feedback was data availability. So.

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Um, you know, many consultation respondents said, okay, this method is… makes sense, but.

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there's not enough data available. And this, of course, is recognized, and therefore we try in multiple different ways to alleviate those concerns.

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And one is that if a DeFi issues in UC structure, so if, for example, if a financial institution issues a green bomb.

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The BKIF method now says that they shall report its finest emissions and total debt equity separately.

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This is, again, to facilitate investors in this green bond to be able to report the specific finance emissions for.

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Or does your supersede structure? Similarly, um, you know, of course, other types of issuers that are not financial institutions are not in the scope of BCAP, but still, we encourage.

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Um, investors to tell issuers to still implement separate reporting.

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So that they can… so that their data becomes more and more available.

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Still, as in the consultation method already, we have another approach, because we recognize that, you know, the asset-level data might not be available, reported data might not be available.

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But we have, therefore, suggest an estimation approach based on data quality score 5 for corpuser projects.

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And in order for this to implement, you essentially only need 2 data points. First, you need to understand allocation percentage of the user perceived structure. So.

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for an equity fund, how much of the equity fund has been actually allocated to underlying assets?

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And you need to understand the sector focus of the equity fund. So, for example.

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If you have an equity fund that is 100% focused on renewal energy, then you can simply use 100%, you can use the emissions factor per year and you are invested for that specific sector, such as renewal energy.

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And then, uh, you only need the allocation percentage of the equity funds.

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So that allows financial institutions to already implement some of these user proceeds accounting, more specific.

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Um, with a fairly limited, uh, data. Now, finally, the note here at the bottom is very important, and we'll get to this in the next slide already with integrated user perceived structures as well.

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But note that for separate uses of seed structure, finance emissions are only calculated once funds have been allocated on the structure.

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So, filing submissions are on principle zero at issuance. So, if there's a new equity fund set up.

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And money is being put in, but the equity fund has not invested anything yet.

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And the finest emissions are 0. Uh, next slide, please.

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Let's move then to integrated user perceived structures, and this is actually, uh, comes through an important change that we made based on consultation feedback.

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And it is that now, in the standard, we also require finance emissions to be calculated for unallocated amounts.

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And the reasoning is that. For integrated structures, when money is provided to an issuer, it's.

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Immediately on the balance sheet of the issuer. And therefore, even when the money has not been allocated to specific underlying assets.

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Respondents felt that it made sense to still count emissions for those unallocated amounts because they support the general economic activity of the issuer.

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So the money is, unlike an equity fund, where the money is maybe in a separate pot but not doing anything.

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For an integrated structure, the money is already doing something, namely supporting the activity of the issuer.

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So, if we then look at allocated amounts, the main approaches are very similar for separates, so we… I will… I already mentioned at a level data approach, reported emissions, data quality score 5.

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That's basically the same as I explained previously. Um, but for integrated structures, I mentioned it also briefly before.

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We see that data availability is really a concern, and there is an option of.

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falling back on issue-level data. You know, for separate structures, that option is not there.

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If we're an equity fund, it doesn't really make sense to estimate the emissions of an equity fund based on the fund manager's emissions.

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But for an issuer and issuer fallback. actually somewhat reasonable.

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So therefore. The standard allows to use issuer-level data if the previous approaches are relatively impossible, not feasible, not enough data.

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And again, to make this practical, because we recognize the limitations of data availability.

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Now, for unallocated amounts, actually, the issuer-level data is kind of the natural default approach, because if the money's not allocated yet, then naturally it's simply supporting the issuer, and therefore issuer data makes more sense.

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However, we do, uh… allow using more specific approaches based on expected allocation.

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So, for example, for, uh, you could have a refinancing, where a Greenbolt refinances certain assets, and it's already.

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kind of known that the money will go to specific assets.

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then you could use asset-level data based on the expectation that.

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Um, the money will go to those specific assets.

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Similarly, if you have an equity fund with a single sector focus, or sorry, not equity fund, because these are integrated structures, but if you have a green bond with a single sector focus.

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Um, you can also use the Data Quality Score 5 approach, um… And with a Europe emission per million invested estimation.

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using, then, that single sector. So that's also allowed, and that's also then makes it a bit more specific also for these unallocated amounts.

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Uh, next slide, please.

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Another thing that, um, that we specified further based on the coastation feedback is the calculation of alterning amounts. And this is, um… This outstanding amount is then to be used to calculate portfolio values for data quality scores and economic emission intensities.

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And this is especially important for separate structures, and let me illustrate this.

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Um, if you, for example, have an equity fund.

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In the beginning, there's no underlying investments. I already explained in two slides before that then the fire submissions are zero.

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But what we should not be doing then is take the outsening amount that the investor put in equity funds, like the outstanding amount. So if an investor put 20 million euro in that equity fund.

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Then, in order to calculate emission density, they should not use zero emissions divided by 20.

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Because that 20 is not doing anything. So in that… in that… in this case, actually, it should be 0, and also 0.

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Because there is not actually… if you think about it, the equity fund actually does not have any underlying assets, so the asset amount, to be considered, actually should be zero in terms of the emission intensity.

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And then once an investment happens, then the emissions go up, and then the outstanding amount goes up as it's allocated, and then you get a more stable contribution of that equity fund to the emission intensity.

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So, for separate structures then, um, you know, the allocation piece percent is calculated in line with this, with this formula, which is… follows from the… from the general formula of user-perceived structures.

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It is interesting to note that this allocation percentage can be above 100%, and.

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It's a bit too technical to go into the full detail of this, but to give you an idea.

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This comes from the fact that the outstanding amount for equity, for example, the outstanding amount in the numerator.

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It's based on book value, so is… Um, based on the ownership percentage multiplied by the total equity for corporates, for… so ownership percentage of the equity funds multiplied by the total equity of the underlying assets.

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But that equity asset on the balance sheet of the user proceed structure is recorded.

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as fair value. Um, so… it's… I mean, mathematically, it all comes out, and it will make sense, but.

00:24:11.000 --> 00:24:21.000
Um, and again, it's a bit too technical to go into full depth, but I just wanted to flag it is possible for it above 100%. Naturally, you don't expect.

00:24:21.000 --> 00:24:28.000
super large discrepancies. So, of course, if this happens, still check the data quality if not something else is going wrong.

00:24:28.000 --> 00:24:36.000
But it can be a bit above 100% in certain situations.

00:24:36.000 --> 00:24:45.000
Now, then we also have a specific thing. If you… if you don't know the allocation percentage for your equity fund, you may just assume as 100%, but.

00:24:45.000 --> 00:24:55.000
As I stated previously, if you then. Take the allocation percent 100%, you have the full outstanding amount. Then you should also calculate the emissions for those unallocated amounts, and this is an exception to the normal rule.

00:24:55.000 --> 00:25:05.000
So for separate structures, we usually say, don't report admission for unallocated amounts, but in this case, yes, because otherwise, it doesn't work anymore.

00:25:05.000 --> 00:25:14.000
For integrated structures, the allocation percentage is simply 100%, because we also calculate emissions for unallocated amounts, so the dynamics that I previously described.

00:25:14.000 --> 00:25:24.000
percent restructures is still another concern. Next slide, please.

00:25:24.000 --> 00:25:28.000
something that has not changed compared to the consultation version is the assessment boundary.

00:25:28.000 --> 00:25:34.000
Um, investor should draw the assessment value around the underlying assets. So, for example.

00:25:34.000 --> 00:25:40.000
For a green bond, if an investor invests in a green bond with a project.

00:25:40.000 --> 00:25:48.000
Then the Scope 1 emissions of their project. We'll be reported as the finance Score 1 emissions for the investor.

00:25:48.000 --> 00:25:54.000
Next slide, please.

00:25:54.000 --> 00:26:02.000
So, uh, something else that has not changed compared to the consultation feedback is this thing on… is this issue of adjustment for under and over allocation.

00:26:02.000 --> 00:26:08.000
Um, so we here see briefly an example with a corporate that has issued a green bond.

00:26:08.000 --> 00:26:15.000
Um, and… The problem here, um, that was also covered already in the consultation version is.

00:26:15.000 --> 00:26:22.000
If a non-user precedes investor uses that corporate-level data, so that 400 million and 300,000.

00:26:22.000 --> 00:26:27.000
They're essentially, um… taking part of the green bond.

00:26:27.000 --> 00:26:31.000
So, you see here the table, if you look at the total final submissions.

00:26:31.000 --> 00:26:38.000
Where the green bond is included for the non-user proceeds, then you see that you have the $297 thousands.

00:26:38.000 --> 00:26:43.000
plus thousands, so then you have this problem of under-allocation.

00:26:43.000 --> 00:26:48.000
So, and conversely, if a non-usual proceeds investor uses that.

00:26:48.000 --> 00:26:57.000
397 and 299,000 lines, so where the green bond is… is… uh, carved out, then you see that the total.

00:26:57.000 --> 00:27:03.000
emissions calculated by all investors equal the total corporate emissions.

00:27:03.000 --> 00:27:13.000
So therefore, um, in principle, non-usual proceeds investors should calculate finance emissions by restricting their assessment boundary in the formula below.

00:27:13.000 --> 00:27:24.000
Now, of course, also here, consultation feedback was clear that, you know, data to do this is generally not available, so this is also why this is a shoot, so this is something that we.

00:27:24.000 --> 00:27:32.000
recommend doing. Uh, we hope it will become more feasible as data becomes better and more geared towards the standard.

00:27:32.000 --> 00:27:35.000
But, as to note here at the bottom says.

00:27:35.000 --> 00:27:49.000
If non-usual prefectures, if this data not available, then they may still calculate based on the unadjusted total of admission. So, in this case, they may still use that fund $40,000, 300,000 ton. The total corporate level.

00:27:49.000 --> 00:27:57.000
data, um, if data on that specific… with the specific carve-out is not available.

00:27:57.000 --> 00:28:04.000
Next slide, please.

00:28:04.000 --> 00:28:17.000
And then, uh, finally, this is, uh, this was wrapping up the user seed structures method. Um, we also have, um, an addition for accounting for projects without a separate balance sheet.

00:28:17.000 --> 00:28:28.000
So, as I mentioned previously, briefly. The previous project finance method was really geared towards separate user proceed structures, where they have a separate balance sheet with ultimate equity.

00:28:28.000 --> 00:28:33.000
Um, but we also, of course, see projects where a separate balance sheet might not be available.

00:28:33.000 --> 00:28:42.000
Um, energy efficiency projects, for example. And the updated standard now allows to account for these type of projects.

00:28:42.000 --> 00:28:47.000
On the requirement that the emissions of the project can be defined independently.

00:28:47.000 --> 00:28:53.000
So, for example, an energy efficiency project that replaces lights, if the.

00:28:53.000 --> 00:29:00.000
electricity use of the new lights can be estimated, then the emissions can be also defined independently.

00:29:00.000 --> 00:29:06.000
Or even new boiler is installed, if the fuel use of that boiler can be measured.

00:29:06.000 --> 00:29:11.000
Now, in such cases, and if the total debt is not available, you may use this.

00:29:11.000 --> 00:29:21.000
attribution factor using total project value at origination. And I just wanted to highlight here briefly the conceptual similarity of this attribution factor.

00:29:21.000 --> 00:29:27.000
with other asset class methods, namely mortgages and motor vehicle loans.

00:29:27.000 --> 00:29:31.000
We're also an at origination value is being used in the denominator.

00:29:31.000 --> 00:29:42.000
And, um, this is interesting and not coincidental, because they're all conceptually similar in the sense that they are financing used for one-off purchases.

00:29:42.000 --> 00:29:48.000
But after the one-off purchase, there's not a economic activity that can be measured anymore.

00:29:48.000 --> 00:29:54.000
So if you think of an energy efficiency project, you invest in that project, and when you do the project, there's a certain value.

00:29:54.000 --> 00:30:00.000
But after that, the manufacturing plants. works, and it's, like, so integrated.

00:30:00.000 --> 00:30:12.000
that it's hard to then define kind of those financials independently, and similar for mortgages. Like, you buy a house, but then after that, it is… there's not a balance sheet.

00:30:12.000 --> 00:30:25.000
ongoing balance sheet that a house has. So this is kind of the conceptual similarity here you see with these type of projects and other types of picket asset class methods.

00:30:25.000 --> 00:30:30.000
Next slide, please.

00:30:30.000 --> 00:30:36.000
So finally, um, I think we have time for just putting this together in one, uh.

00:30:36.000 --> 00:30:46.000
example, um… Here we have a table that illustrates the example of a €12 million euro green bonds issued by an energy corporate.

00:30:46.000 --> 00:30:52.000
It has been allocated to water efficient energy efficiency Project and one solar project.

00:30:52.000 --> 00:31:01.000
you see that the total amount of the green bonds has now been allocated, so 8 to the solar project 2 to the energy efficient project, which means that.

00:31:01.000 --> 00:31:12.000
2 is unallocated, so this means that we… but we still now… we still need to calculate the emissions for the unallocated amount. So if we can go to the table here in the bottom, you see.

00:31:12.000 --> 00:31:19.000
The first part is that an energy efficiency project, where the total debt equity is frozen at origination.

00:31:19.000 --> 00:31:26.000
Then you have to sort of project with the aid, and then finally, we have the 2, which is the unallocated part.

00:31:26.000 --> 00:31:33.000
Using the total corporate data, so the 1,000 and then 500,000 emissions.

00:31:33.000 --> 00:31:40.000
And for this example, um, just indeed for the purpose of this example, we have an investor investing 6 million euros in the green bomb.

00:31:40.000 --> 00:31:47.000
Uh, which is… leads to a 50% attribution factor. So in this case, for example, the energy corporate.

00:31:47.000 --> 00:31:55.000
Good report is 1066. itself, so the issuer, the energy corporate, could report $1,066.

00:31:55.000 --> 00:31:59.000
And in this case, then the investor only needs to calculate the attribution factor in.

00:31:59.000 --> 00:32:03.000
the green bond in the user proceed structure itself, in this case 50%.

00:32:03.000 --> 00:32:10.000
And then 50% multiplied by 1,066 is 5, not 33.

00:32:10.000 --> 00:32:22.000
Thanks. Um, yeah, this was it. I hope this helped to clarify some of your questions. Of course, very happy to hear your thoughts and to.

00:32:22.000 --> 00:32:24.000
Uh, discussed further.

00:32:24.000 --> 00:32:30.000
Yeah, so some… we have got a few questions, thank you for this. Uh, one of the questions was to have an example, so I hope.

00:32:30.000 --> 00:32:37.000
this example already helps. We will distribute the slides and also the recording will be available on the website.

00:32:37.000 --> 00:32:41.000
So, first question was if we can elaborate a little bit more.

00:32:41.000 --> 00:32:49.000
about the separate use of perceived structures for holding companies without control over the underlying assets.

00:32:49.000 --> 00:33:00.000
Um, and whether… Yeah, how that one would work, for example, for minority interests.

00:33:00.000 --> 00:33:08.000
Well, why does… why does this apply? Well, because you need a… in principle, you would need a double attribution.

00:33:08.000 --> 00:33:14.000
Right? So, if you would have… a holding company in the middle here that has both debt and equity.

00:33:14.000 --> 00:33:20.000
Then, um, and they then invest into an underlying company, you need to calculate.

00:33:20.000 --> 00:33:26.000
Your attribution share into that. vehicle, and then the vision share of that vehicle.

00:33:26.000 --> 00:33:38.000
in the underlying company. And in certain situations, um… It could be simplified, you know? So, for example, and this is some of the examples we go into, like, for example, if it's.

00:33:38.000 --> 00:33:48.000
dead base with one fully allocated asset. In that case, you have an intermediate… you might have technically intermediate vehicle, but some… the formulas kind of simplify.

00:33:48.000 --> 00:33:58.000
But in principle, um, yeah, so… If you have double share attribution share, especially if you have equity, then you need to calculate first your equity share here.

00:33:58.000 --> 00:34:02.000
And especially if there's also death in that intermediate vehicle, and then.

00:34:02.000 --> 00:34:03.000
dealer attribution.

00:34:03.000 --> 00:34:14.000
I think this also refers to the decision tree that we have in the… in the… standard, where we differ between yes or no operational control.

00:34:14.000 --> 00:34:15.000
Uh…

00:34:15.000 --> 00:34:29.000
Yeah, yeah, so this… indeed, this question… that is… that is indeed, um… so if there is control, then you have this other case where you have a top-level holding with… which is essentially one corporate. Indeed, that's the… that's the part in the decision tree.

00:34:29.000 --> 00:34:33.000
So, and when it's not having control, then this methodology applies.

00:34:33.000 --> 00:34:35.000
Yep.

00:34:35.000 --> 00:34:41.000
Uh, so the next question is to clarify for separate use of procedure structures, or the separate ones.

00:34:41.000 --> 00:34:52.000
Uh, we only calculate financial emissions based on. allocated amounts, whereas for integrated user per seat starts, the expectation is to calculate.

00:34:52.000 --> 00:34:53.000
Yeah, correct?

00:34:53.000 --> 00:35:02.000
them for both, is that correct, Sun? Great. Um… then this question was a bit hard to decipher, but maybe you understand it. It's about.

00:35:02.000 --> 00:35:09.000
the possibility for some green bond, uh, green bond emissions to have a look-back period.

00:35:09.000 --> 00:35:16.000
And that the projects that are already financed and included in the pool. If these are then part of the allocated proceeds, or.

00:35:16.000 --> 00:35:20.000
Still 0. Does that ring a bell to you?

00:35:20.000 --> 00:35:26.000
Uh, not fully, but, I mean, maybe… I mean, I mentioned that.

00:35:26.000 --> 00:35:32.000
You can also estimate for the unallocated amount based on expected allocation.

00:35:32.000 --> 00:35:41.000
So, maybe that partially answers the question. I'm not super familiar, so I might not answer the question here perfectly, but… Essentially, even if.

00:35:41.000 --> 00:35:50.000
Um… uh… if the… you know, if you already… even if the money has not been allocated yet, but you know it's going to be allocated to something.

00:35:50.000 --> 00:35:56.000
Then you can use the expected allocation to calculate the unallocated amounts.

00:35:56.000 --> 00:36:02.000
Let's see, so then… Uh, would you say that in practice, for most of the financial institutions.

00:36:02.000 --> 00:36:09.000
this use of procedure structure methodology is calculated with the same methodology.

00:36:09.000 --> 00:36:14.000
of loans, bond equity, or project finance. With either of those.

00:36:14.000 --> 00:36:20.000
Or could it also apply for others? I think you mentioned mortgages, right, and real estate. So, in theory.

00:36:20.000 --> 00:36:22.000
It can be any, right?

00:36:22.000 --> 00:36:34.000
In theory, I may, indeed, but I think, yeah, in practice, probably most of the, yeah, a good amount of funds will invest in corporates, a good amount of green volatility projects, but in principle, um.

00:36:34.000 --> 00:36:39.000
Yeah, I think in principle can be any asset class.

00:36:39.000 --> 00:36:43.000
Um, so then, let's see, we have a little bit more time.

00:36:43.000 --> 00:36:52.000
So, does accounting for projects without a separate balance sheet includes cases where we know the precise assets, finance and can compute or estimate associated.

00:36:52.000 --> 00:36:56.000
emissions, for example, machines or printers.

00:36:56.000 --> 00:36:58.000
Yes, I think… I think so. I mean, of course.

00:36:58.000 --> 00:37:00.000
Yeah, I think… Yeah, go ahead.

00:37:00.000 --> 00:37:17.000
No, yeah, of course, if you… of course, the… the… One thing is that, of course, ideally, if you… if you continue to know the debt in a project, then you would still want to use that. But in principle.

00:37:17.000 --> 00:37:27.000
Yeah, I think it sounds like if the machines… if you know specifically the emissions of these machines, then the method is applicable.

00:37:27.000 --> 00:37:32.000
Let's see, uh, Greenbones often refinance existing projects. How to handle.

00:37:32.000 --> 00:37:36.000
emissions for refinance versus new assets.

00:37:36.000 --> 00:37:44.000
Um… Yeah, I would be curious to hear what exactly the issue is.

00:37:44.000 --> 00:37:54.000
Here, for refinance versus new assets, because conceptually. You would treat them similar. Maybe the data is different, but yeah, I would need to understand a bit more what.

00:37:54.000 --> 00:37:58.000
what the consideration would be to treat those differently.

00:37:58.000 --> 00:38:06.000
Okay, well, maybe the question… the person asking the question can add it again to the chat, and then we can cover it by… in text, in writing later.

00:38:06.000 --> 00:38:11.000
But apparently our document mentions it, but it isn't fully clear about the.

00:38:11.000 --> 00:38:17.000
The treatment. Uh, let's see… lots of questions already, thank you for all of this.

00:38:17.000 --> 00:38:25.000
Uh, can you explain the difference between integrated and non… integrated structures one more time with a few practical examples.

00:38:25.000 --> 00:38:26.000
I think that's helpful.

00:38:26.000 --> 00:38:34.000
Yeah, like I said, yeah, it's also indeed something that the consultation feedback really, um… Uh, stressed, so if we have this table now?

00:38:34.000 --> 00:38:40.000
The main distinction is really whether the underlying assets are on the balance sheet of the issuer.

00:38:40.000 --> 00:38:49.000
But, you know, non-integrated, so separate structures can be equity funds, debt funds, and for integrated, you can think of green bonds, green loans, these type of.

00:38:49.000 --> 00:38:57.000
structures, um, but yeah. There might be more examples that are available for other contexts.

00:38:57.000 --> 00:39:04.000
But integrated, so green bond, for example, is integrated when the money flows to a company that which then.

00:39:04.000 --> 00:39:11.000
in the… which then… funds some activities or projects or assets within that company.

00:39:11.000 --> 00:39:14.000
But which are part of the asset balance sheet of that specific company, and that's therefore doesn't have a… balance sheet, yeah.

00:39:14.000 --> 00:39:25.000
Yeah, yeah. Exactly. You know, like I mentioned before, either as physical assets or as financial assets in the term… in the form of loans.

00:39:25.000 --> 00:39:29.000
Alright, let's see, we have 4 more questions, then we'll move on.

00:39:29.000 --> 00:39:33.000
Uh, do you consider separate use of preceptors emissions?

00:39:33.000 --> 00:39:38.000
were previously calculated based on existing PKF asset classes, or is that.

00:39:38.000 --> 00:39:41.000
out of scope, trying to decipher this point as well.

00:39:41.000 --> 00:39:42.000
I think you can read with us.

00:39:42.000 --> 00:39:54.000
Well, yeah, I think… I mean… I think technically, the previous standards, um… I think mentioned that investment funds or equity funds were out of.

00:39:54.000 --> 00:39:55.000
out of scope. Yeah.

00:39:55.000 --> 00:40:03.000
scope, I think… so I think, technically, it was previously out of scope. I mean, for my institution, for example, FMO, we already.

00:40:03.000 --> 00:40:08.000
use an approach in the spirit of PCAP, similar to the user structures method, but I think it was technically out of scope previously.

00:40:08.000 --> 00:40:14.000
Yeah. Yeah, we had project finance is one.

00:40:14.000 --> 00:40:15.000
Yeah.

00:40:15.000 --> 00:40:21.000
methodology with specific none of your proceeds, and of course, then also for non-corporate finance, real estate and mortgages, which are.

00:40:21.000 --> 00:40:28.000
technically also, known user per seat structures. Uh, but this is then a sort of catch-all methodology to cover everything else that wasn't really.

00:40:28.000 --> 00:40:38.000
clarified, so I can imagine that maybe before users have used more generic emissions, or just the company, or their own methodologies to get as close as possible, but then.

00:40:38.000 --> 00:40:42.000
this sort of replaces that. But it's true, this is.

00:40:42.000 --> 00:40:47.000
closing a gap, so that of something that was originally actually out of scope.

00:40:47.000 --> 00:40:54.000
And that's why it was requested also a lot by our users to have more clarity there.

00:40:54.000 --> 00:41:00.000
Um, when re-reading the standard document, it seems there's a threshold for not material exception.

00:41:00.000 --> 00:41:06.000
When can investors use issuer-level fallback because of asset-specific emissions are not.

00:41:06.000 --> 00:41:09.000
Expected to materially differ, yeah. It's a good question.

00:41:09.000 --> 00:41:21.000
Yeah. Yeah, I think, I mean… I mean, it's hard to give one hard and fast rule, but I think, essentially, it's when the emission intensity of the underlying assets are similar to the issuer level.

00:41:21.000 --> 00:41:22.000
Yeah.

00:41:22.000 --> 00:41:33.000
emissions. So, for example, if you have. a cement company, and you invest into a specific cement project, and the emissions of that cement project you expect to be fairly similar to the overall cement.

00:41:33.000 --> 00:41:46.000
To cement company. Then, you know, of course you need to substantiate that to a certain extent, but these are the type of examples that you need to think about, that it is not, for example, an energy corporate that has.

00:41:46.000 --> 00:41:47.000
Fulls, renewables, and then if you invest in the renewables.

00:41:47.000 --> 00:41:49.000
Yeah.

00:41:49.000 --> 00:41:55.000
Then, of course, you expect these emissions for these renewables to materially differ from the issuer level.

00:41:55.000 --> 00:41:59.000
But if you would, for example, have. And as you corporate that only does renewables.

00:41:59.000 --> 00:42:06.000
And you invest into a specific project of that issuer on the renewables, then.

00:42:06.000 --> 00:42:12.000
Again, then the asset level estimate might not be so different from the issue level estimate.

00:42:12.000 --> 00:42:17.000
I know that the greenhouse gas product is currently working on some new methodologies, and there might be guidance.

00:42:17.000 --> 00:42:24.000
on the materiality thresholds, etc. We are building on that, so we… intentionally didn't give a number here.

00:42:24.000 --> 00:42:29.000
uh, usually common sense brings us quite far if, you know, you understand it.

00:42:29.000 --> 00:42:35.000
That, uh, that I could… uh, renewable energy project for a general, uh, versus a broad.

00:42:35.000 --> 00:42:43.000
uh, fully integrated utility, you know, that would materially differ from each other, the emissions intensity.

00:42:43.000 --> 00:42:51.000
So, um, for now, it's common sense, but you could, for example, which is very helpful here is that the you as an individual.

00:42:51.000 --> 00:43:00.000
institution includes a certain threshold where you say, okay, more than, like, 5% for me is material. But since you don't know the data often, there is also just.

00:43:00.000 --> 00:43:05.000
Hard to assess. So it's really mostly common sense, and think about, okay.

00:43:05.000 --> 00:43:19.000
Artists typically similar activities, or very, very different? So with that, what I want to ask you, Sam, if you, as we move to the next section, maybe if there's some questions still in the chat that you can address by typing the answer, that would be great.

00:43:19.000 --> 00:43:27.000
I want to thank everybody for their questions and engagement on this topic, but I want to make sure that we now move on to the next topic.

00:43:27.000 --> 00:43:30.000
Which is also very relevant, but slightly different than this.

00:43:30.000 --> 00:43:36.000
So, as we move, um… to the next slide.

00:43:36.000 --> 00:43:42.000
Yeah, so just as a very short introduction, so far, if you look at the right bottom of the slide, we've been talking.

00:43:42.000 --> 00:43:48.000
PKF and all of their methodologies, Part A, B, and C.

00:43:48.000 --> 00:43:51.000
are about scope 3, category 15, all the way right into the bottom.

00:43:51.000 --> 00:43:59.000
Uh, but we also recognize, uh, this is also based on a lot of requests from our stakeholders, that this doesn't necessarily cover everything.

00:43:59.000 --> 00:44:05.000
So when you think about the footprint, normal footprint of organizations, Scope 1, 2, and 3.

00:44:05.000 --> 00:44:13.000
There's also other aspects, like, for example, within the value chain, there might be emission reductions that are happening within that footprint, but.

00:44:13.000 --> 00:44:17.000
And those emission reductions can happen today, but also in the future.

00:44:17.000 --> 00:44:24.000
There are arc removals of carbon from the atmosphere, and there's also avoided emissions, which are typically.

00:44:24.000 --> 00:44:29.000
not happening within the value chain of the company you're investing in, or that you're.

00:44:29.000 --> 00:44:39.000
Uh, providing finance to, or that you're insuring. But those are happening outside the value chain, but still relevant, maybe as a result of the finance that you're providing.

00:44:39.000 --> 00:44:47.000
So to capture this, as we move to the next slide, we have thoughtfully developed some additional guidance, which is separate from the.

00:44:47.000 --> 00:44:52.000
Part A standard. Uh, currently covering, uh, um, two.

00:44:52.000 --> 00:44:59.000
method of two metrics. Can you move to the next slide, third?

00:44:59.000 --> 00:45:04.000
Yeah, so there's two methods that try to capture these, uh.

00:45:04.000 --> 00:45:12.000
forward-looking, uh… metrics, or more, uh, outside of the value chain metrics, which are financed avoided emissions, so these are.

00:45:12.000 --> 00:45:20.000
avoided the machines that happen outside of the value chain of the company you might be investing in, but then finance, through finance.

00:45:20.000 --> 00:45:28.000
You are facilitating that. and or forward-looking emission metrics that… and there we have two options.

00:45:28.000 --> 00:45:33.000
So PCAF has chosen to develop this supplemental guidance to.

00:45:33.000 --> 00:45:42.000
First of all, prevent misinterpretation and greenwashing by setting clear guardrails and standardized reporting requirements to allow.

00:45:42.000 --> 00:45:50.000
Uh, people to do it in one consistent way, and that also then ensures transparency and consistency in disclosures.

00:45:50.000 --> 00:45:56.000
Uh, by putting some requirements in place, for example, to be transparent about methodologies that are used.

00:45:56.000 --> 00:46:06.000
Uh, again, it's really separate from Part A, so the methods are optional, and if reported, they must be reported separately from the regular finance missions.

00:46:06.000 --> 00:46:16.000
They do apply across different asset classes. And currently focus on finance avoided emissions, finance forward-looking metrics, so part A.

00:46:16.000 --> 00:46:24.000
In the future, we may consider. Uh, if there's additions needed for other parts of the standard, so on insurance or facilitation.

00:46:24.000 --> 00:46:29.000
And it really intends to support innovation in climate-positive financing.

00:46:29.000 --> 00:46:37.000
Uh, to show impacts that the financial institutions can have through the funds and investments that they provide to their clients.

00:46:37.000 --> 00:46:43.000
which are beyond just the emissions that are caused in that year of operation, those financed emissions.

00:46:43.000 --> 00:46:53.000
So, uh, Samuel has been co-chairing this working group, and he will guide you through, uh, the methodology, so… Samuel, thanks already, and over to you.

00:46:53.000 --> 00:47:01.000
Thank you very much, Kaspar, for the context. Let me continue with this level setting.

00:47:01.000 --> 00:47:06.000
Uh, so that we are all on the same page before we dive into the technical details.

00:47:06.000 --> 00:47:12.000
Related to? finance avoided emissions.

00:47:12.000 --> 00:47:21.000
If you look at the next page. Um, we're getting the key… concept here, important to make a distinction between.

00:47:21.000 --> 00:47:24.000
Um, the corporate level. avoided emissions, and this financed.

00:47:24.000 --> 00:47:33.000
avoided emissions. So, very simply put, the avoided emissions essentially refer to greenhouse gas emission reductions.

00:47:33.000 --> 00:47:39.000
that would not have occurred without a specific project, product.

00:47:39.000 --> 00:47:44.000
or service. So they are inherently associated with the concept, for example, of.

00:47:44.000 --> 00:47:52.000
climate solutions. Um… If you look at the left-hand side of this page, you see further details regarding what it means at corporate.

00:47:52.000 --> 00:47:57.000
level, so essentially how the company can help reduce emissions.

00:47:57.000 --> 00:48:02.000
Uh, within the economy through its products and services.

00:48:02.000 --> 00:48:08.000
And then on the right-hand side, this is the financial sector perspective.

00:48:08.000 --> 00:48:16.000
And what do these avoided emissions mean? in relation to the financing that they provide to these companies.

00:48:16.000 --> 00:48:23.000
An important reminder is the fact that this PCAF guidelines focuses on the latter.

00:48:23.000 --> 00:48:28.000
So on the right-hand side of this page, and what essentially drives a lot of the language.

00:48:28.000 --> 00:48:36.000
An orientation of the speakerph guidance. is the fact that there is no official standard yet.

00:48:36.000 --> 00:48:43.000
To measure corporate avoided emissions. Um, which is also the reason.

00:48:43.000 --> 00:48:51.000
why the PCAP guidance is essentially, or should be seen as separate reporting, number one.

00:48:51.000 --> 00:49:01.000
But importantly, one that requires particular. Question. And there is a lot of language that you would see in the coming pages, and in the coming.

00:49:01.000 --> 00:49:06.000
Key messages that we'll emphasize with you today are that emphasize data quality.

00:49:06.000 --> 00:49:17.000
And, uh, the transparency and the importance of the transparency related to avoid emissions, reporting from a finance emissions perspective.

00:49:17.000 --> 00:49:23.000
Looking at the next page and building on the distinction that Kaspar.

00:49:23.000 --> 00:49:32.000
already shared as part of the preamble. Uh, this is basically the, uh, main differences between Scope 3.

00:49:32.000 --> 00:49:42.000
Reduction and avoided emissions. And this is very important to highlight this first key principle, which is getting the boundaries.

00:49:42.000 --> 00:49:48.000
clear between the two, because there tend to be some confusion between.

00:49:48.000 --> 00:49:55.000
Scope-free reduction, so what relates to upstream and downstream emissions being reduced.

00:49:55.000 --> 00:50:05.000
And, on the other hand, avoided. emissions, which, um… take not a company-level view, but a social.

00:50:05.000 --> 00:50:11.000
point of view. And in the case of avoiding emissions, it's not about comparing.

00:50:11.000 --> 00:50:16.000
Company's emissions from one year to another. This is about comparing two.

00:50:16.000 --> 00:50:24.000
scenarios, one where the company's solution. is used, for example, renewable equipment, which can be.

00:50:24.000 --> 00:50:33.000
A wind turbine, and one where, um, the. best alternative, which is higher carbon, is essentially used.

00:50:33.000 --> 00:50:39.000
So, this shows and compares this emission reduction in the society.

00:50:39.000 --> 00:50:44.000
because of the solution that has been introduced. And this emission savings.

00:50:44.000 --> 00:50:47.000
Again, occur outside the company scope 1 to 3.

00:50:47.000 --> 00:50:51.000
boundaries. Moving on to the next page.

00:50:51.000 --> 00:50:57.000
A second key principle besides the boundaries, a clarification.

00:50:57.000 --> 00:51:10.000
is the consistency of the time horizon. So, the time frame alignment in the context of avoid the emissions reporting is… basically about ensuring that the time frame that is being used.

00:51:10.000 --> 00:51:15.000
At the company level. That is reporting visavoid emissions.

00:51:15.000 --> 00:51:22.000
And the one at the investor. or financial organization level is the same, so matching the two.

00:51:22.000 --> 00:51:27.000
For example, if a company is reporting lifecycle emissions for the year.

00:51:27.000 --> 00:51:33.000
of the transaction, then the financial institution is expected to do the same.

00:51:33.000 --> 00:51:38.000
Uh, taking again the example of. manufacturing and selling.

00:51:38.000 --> 00:51:46.000
Uh, wind turbines. If this avoid the emissions are calculated based on the full life cycle of what was sold that year.

00:51:46.000 --> 00:51:54.000
Uh, that would essentially be, um… The same logic, the same time frame that will be taken at issue level.

00:51:54.000 --> 00:52:02.000
Um, there was a lot of demand, for example, so another possible example in relation to that is an industrial company that is selling.

00:52:02.000 --> 00:52:08.000
energy savings, LED lamps. So in that case, if you avoided emissions.

00:52:08.000 --> 00:52:12.000
For the full life cycle of the lumps that are sold.

00:52:12.000 --> 00:52:18.000
during that year. And if, for instance, they sell, or they sold last year, then.

00:52:18.000 --> 00:52:25.000
thousand lumps, and they calculate the lifetime savings for the slumps, and report that figure.

00:52:25.000 --> 00:52:31.000
Then similarly, the financial organization will essentially use this number.

00:52:31.000 --> 00:52:37.000
Uh, but if we take another example, which is not about calculating the avoided emissions corresponding to.

00:52:37.000 --> 00:52:47.000
a certain quantity of products sold. In the past, but if the counterparty is reporting absolute emissions annually.

00:52:47.000 --> 00:52:52.000
Not for the entire life cycle. So, for example, if it's an industrial company.

00:52:52.000 --> 00:53:00.000
is leasing lamps. Instead of selling them, and they report the annual savings of all the lands that.

00:53:00.000 --> 00:53:09.000
Uh, we are leased during that reporting year. Then similarly, that would be the sort of figure, uh, that would be subsequently used by the.

00:53:09.000 --> 00:53:15.000
financial institution. Um, the other important point to stress.

00:53:15.000 --> 00:53:23.000
is that the counterfactual scenario should only reflect. That's here. In this case, not future years.

00:53:23.000 --> 00:53:31.000
As a result of the feedback that was received, there is a recognition that data availability can be a challenge for avoided emissions.

00:53:31.000 --> 00:53:39.000
And there's a possibility recognized in the guidance to use excellent estimator. So, essentially, estimates.

00:53:39.000 --> 00:53:45.000
For example, in the case of a project that does not exist yet.

00:53:45.000 --> 00:53:52.000
But is expected to start in the future. The key considerations are the assumptions related to avoiding emissions.

00:53:52.000 --> 00:53:59.000
associated with these projects need to be reasonable. an updated later on with actual data.

00:53:59.000 --> 00:54:07.000
whenever possible. Um, so the bottom line here is always align the time frame.

00:54:07.000 --> 00:54:12.000
of your financial institution, avoid the emissions calculation and reporting.

00:54:12.000 --> 00:54:18.000
with the one of the corresponding. entities, and keep these estimates realistic.

00:54:18.000 --> 00:54:26.000
and validated, um, expost. in terms of attribution.

00:54:26.000 --> 00:54:32.000
calculation on the next page for financial avoided emissions.

00:54:32.000 --> 00:54:36.000
here's a key, um… principal, on page 22.

00:54:36.000 --> 00:54:47.000
is the consistency with the other. PCAS guidance. Uh, so, basically, when… Um, measuring and reporting.

00:54:47.000 --> 00:54:56.000
Um, final step was the emissions. Then these recommendation and the need to use the corresponding.

00:54:56.000 --> 00:55:03.000
pick up guidance. Um… I don't know if the slide is frozen.

00:55:03.000 --> 00:55:09.000
I'm referring to the next page. Thank you.

00:55:09.000 --> 00:55:14.000
So, for example, and building on the presentation from Sam.

00:55:14.000 --> 00:55:18.000
In the case, uh, the living assay user proceeds to start with.

00:55:18.000 --> 00:55:24.000
For general corporate instruments and the attribution calculation for average emissions will happen.

00:55:24.000 --> 00:55:29.000
The company level, so if we are dealing. with a listed company.

00:55:29.000 --> 00:55:34.000
Then we will use the enterprise value, including cash, so EVIC denominator.

00:55:34.000 --> 00:55:40.000
in the case of the calculation. And there's an example at the bottom.

00:55:40.000 --> 00:55:51.000
Um, if a financial institution can be a. asset manager is holding a 2% equity stake in a publicly listed company that manufactures.

00:55:51.000 --> 00:55:59.000
solar panels, then the company will report the emissions associated with the solar panels, for example.

00:55:59.000 --> 00:56:05.000
1 million tons of CO2. in the reporting year as a result of the displacement of fossil fuel-based.

00:56:05.000 --> 00:56:10.000
electricity, um, the asset class in scope is listed equity.

00:56:10.000 --> 00:56:16.000
which falls under General Corporate Instruments. So, the expectation is to use a listed equity.

00:56:16.000 --> 00:56:25.000
asset class guidance to calculate the attribution factor. Now, if we look at the right-hand side and the specific corporate instruments.

00:56:25.000 --> 00:56:29.000
such as the use of proceeds that were presented as part of the first.

00:56:29.000 --> 00:56:36.000
section of this webinar. Uh, then there is an expectation to use the use of property structural guidance.

00:56:36.000 --> 00:56:41.000
Again, based on the follow-the-money principle that was previously.

00:56:41.000 --> 00:56:47.000
underscored. And it's really about making sure that the avoided emissions that are reported.

00:56:47.000 --> 00:56:51.000
I'll link directly to the investment or loan that has been provided, for example.

00:56:51.000 --> 00:57:00.000
Um, the green bond. Which means, for example, as part of this green bond, that they avoid the emission that will be calculated would be.

00:57:00.000 --> 00:57:09.000
connected to the project's. that have been funded by this green bond, and not by the whole or entire companies.

00:57:09.000 --> 00:57:15.000
a product that have been sold. or projects that have been developed.

00:57:15.000 --> 00:57:24.000
Um, as it relates to the… calculation, um… Of what it means for other.

00:57:24.000 --> 00:57:30.000
asset classes, for example. If a financial institution is invested.

00:57:30.000 --> 00:57:34.000
in a net-zero building that is avoided emissions compared to.

00:57:34.000 --> 00:57:41.000
a conventional, um, gray or brown. building that is used for commercial purposes.

00:57:41.000 --> 00:57:45.000
Then in that case, you will look at the commercial real estate asset class guidance from PCAF.

00:57:45.000 --> 00:57:53.000
And the exhibition factor, similarly. will be based on the corresponding attribution, which essentially refers to the.

00:57:53.000 --> 00:57:59.000
outstanding amount by the property value at origination. Um, so very simply.

00:57:59.000 --> 00:58:07.000
To summarize, uh, this is about ensuring. Um, consistency in terms of attribution method.

00:58:07.000 --> 00:58:15.000
with the corresponding asset class. And keeping in mind this distinction between general corporate instruments and specific corporate instruments.

00:58:15.000 --> 00:58:27.000
where applicable. Then, moving on to the next page… when it comes to data requirements for operated emissions.

00:58:27.000 --> 00:58:34.000
Uh, those of you who are familiar with the PCAF guidance will recognize the data quality score.

00:58:34.000 --> 00:58:42.000
tradition, but we'll probably observe an important distinction, which is the fact that here the score ranges only from 1 to 3.

00:58:42.000 --> 00:58:50.000
instead of 1 to 5. Um, so the levels 1 to 3 are broadly similar, with a broader VCF guidelines, so the highest.

00:58:50.000 --> 00:58:55.000
data quality score. Um, relates to reported avoided emissions.

00:58:55.000 --> 00:59:03.000
But importantly, this reported emissions should be. Based on the credible standards and framework.

00:59:03.000 --> 00:59:11.000
Um, secondly. Uh, data quality will be slightly lower if these are unverified.

00:59:11.000 --> 00:59:17.000
avoided emissions, so not audited. avoided emissions that have been reported by the counterparty.

00:59:17.000 --> 00:59:23.000
Uh, based, again, on a credible standout, that's a score… that's a 2.8.

00:59:23.000 --> 00:59:30.000
Data Quality Score 2. If the data not available, then the recommendation.

00:59:30.000 --> 00:59:36.000
is to utilize physical activity-based data. to build and estimate.

00:59:36.000 --> 00:59:41.000
Uh, using primary data. Uh, for example, energy consumption or production.

00:59:41.000 --> 00:59:54.000
Combining emissions factors with the counterfactual scenario. Um, an important point to, um… highlight? Is that… there's no recommendation.

00:59:54.000 --> 00:59:59.000
to use economic intensities. This is why you don't see a data quality.

00:59:59.000 --> 01:00:08.000
score of 4, 5. Um… such as input-output models. There is an explicit language in the standard.

01:00:08.000 --> 01:00:11.000
to not estimate aboard emissions based on this logic.

01:00:11.000 --> 01:00:17.000
because of the recognition that the… of the level of uncertainty.

01:00:17.000 --> 01:00:22.000
and credibility challenges. associated with this methodology.

01:00:22.000 --> 01:00:30.000
assumption. Um, so bottom line for this page, this is about, uh.

01:00:30.000 --> 01:00:40.000
using verified data, verified reported data. when available, and verified reported data next, and physical activity pays estimates.

01:00:40.000 --> 01:00:46.000
as a fallback in the logic. Now, if we turn to.

01:00:46.000 --> 01:00:51.000
The reporting recommendations. Uh, once these emissions have been, uh.

01:00:51.000 --> 01:00:56.000
calculated data quality. is obviously key.

01:00:56.000 --> 01:01:00.000
And particularly for our budget emissions, as I mentioned during the.

01:01:00.000 --> 01:01:04.000
introduction, since there is no standard to report them.

01:01:04.000 --> 01:01:09.000
That means that there is an additional effort expected.

01:01:09.000 --> 01:01:13.000
from the financial institution. Given the higher level of scrutiny.

01:01:13.000 --> 01:01:19.000
And that includes on the left-hand side. Um, the expectation, the recommendation.

01:01:19.000 --> 01:01:25.000
to set up an internal assurance process. To check the consistency.

01:01:25.000 --> 01:01:31.000
and quality, which may involve spotting evidence. before disclosing avoiding emissions.

01:01:31.000 --> 01:01:38.000
and engaging with various stakeholders, market participants, such as data vendors, clients, internal teams.

01:01:38.000 --> 01:01:46.000
to align with best practices. On the reporting side, um… there's an additional.

01:01:46.000 --> 01:01:51.000
element that was not part of the draft's. for the consultation.

01:01:51.000 --> 01:01:56.000
Which is the distinction between climate solutions and enabling.

01:01:56.000 --> 01:02:05.000
activities. Um, today is a recommendation, essentially, to. distinguish the two, so to report separately.

01:02:05.000 --> 01:02:12.000
Avoid emissions associated with climate solutions. from the ones associated with enabling activities.

01:02:12.000 --> 01:02:22.000
A classic example of this. will be, um, the avoid emissions related to electric vehicles, battery electric vehicles.

01:02:22.000 --> 01:02:27.000
classifies as a climate solution what the enabling activity will be.

01:02:27.000 --> 01:02:37.000
an element, a product, a technology, an equipment. That is fully dedicated to this battery electric vehicles, such as a semiconductor, or other.

01:02:37.000 --> 01:02:42.000
That will only be, uh, one… one component, one part of the entire.

01:02:42.000 --> 01:02:47.000
Um, climate solution, and we think it's important to distinguish the two.

01:02:47.000 --> 01:02:53.000
Um, then the user separate disclosures between use of proceeds and general.

01:02:53.000 --> 01:02:57.000
financing. Uh, so similar to, again, what was presented before.

01:02:57.000 --> 01:03:02.000
The disclosure on avoid emissions, for example, for green bonds should be.

01:03:02.000 --> 01:03:07.000
Uh, in this case, kept separate from the general financing.

01:03:07.000 --> 01:03:13.000
Um, in short, this is about applying, uh, greater scrutiny, validating the data.

01:03:13.000 --> 01:03:17.000
and making sure that the reporting is clear and consistent.

01:03:17.000 --> 01:03:23.000
to elaborate even further on this avoided emissions reporting.

01:03:23.000 --> 01:03:31.000
guidance? some additional, um… language has been also added.

01:03:31.000 --> 01:03:37.000
and tightened as part of the. standard, again, as a result of the constitution.

01:03:37.000 --> 01:03:45.000
On the next page.

01:03:45.000 --> 01:03:57.000
Gaspar mentioned in the introduction that. avoided emissions is… optional, uh, but then if… an organization chooses to disclose these avoid emissions.

01:03:57.000 --> 01:04:03.000
Then, a number of elements are required based on the PCAF standout.

01:04:03.000 --> 01:04:07.000
Uh, what's required is on the left-hand side, so that includes reporting, uh.

01:04:07.000 --> 01:04:13.000
separately, avoid emissions from absolute emissions. our emissions removal.

01:04:13.000 --> 01:04:24.000
Secondly, when calculating avoid emissions. As mentioned, it should be based on physical activity when it's estimated, and a credible methodology.

01:04:24.000 --> 01:04:35.000
And thirdly, that it should also relate to. Um, activities… Uh, that have occurred outside the counterparty's value chain.

01:04:35.000 --> 01:04:40.000
And then on the right-hand side, this is about the reporting recommendations.

01:04:40.000 --> 01:04:51.000
Uh, so… here, it includes. the fact that if the counterparty is not disclosing avoiding emissions, then there is a recommendation to be.

01:04:51.000 --> 01:04:58.000
granular, and to be as specific as possible. For example, based on country or regional data.

01:04:58.000 --> 01:05:04.000
Um, reporting separately UOPE, so user proceeds from General Instruments, I've already mentioned it.

01:05:04.000 --> 01:05:12.000
And then the data quality score. Um, again, I would reiterate, uh, this is about keeping the reporting clear.

01:05:12.000 --> 01:05:21.000
Separate, transparent. Uh, and making sure that, um, the reader is able to distinguish reported data from estimates.

01:05:21.000 --> 01:05:28.000
Moving on to the last part of the avoided emissions presentation and guidance.

01:05:28.000 --> 01:05:33.000
Uh, this involves. The grad waves.

01:05:33.000 --> 01:05:40.000
That are highlighted as part of the guidance. Um, many of them basically re-emphasize what I have previously.

01:05:40.000 --> 01:05:49.000
presentido already. or build on it. That includes number one, the establishment of a data quality.

01:05:49.000 --> 01:05:58.000
assurance policy, for example, that means. setting up internal processes to validate ABOD emissions data and ideally disclosing them.

01:05:58.000 --> 01:06:08.000
Uh, second, that's about… Uh… Assessing the reported data to evaluate methodology transparency, so be critical.

01:06:08.000 --> 01:06:13.000
When it comes to, uh, utilizing data that are externally reported.

01:06:13.000 --> 01:06:17.000
Just to give you an example, in the context of green bonds.

01:06:17.000 --> 01:06:21.000
There are many… there are some issues that may report data.

01:06:21.000 --> 01:06:26.000
Not based on the same assumptions, or same time frame.

01:06:26.000 --> 01:06:32.000
As other issues, so it's important to reprocess. this data and engage where appropriate.

01:06:32.000 --> 01:06:41.000
to ensure that these estimates are credible and can be compared, and… And put together, uh, in the context of an Aboriginal.

01:06:41.000 --> 01:06:48.000
Thirdly, this is about the granularity. Uh, and the specificity of the counterfactual scenario.

01:06:48.000 --> 01:06:54.000
Uh, so, when using physical activity, using the most granular and conservative.

01:06:54.000 --> 01:07:01.000
scenario is important. So that there is no overestimation of the avoided emissions.

01:07:01.000 --> 01:07:06.000
And last but not least, uh, this is about setting minimum data standards.

01:07:06.000 --> 01:07:12.000
Uh, so requiring control parties to use the best available, most credible.

01:07:12.000 --> 01:07:22.000
methods, third-party verification. And disclosing the assumption, sources, and… uncertainties, particularly for the counterfactual scenarios.

01:07:22.000 --> 01:07:30.000
So, to conclude, uh, this is… essentially about the importance of having strong.

01:07:30.000 --> 01:07:37.000
hardwales to ensure the consistency, credibility. And thus, uh, build trust in these avoided emissions.

01:07:37.000 --> 01:07:46.000
Uh, figures, um, reporting. Now, let's move to the last part of today's, uh.

01:07:46.000 --> 01:07:54.000
webinar, um, which is comprised of forward-looking. uh, metrics. That's probably the most.

01:07:54.000 --> 01:07:59.000
uh, innovative, but also complex part of the PCAF guidance.

01:07:59.000 --> 01:08:05.000
that we are presenting today. related to a lot of, uh, innovative.

01:08:05.000 --> 01:08:15.000
approaches associated with finance emissions. Um, this forward-looking metrics are primarily designed.

01:08:15.000 --> 01:08:19.000
for use in the context of transition finance. So, essentially, financing.

01:08:19.000 --> 01:08:28.000
real economy, uh, decarbonization, and the transition. from hire meeting technologies and business models towards lower.

01:08:28.000 --> 01:08:34.000
Imaging, uh, products and services. They essentially allow.

01:08:34.000 --> 01:08:42.000
financial institutions to demonstrate. Uh, tips don't share that certain companies in their portfolios are expected to reduce emissions.

01:08:42.000 --> 01:08:51.000
Or help achieve emissions avoidance in the future. Uh, some of his commitments can be formalized through dedicated.

01:08:51.000 --> 01:09:01.000
um, labeled instruments, for example. system killing bonds tied to decarbonization targets and expected emissions changes.

01:09:01.000 --> 01:09:06.000
Uh, you can think about the, uh, example of, um.

01:09:06.000 --> 01:09:14.000
or how you're a meeting company can be a… an airline that has a very ambitious emission reduction target, and is willing to calculate.

01:09:14.000 --> 01:09:21.000
The expected absolute emission reduction. in the future, and for expected other emissions, the second KPI.

01:09:21.000 --> 01:09:33.000
presented here about, uh, again, the renewable energy. Um, manufacturer… Um, that is expected, essentially, to materially reduce emissions.

01:09:33.000 --> 01:09:40.000
Uh, across the economy. So, I'll be elaborating on these two metrics today.

01:09:40.000 --> 01:09:46.000
Uh, number one, expected absolute. emissions reductions. And number two.

01:09:46.000 --> 01:09:54.000
expected, avoided. emissions. And there are a number of differences between the two that are outlined in this.

01:09:54.000 --> 01:10:00.000
uh, table. Uh, so the first metric, expected absolute emissions very quickly.

01:10:00.000 --> 01:10:08.000
So the main objective, uh, is still to. capture the potential emission reductions of an organization.

01:10:08.000 --> 01:10:14.000
Within its own emissions boundary. So, building on Scope 1 to 3.

01:10:14.000 --> 01:10:22.000
applied at the organizational level, so company level. Um… and the reference point here is companies' historical.

01:10:22.000 --> 01:10:31.000
emissions, and the benchmark is. The protected reduction in its emissions, for example, thanks to its greenhouse gas emission reduction target.

01:10:31.000 --> 01:10:43.000
For the signal metric expected avoid emissions. it's building on the first part of my presentation, which is about capturing the potential decarbonization impact that will generally occur outside.

01:10:43.000 --> 01:10:50.000
and entities, um, value chain. Uh, another example, besides renewable energy can be.

01:10:50.000 --> 01:10:57.000
Uh, building materials that are expected to lead to material greenhouse gas emissions savings.

01:10:57.000 --> 01:11:03.000
within the real estate sector, for example. And here's the use of a counterfactual scenario to compare.

01:11:03.000 --> 01:11:10.000
what this, uh, for example, building materials will entail as emission savings compared to a situation where you are using traditional.

01:11:10.000 --> 01:11:16.000
Um, high emitting, uh, building materials. On the next page.

01:11:16.000 --> 01:11:21.000
There are, um… more details.

01:11:21.000 --> 01:11:29.000
Uh, on… regarding the… differences between these two indicators. So, this table is based on a.

01:11:29.000 --> 01:11:38.000
simplification of some of the commonly observed. differences between expected missions and expected emissions reductions.

01:11:38.000 --> 01:11:47.000
Uh, so that may include the… importance of the scenario and the incorporation of assumptions related to the growth factor.

01:11:47.000 --> 01:11:54.000
For example, for expected awarded emissions. There is a greater emphasis on how the performance.

01:11:54.000 --> 01:12:01.000
compared to different alternatives. And typically, that will involve an assumption regarding the expected growth.

01:12:01.000 --> 01:12:07.000
of a product, or an activity, for example, if a cement company plans to increase the production.

01:12:07.000 --> 01:12:14.000
avoided emissions can show the impact. compared to the scenario where these emissions.

01:12:14.000 --> 01:12:25.000
Um, we're reduced without increasing. the production, which is typically, uh, not, uh, a level of assumption that would be.

01:12:25.000 --> 01:12:34.000
taken for absolute emissions reduction. Secondly, the tracking. is also an important, uh, likely difference in practice.

01:12:34.000 --> 01:12:39.000
So the expected emissions reductions. can be monitored continuously.

01:12:39.000 --> 01:12:44.000
Well, for the expected avoided emissions. they are calculated only once.

01:12:44.000 --> 01:12:49.000
at the contracting, so at the time of the investment, for example, for an asset manager.

01:12:49.000 --> 01:12:59.000
And it's harder to track later on. Um, then the ongoing savings for points, uh, the expected emissions reductions.

01:12:59.000 --> 01:13:04.000
doesn't capture them after… installation.

01:13:04.000 --> 01:13:11.000
For example, if her… Look at when equipment is being replaced, the emissions reduction is only reflected in the year.

01:13:11.000 --> 01:13:19.000
When the new equipment is installed. But afterwards, the absolute emissions remain stable, while in the case of expected away emissions.

01:13:19.000 --> 01:13:23.000
This could be captured as long as the counterfactual scenario.

01:13:23.000 --> 01:13:29.000
remains applicable. Then, in terms of scope. have already mentioned that.

01:13:29.000 --> 01:13:35.000
Uh, one is related to the asset's value chain, where the expected.

01:13:35.000 --> 01:13:40.000
emissions reductions. is basically about the asset inventory.

01:13:40.000 --> 01:13:45.000
Um, sorry, what's the expected level emissions is related to outside the assets.

01:13:45.000 --> 01:13:50.000
value chain. And then the last, uh, the two last points, number one, the complexity.

01:13:50.000 --> 01:13:58.000
So, the level of complexity is… generally higher for expected emissions, given the reliance on the counterfactual assumptions.

01:13:58.000 --> 01:14:03.000
Uh, and the last point on the safeguards, so the expected emissions, uh.

01:14:03.000 --> 01:14:16.000
productions has built-in safeguards against overestimations. Where basically there's recommendation for institutions to report expected emissions reductions in subsequent years.

01:14:16.000 --> 01:14:25.000
against actual emissions. Uh, this means that if you overestimate your expected emissions reduction at the time of the investment or contracting.

01:14:25.000 --> 01:14:31.000
then that will result in underperformance. Uh, later on.

01:14:31.000 --> 01:14:39.000
Moving on to the world rails. that relate to forward-looking emissions metrics.

01:14:39.000 --> 01:14:46.000
They broadly mirror what I presented for above the emissions, so I'm not planning to cover all of them.

01:14:46.000 --> 01:14:51.000
Uh, uh, so that it's not too repetitive for all of you.

01:14:51.000 --> 01:14:57.000
Uh, but… Basically, that they include, number one.

01:14:57.000 --> 01:15:02.000
Um, the… again, the separation… Between these forward-looking emissions.

01:15:02.000 --> 01:15:07.000
from other traditional carbon indicators, like absolute emissions, avoided emissions and removal.

01:15:07.000 --> 01:15:15.000
Uh, number two, reporting this forward-looking emissions metrics. Separately, are disclosed.

01:15:15.000 --> 01:15:24.000
Third, transparency about definitions, assumptions, and methodologies used. fourth attribution consistency.

01:15:24.000 --> 01:15:31.000
thief, uh, disclosing the scope and the coverage of this forward-looking emissions metric as a share of the total portfolio.

01:15:31.000 --> 01:15:40.000
who allowed contextualize them. Uh, and all these steps will basically ensure clarity, consistency, and credibility.

01:15:40.000 --> 01:15:45.000
Moving on to the next page, for the additional reporting requirements.

01:15:45.000 --> 01:15:53.000
Uh, so there are some additional considerations here. Uh, number one, uh, is the expected.

01:15:53.000 --> 01:16:03.000
emissions changes, so… Citizens should state whether the absolute emission for the base year and the expected year are based on the company's reported data.

01:16:03.000 --> 01:16:09.000
or estimated, uh, or derived by the financial institution. Number two, the credibility assessment.

01:16:09.000 --> 01:16:12.000
So, in the case of a company's targets, for example.

01:16:12.000 --> 01:16:16.000
One may utilize a framework such as a GEFANS.

01:16:16.000 --> 01:16:22.000
weighty target assessment to be able to. Uh, analyze the credibility.

01:16:22.000 --> 01:16:26.000
likelihood or probability of a company to meet that target.

01:16:26.000 --> 01:16:32.000
Number 3, there's a recommendation to be transparent about the use of a discount rate, if any.

01:16:32.000 --> 01:16:37.000
And number 4, um… Also, an expectation to be.

01:16:37.000 --> 01:16:45.000
transparent with regard to the time frame. that has been used for this calculation.

01:16:45.000 --> 01:16:53.000
Um… Then, general consideration across all these aspects is to be consistent, again, whenever possible.

01:16:53.000 --> 01:16:59.000
So that if a variable is applied for one entity, then it must be applied across the four looking indicators.

01:16:59.000 --> 01:17:06.000
that are being used more broadly. Uh, let's move to the calculation now.

01:17:06.000 --> 01:17:07.000
and bring this to life.

01:17:07.000 --> 01:17:15.000
So, Samuel, I lost it? I was thinking, in view of time, the next section is really on the.

01:17:15.000 --> 01:17:18.000
on the calculation methodologies, but I also want to take some time.

01:17:18.000 --> 01:17:25.000
for questions, so I was thinking maybe we can… we will share the… The detailed calculation, guidance, and the slides.

01:17:25.000 --> 01:17:33.000
Um… with everyone on our website, but I thought it's probably good to take some time for questions now, if that's okay.

01:17:33.000 --> 01:17:36.000
Does it work for you, Samuel? Yeah? Alright.

01:17:36.000 --> 01:17:38.000
Sounds good.

01:17:38.000 --> 01:17:48.000
So, a lot of ground to cover, as you see, uh… Um, so let's ease into the questions.

01:17:48.000 --> 01:17:55.000
And I think the first one is, I think already partly addressed, but let's just do it. So, can you explain.

01:17:55.000 --> 01:18:00.000
The notion of avoided emissions, uh. with an example, so if a project.

01:18:00.000 --> 01:18:05.000
Uh, that is a potential source of emissions is not undertaken.

01:18:05.000 --> 01:18:11.000
If that would also be justified as a starting point for calculated void emissions.

01:18:11.000 --> 01:18:15.000
Um… or not.

01:18:15.000 --> 01:18:24.000
Yeah, I think the key or most common example we can think of, or the way to describe it, is to compare.

01:18:24.000 --> 01:18:31.000
business as usual. So, what if… This particular solution is not introduced.

01:18:31.000 --> 01:18:36.000
In terms of examples, I have mentioned a few already, so renewable.

01:18:36.000 --> 01:18:43.000
equipment being sold. the low-carbon vehicle, battery electric vehicle.

01:18:43.000 --> 01:18:49.000
Again, being manufactured and sold. Same for. insulation or energy savings.

01:18:49.000 --> 01:19:01.000
a product, uh, but we… can think about, uh, maybe another, um… type of example within the value chain, so if a utility.

01:19:01.000 --> 01:19:09.000
is developing a solar farm or wind park. then there would be a comparison of the very low.

01:19:09.000 --> 01:19:15.000
carbon emissions of Scope 1 and 2. of this renewable energy.

01:19:15.000 --> 01:19:22.000
project, compared to the current. energy… the current greenhouse gas emissions.

01:19:22.000 --> 01:19:29.000
intensity and profile of the grid. Based on high and low carbon sources of energy.

01:19:29.000 --> 01:19:33.000
And the comparison of the two, again, scenario where.

01:19:33.000 --> 01:19:39.000
There is no additional renewable, um… generation added to the grid.

01:19:39.000 --> 01:19:43.000
with a scenario where it is being introduced will lead to this, uh.

01:19:43.000 --> 01:19:53.000
avoided emissions calculation. I would recommend maybe to… build a connection between this presentation and the previous one, to look at the typical green bones.

01:19:53.000 --> 01:20:02.000
Avoided emissions as part of their impact. An allocation report, where there are various detailed calculations that provide.

01:20:02.000 --> 01:20:07.000
occasion point, uh, to illustrate what I've just mentioned.

01:20:07.000 --> 01:20:12.000
And then just to clarify as well, if just the fact that the project.

01:20:12.000 --> 01:20:20.000
Uh, is not undertaken, or a potential sort of omission is not undertaken, is not in itself sufficient to claim avoidance. It should really be.

01:20:20.000 --> 01:20:27.000
Compared to, uh, yeah, an already ambitious counterfactual scenario, uh.

01:20:27.000 --> 01:20:35.000
So then the next question, and I will try to help you address some of them as well, if I can. So I have a question about within and outside of the.

01:20:35.000 --> 01:20:39.000
The counterparty's value chain. What is the rationale for PCAF distinction on.

01:20:39.000 --> 01:20:49.000
Page 8 of the, uh, standard that finance emissions from general corporate instruments shall be accounted for in cases where they have occurred outside of the company's value chain.

01:20:49.000 --> 01:20:56.000
For example, what if a general corporate instrument, so let's say an investment, an equity investment in a.

01:20:56.000 --> 01:21:05.000
To an issuer is deliver… is awarded to an issuer that the… that is also delivering emission reduction in their own value operations.

01:21:05.000 --> 01:21:10.000
For example, utility that is shifting its power mix to more clean power.

01:21:10.000 --> 01:21:24.000
Well, in this case, I can address this. This would already, if you… The counterpart of avoided emissions and investment is always also just the finance emissions, so any investment still has also finance emissions as a result.

01:21:24.000 --> 01:21:31.000
these finance emissions will already go down. If you provide a general corporate loan or an equity investment into this company.

01:21:31.000 --> 01:21:36.000
And that company is decarbonizing finance emissions go down.

01:21:36.000 --> 01:21:40.000
within their value chain, and as a result, also your finance emissions go down.

01:21:40.000 --> 01:21:47.000
Uh, so therefore, it would not be appropriate to also claim avoided emissions already. So that is an example, you know, if this company.

01:21:47.000 --> 01:21:53.000
is actually implementing solutions outside of its value chain, or selling products that save.

01:21:53.000 --> 01:22:01.000
emissions elsewhere, that would be. avoid admissions, and that's why that distinction is relevant.

01:22:01.000 --> 01:22:07.000
Um… if using different approaches to calculate the voided emissions across investments.

01:22:07.000 --> 01:22:13.000
Um, can you combine these two when communicating a portfolio-level avoided emissions?

01:22:13.000 --> 01:22:19.000
figure, or shoot you threads carefully here.

01:22:19.000 --> 01:22:20.000
And, for example, if you use a lifecycle approach versus an annual approach.

01:22:20.000 --> 01:22:25.000
Okay.

01:22:25.000 --> 01:22:32.000
Uh, and avoid admissions have diff- may have different… Uh, yeah, lifetimes.

01:22:32.000 --> 01:22:37.000
I would, um, reiterate. The… some of the key, uh, principles.

01:22:37.000 --> 01:22:45.000
that, uh, were pointed out as part of the presentation with the question of consistency of the timeline.

01:22:45.000 --> 01:22:58.000
Uh, with regards to the submission that. This should be essentially a… Um, if they are being annualized, that all the input, all the raw data that are being used for this calculation should be.

01:22:58.000 --> 01:23:07.000
based on the same timeline for consistency purposes. Um, then, as part of the data quality score, there is an implicit.

01:23:07.000 --> 01:23:13.000
Recognition, that obviously, uh, is not. possible in practice.

01:23:13.000 --> 01:23:19.000
to have only one method. And data source, that there can be a combination of.

01:23:19.000 --> 01:23:27.000
reported and estimated data. Uh, with an encouragement to, again.

01:23:27.000 --> 01:23:37.000
strive for consistency. And comparability and robustness, uh, whenever possible, and err on the side of caution to avoid overestimate.

01:23:37.000 --> 01:23:47.000
And therefore, best to, uh… exclude an avoid emission type if there is a risk or significant risk of overestimate, or.

01:23:47.000 --> 01:23:56.000
materially inconsistency. Uh, with user, um… data that are being utilized.

01:23:56.000 --> 01:24:07.000
Thank you, and uh… Um, in general, you know, there can be the interest to show total portfolio level impact, but these metrics are typically also really.

01:24:07.000 --> 01:24:16.000
helpful, and maybe most helpful to assess individual projects or cases to see the impact of those specific investments.

01:24:16.000 --> 01:24:25.000
Uh, then a table, I think the table that you presented covered finance and avoid admissions, and reported based on direct counterparty data.

01:24:25.000 --> 01:24:35.000
Or, based on physical activity. of the counterparty. What about estimated finance avoided emissions? What data quality score should estimations have?

01:24:35.000 --> 01:24:40.000
are estimated the same as calculated.

01:24:40.000 --> 01:24:41.000
I… I think… Yeah. Cool.

01:24:41.000 --> 01:24:49.000
Yeah, I think in this case… oh, please. I think in this case, the estimate, uh, this is calculated.

01:24:49.000 --> 01:24:54.000
interchangeable, and you conduct a physical estimate. Uh…

01:24:54.000 --> 01:24:59.000
Yeah, so we allow… typically, we have 5 levels of data quality scoring in this case.

01:24:59.000 --> 01:25:04.000
We exclude economic emissions of avoided emissions estimates. We've.

01:25:04.000 --> 01:25:09.000
felt that, or the working group felt. That at least you should have actual physical data of the.

01:25:09.000 --> 01:25:14.000
The project or the company you're investing in, and if it's avoiding emissions, to have a reasonable.

01:25:14.000 --> 01:25:19.000
estimate of the calculation. estimation of the voided emissions.

01:25:19.000 --> 01:25:26.000
And that can be either directly measured or reported data, or then estimated, but based on physical data for… so, for example, the total.

01:25:26.000 --> 01:25:32.000
Total, uh, uh… gigawatts of solar installed on a certain site, etc.

01:25:32.000 --> 01:25:37.000
Uh, so not just only knowing the level of investment.

01:25:37.000 --> 01:25:44.000
Um… Then there is a question, this is… I'm not sure if.

01:25:44.000 --> 01:25:51.000
If… yeah, I think this is the one on vendors I'm going to skip, because we don't want to necessarily promote one or the other, but I do know that.

01:25:51.000 --> 01:25:58.000
vendors or data providers are collecting better data, and there's some projects online as well.

01:25:58.000 --> 01:26:03.000
on getting, uh, emission factors for. For, uh, avoided emissions data.

01:26:03.000 --> 01:26:09.000
Um, let's see, the peak of data quality score for energy consumption for voided emissions.

01:26:09.000 --> 01:26:15.000
Why is this 2 for energy production? It's 3. No, okay.

01:26:15.000 --> 01:26:33.000
I don't think this is 100% clear. Um… So, given the fact that counterfactual is mostly hypothetical, what is the need to report avoided emissions in terms of the energy transition?

01:26:33.000 --> 01:26:38.000
I… can you… do you have an idea on the answer here?

01:26:38.000 --> 01:26:39.000
What is… what is the need for reporting of ID emissions in the context of the energy transition?

01:26:39.000 --> 01:26:44.000
I can also otherwise take a step.

01:26:44.000 --> 01:26:45.000
Is the question? Right, uh…

01:26:45.000 --> 01:26:51.000
Yeah. In general, the counterfactual is hypothetical, but of course, the intention is to.

01:26:51.000 --> 01:27:00.000
To really, uh… choose it as such that it is representative of what exactly is happening without the investment, right?

01:27:00.000 --> 01:27:02.000
Indeed.

01:27:02.000 --> 01:27:08.000
Yeah. So, uh, the idea is that through investment, you can unlock.

01:27:08.000 --> 01:27:19.000
Uh, specific, uh, yeah. specific projects, or activities that might still reduce carbon compared to the situation where this is not happening.

01:27:19.000 --> 01:27:27.000
To give you maybe an example, uh… If you exclusively focus on emissions induced.

01:27:27.000 --> 01:27:33.000
by object, and you look at certain, uh… sectors that are inherently high.

01:27:33.000 --> 01:27:40.000
Imaging, such as UCTs or hardware-based sectors. then you can be disincentivized.

01:27:40.000 --> 01:27:46.000
to invest into the solution that they provide, or the solution that other companies provide.

01:27:46.000 --> 01:27:53.000
to reduce their emissions on the go-forward basis. Uh, if you only look at historical Scope 1 to 3 emissions.

01:27:53.000 --> 01:27:57.000
So the benefit of incorporating average emissions is to illustrate.

01:27:57.000 --> 01:28:03.000
the potential reduction in wheel economy emissions as a result of this low.

01:28:03.000 --> 01:28:11.000
emitting technologies or climate solutions that will allow them to reduce their emissions over time. So, taking this forward-looking.

01:28:11.000 --> 01:28:17.000
Uh, approach, uh, is basically a key. benefit.

01:28:17.000 --> 01:28:22.000
So I'm able to read ahead, so I can address a question quickly.

01:28:22.000 --> 01:28:28.000
on avoided missions if they can also be calculated for mortgage funding a new single-family home.

01:28:28.000 --> 01:28:33.000
If the counterfactual can, for example, is the average single home… family home.

01:28:33.000 --> 01:28:38.000
Built in the same country. I think, but correct me if I'm wrong, Samuel, if.

01:28:38.000 --> 01:28:48.000
As long as the marks, or the new single-family home is indeed clearly more efficient than what is currently mandated, for example, by policy or by law.

01:28:48.000 --> 01:28:54.000
This could be a valid case for, uh… Or avoid admissions, is that correct?

01:28:54.000 --> 01:28:59.000
This is my understanding indeed. Uh, so that's an energy-efficient home.

01:28:59.000 --> 01:29:05.000
And there is a material emission reduction compared to, uh, the status quo.

01:29:05.000 --> 01:29:10.000
And there's a case for measuring it.

01:29:10.000 --> 01:29:19.000
Let's see… There's one clarification now, and I think that should be the last question, but you can always.

01:29:19.000 --> 01:29:23.000
Signatories can always reach out with questions also to our mailbox, but.

01:29:23.000 --> 01:29:40.000
The clarification on the question, uh, before… Uh, if we can explain why there is a difference in data quality score between energy consumption 2 and energy production 3.

01:29:40.000 --> 01:29:41.000
The data quality score is not based on consumption versus.

01:29:41.000 --> 01:29:45.000
But I guess.

01:29:45.000 --> 01:29:52.000
production is based on the reporting. Uh, type the auditing external verification or not.

01:29:52.000 --> 01:29:57.000
Uh, and the use of the estimate when they tell not.

01:29:57.000 --> 01:30:00.000
We ported our credible data. are not reported.

01:30:00.000 --> 01:30:06.000
Yeah, so I guess an example that has this distinction, if you know the actual.

01:30:06.000 --> 01:30:11.000
energy consumed by a product, or the actual emissions of a.

01:30:11.000 --> 01:30:22.000
a project that is primary data from that project, which you then can multiply with the appropriate emission factor to come to the actual emissions, and data quality scores then, whether it's verified.

01:30:22.000 --> 01:30:26.000
and data quality score 3. tattoo is when it's not verified.

01:30:26.000 --> 01:30:33.000
Uh, however, sometimes you don't have this direct. consumption data, so the consumption is directly linked.

01:30:33.000 --> 01:30:41.000
to, um, to the emissions. But you might know the total production over a year of a certain facility.

01:30:41.000 --> 01:30:46.000
And then you can use that to estimate the emissions, or the voided emissions.

01:30:46.000 --> 01:30:51.000
Uh, by using average… for example, average energy consumption per.

01:30:51.000 --> 01:30:58.000
For a certain metric. So I think that is… this is the difference, but as you said, the clear difference is, do you have actual reported.

01:30:58.000 --> 01:31:06.000
consumption slash emission data from a project. Or, if not, do you try to estimate that through to another physical metric?

01:31:06.000 --> 01:31:20.000
And that is data quality score 3. I hope it clarifies. This is a really specific and technical topic. I can imagine there's loads of questions, but uh… PKF is there for its partners and signatories to, uh, to, uh.

01:31:20.000 --> 01:31:31.000
support when people start implementing the methodologies. I hope this presentation has been useful for you. I want to thank the presenters, Samuel and Sam.

01:31:31.000 --> 01:31:37.000
for their work, and we'll probably be in touch over the coming period when we're… while we're implementing these standards.

01:31:37.000 --> 01:31:42.000
Thank you for being with us, and being so engaged and asking so many questions.

01:31:42.000 --> 01:31:47.000
And as you may know, there's another webinars coming up in the next two weeks.

01:31:47.000 --> 01:31:52.000
on the other methodologies, which are also very much worth visiting. So, hope to see you there.

01:31:52.000 --> 01:31:55.000
And have a great day.

01:31:55.000 --> 01:32:01.000
Thank you