The Partnership for Carbon Accounting Financials (PCAF) has issued the third edition of its Global GHG Accounting and Reporting Standard for the Financial Industry – Part A: Financed Emissions – one of the most recent significant updates since the framework’s launch in 2015.
The revision reflects the increasing role that PCAF plays in driving the measurement of Scope 3 Category 15 financed emissions and supports the wider balance sheet coverage expected under sustainability reporting frameworks such as IFRS S2, ESRS E1 and California Law across financial institutions (FIs) clients such as Banks, Life insurance companies and Asset Managers.
The standard now spans ten asset classes and introduces new methods for:
- Use-of-proceeds structures,
- Securitized and structured products
- Sub-sovereign debts
Furthermore, the updates outline an optional approach for undrawn commitments and Supplemental guidance on financed avoided emissions and forward-looking metrics intended to support clearer reporting expectations and raises the bar for data quality, governance and transparency.
Although not covered here, we note that updates have also been made to PCAF guidance around Insurance-Associated emissions.
In this article
What does this mean?
1. A more comprehensive financed-emissions standard with wider balance sheet coverage across new asset classes to drive consistency
The third edition of PCAF Part A consolidates and extends the financed‑emissions methodology that many banks, life insurers and asset managers already use whilst increasing balance sheet asset coverage from seven to ten asset classes, enabling many clients to report a greater share of their balance sheet using a common, consistent, industry-led approach for measurement of financed emissions for the aforementioned asset classes which were previously not captured.
More specifically:
- Use‑of‑proceeds structures (e.g. green / transition bonds and funds) with a decision tree to determine when the structure qualifies as use‑of‑proceeds and when it should instead be treated as general corporate exposure.
- Securitisations and structured products, with a look‑through to underlying collateral (e.g. RMBS/CMBS, CLOs, auto ABS) and rules on what is in and out of scope.
- Sub‑sovereign debt, using a territorial approach aligned with (but distinct from) the sovereign‑debt method.
2. Interoperability and consistency in supporting ESRS, IFRS and other sustainability regimes such as California Law
The updated PCAF guidance looks at positioning itself as the bridge to support measurement of Scope 3 Category 15 financed emissions between the GHG Protocol[1] and global reporting standards.
For example, a new, optional method defines how to calculate emissions associated with undrawn loan commitments intended to help banks and insurers meet IFRS S2 requirements for Scope 3 category 15. The method builds on existing PCAF attribution formulas but recognises that undrawn commitments are forward-looking and variable in amount and therefore not yet “financed” in the strict sense, hence the optional status.
For groups with banking, life insurance and asset‑management entities, this makes PCAF Part A an important reference point for aligning financed‑emissions methodologies across multiple regulatory regimes and reporting baselines.
3. Enhancing reporting recommendations and wider financed emissions monitoring
PCAF introduces two new reporting recommendations
- A fluctuation analysis to explain changes in absolute financed emissions between reporting periods, and
- An inflation adjustment for economic‑intensity metrics to reduce distortions from market‑value movements
The above will also support monitoring of financed emissions and wider model risk management for financial institutions.
We also note that in May 2025, PCAF issued a Disclosure Checklist for its signatories to support financed emissions disclosure requirements.
4. Sector-specific considerations
- Banks and life insurers: Supports broader balance sheet coverage – including structured products and sub-sovereign exposures and therefore will bring in additional portfolios into scope.
- Asset managers: The expanded guidance for use-of-proceeds instruments and structured products may influence reporting for multi-asset strategies and sustainability-labelled funds.
While the updated guidance broadens the range of asset classes in scope, PCAF recognises that financial institutions need time to integrate them into their systems and disclosures.
5. Stronger expectations around avoided emissions and removals (where being considered)
The new supplement sets expectations around when and how FIs can claim and disclose avoided emissions.
Where applicable, those FIs that disclose financed avoided emissions must ensure:
- No netting: Avoided emissions and emission removals must be reported separately from scope 1, 2 and 3 financed emissions, and may not be used to reduce those figures.
- Use of credible and transparent methodology: FIs should rely on established methods such as WBCSD avoided‑emissions guidance where possible.
- Conservative counterfactuals: The supplement emphasises that counterfactual scenarios (the “baseline” against which avoided emissions are measured) must reflect realistic market, policy and technology trends, avoid double‑counting decarbonisation that would happen anyway (e.g. mandatory grid decarbonisation), and use conservative assumptions.
Within the core standard, PCAF also tightens rules for how removals are treated in project-finance structures, requiring institutions to separate removals and crediting from gross financed emissions.
What do firms need to do?
1. Holistic gap assessment approach across PCAF guidance, prevailing sustainability reporting frameworks and regulatory risk management expectation
Taking into consideration materiality, prevailing and upcoming sustainability reporting regimes such as ESRS E1, IFRS S2 and California law, FIs should consider carrying out a gap assessment to understand the impact of the recent PCAF updates (both for existing and new in scope asset classes).
This can support a phased approach to alignment and disclosure in line with emerging jurisdictional requirements.
Furthermore, FIs should consider overlaying this assessment with requirements under recent regulatory risk management expectations (where applicable) such as SS5/25 from the Bank of England or EBA/GL/2025/01 e.g. embedding climate risk into credit risk process.
2. Prioritise high impact areas and strengthen data foundations
Firms may wish to focus uplift efforts where emissions and methodological complexity are greatest—such as structured products, use-of-proceeds structures and undrawn commitments.
This can be supported by a multi-year data strategy that improves access to borrower emissions and activity data, incorporates third-party sources, and establishes effective and efficient approaches to sourcing high-quality data over time.
3. Aligning sustainability reporting to net zero strategy
Consideration should be given to impact of increased balance sheet coverage triggering re-calculation of baseline years and associated impact on target tracking in line with wider risk appetite and corporate strategy.
Supported by PCAF guidance on measurement of financed emissions, clearer and more consistent reporting guidance can help firms monitor progress and communicate their climate narrative more effectively – an increasingly important capability as organisations reassess targets and ambition levels.
Supervisors continue to emphasise the quality and usefulness of climate disclosures. Explaining year-on-year movements – whether from methodology changes, portfolio shifts or economic drivers – remains important for maintaining confidence in reported information.
Improved emissions data can also sharpen sector-transition planning, strengthen client-engagement strategies and inform capital-allocation decisions. As expectations across climate-risk management, disclosure and transition planning continue to converge, organisations that bring these elements together—rather than treating PCAF updates as a standalone exercise — can help firms demonstrate a more coherent and forward-looking approach to climate-related financial risks.
Next steps
By treating the latest PCAF updates as more than a technical refresh – and instead as a framework to align banking, life insurance and asset‑management portfolios on a consistent basis – financial institutions can both meet evolving reporting regimes and strengthen the credibility of their net‑zero strategies.
PCAF guidance for Scope 3 Category 15 continues to be the foremost financed emissions calculation methodology globally.
This is reflective of the most recent PwC YE24 Financed emissions benchmarking whereby we observed that 92% of Banks and 86% of Life Insurers & Asset Managers respectively have adopted PCAF for the measurement of financed emissions.
[1] We note that the GHG Protocol is going through a change and there is a technical working group on Scope 3 Investments (Financed Emissions)
