PCAF launches a new Accounting and Reporting Standard for Capital Markets

PCAF launches a new Accounting and Reporting Standard for Capital Markets

The Standard enables financial institutions to measure and disclose the GHG emissions associated with off-balance emissions for the first time

1st December 2023, Utrecht, Netherlands: The Partnership for Carbon Accounting Financials (PCAF) today publishes the first-ever Global GHG Accounting and Reporting Standard for Capital Markets (Part B).

Capital markets transactions underpin the global economy but until now there has been no industry-wide standard to account for the greenhouse gas (GHG) emissions associated with their activity. The PCAF Facilitated Emissions Standard allows financial institutions to consistently measure and disclose emissions associated with capital market business lines, complimenting prior guidance to measure and disclose emissions related to lending and investment activities.

The Facilitated Emissions Standard increases transparency across this category of financial transactions – providing an additional layer of information that enables financial institutions to make informed decisions related to climate and emissions.

The Standard covers the primary issuance of capital markets instruments and loan syndication. A primary issuance refers to new securities to provide debt-based or equity-based financing, including new issuance of various types of bonds issued for general purposes, common stock, equity and debt investments in private companies, preferred shares, and syndicated loans.

The Standard affords financial institutions a consistency of approach to measuring emissions, while providing flexibility in reporting as well. Whilst the Standard requires financial institutions to report their facilitated emissions using a 33% weighting factor and disclose the applied weighting factor clearly in its public reports, it also offers the option to additionally report facilitated emissions without weighting, in other words at 100%, as long as this is reported separately with clear rationale.

Reporting facilitated emissions associated with capital market instruments is currently “optional” under the GHG Protocol Scope 3 Standard and has therefore been excluded by many across the industry. A common accounting approach will increase the level of disclosure across the industry, as has been the case with the publication of previous parts of the PCAF Standard.

Angélica Afanador, Executive Director of PCAF comments,

“Capital markets represent a significant portion of global capital flows, yet, until now, there has been no standardized approach to account for their climate impact. This Facilitated Emissions Standard marks a significant milestone in enhancing transparency within the financial sector, adding more depth and granularity to disclosures that will guide financial institutions toward informed climate action. The urgency of the climate situation demands a starting point from which to build on in the future and the publication of this Standard represents a determination to minimize delay towards much-needed progress.”

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Please contact info@carbonaccountingfinancials.com with any questions regarding the Standard.