{"id":14441,"date":"2023-06-08T16:30:00","date_gmt":"2023-06-08T15:30:00","guid":{"rendered":"https:\/\/www.sage.com\/en-gb\/blog\/?p=14441"},"modified":"2026-01-29T09:26:29","modified_gmt":"2026-01-29T09:26:29","slug":"acronymed-out-heres-what-the-pcafs-carbon-accounting-rules-mean","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-gb\/blog\/acronymed-out-heres-what-the-pcafs-carbon-accounting-rules-mean\/","title":{"rendered":"Acronymed out? Here’s what the PCAF’s carbon accounting rules mean"},"content":{"rendered":"
\n\t
\n\t\t
\n\t\t\t
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\t\t\t\t
\n\t\t\t\t\t\t\tStrategy, Legal & Operations<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t
\n\t\t\t\t\t

\n\t\t\t\t\t\tAcronymed out? Here’s what the PCAF’s carbon accounting rules mean\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

\n\t\t\t\t\t\t\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t\t

\n\t\t
\n\t\t\tPublished
\n\t
\n\t\t
\n\t\t\t\t\t\t\t
\n\t\t\t\t\t\n\t\t
\n\t\t\t\n\t\t\t\t\"conrad-langridge\"\t\t\t\tConrad Langridge<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n<\/div>\n\n\n\n

When former Governor of the Bank of England, Mark Carney, warned that global financials were systemically peddling the world\u2019s most carbon-heavy projects, the paving for the Partnership for Carbon Accounting Financials (PCAF) was laid. <\/p>\n\n\n\n

\u201cTo achieve net-zero, we need a whole economy transition\u2013every company, every bank, every insurer, and investor will have to adjust their business models, develop credible plans for the transition and implement them. For financial firms, that means reviewing more than the emissions generated by their own business activity. They must measure and report the emissions generated by the companies they invest in and lend to.\u201d<\/strong> <\/p>\n\n\n\n

\u2014Mark Carney, as the Prime Minister\u2019s Finance Adviser for COP26 and observer to PCAF.\u202f<\/strong> <\/p>\n\n\n\n

What is the Partnership for Carbon Accounting Financials?<\/strong> <\/h2>\n\n\n\n

Originating with the Dutch in 2015, the PCAF is touted as a collaborative effort born out of the finance industry to enable asset managers and owners, banks, and insurers to measure and disclose carbon emissions. <\/p>\n\n\n\n

But crucially, not the emissions from their\u202fown business activities<\/em>, but those associated with their\u202flending, insuring, and investment activities.<\/strong>\u202f <\/p>\n\n\n\n

The PCAF launched the\u202fGlobal Greenhouse Gas Accounting and Reporting Standard for the Financial Industry<\/a>\u202fto facilitate transparency and accountability of financial institutions to scientifically-founded targets, to align their portfolios to the Paris Agreement. <\/p>\n\n\n\n

The standard is endorsed by the\u202fGreenhouse Gas (GHG) Protocol<\/a>\u2014the most widely used greenhouse gas accounting standards. <\/p>\n\n\n\n

The GHG protocol (and indeed the\u202fTaskforce for Climate-related Financial Disclosure<\/a>) advises the marketplace of the steps it should take to assess these emissions\u2014tangible impact-data points are where the PCAF comes in. <\/p>\n\n\n\n

It provides a practical method of implementation\u2014fundamental accounting methodologies to standardise emissions-measurement approaches specifically for financial institutions.\u202f<\/p>\n\n\n\n

Which is arguably, the most crucial step in ensuring that every financial decision takes climate change into account. <\/p>\n\n\n\n

The impressive uptake is encouraging and will likely only grow further as more central banks and governments continue to make carbon-emission disclosures mandatory for the near future. <\/p>\n\n\n\n

At the time of writing, the initiative has more than 150 signatories from major global financial institutes, representing over 50 trillion USD in impactful assets. <\/p>\n\n\n\n

\u200dHow does the PCAF standard work in practice?<\/strong> <\/h2>\n\n\n\n

The PCAF has provided the standard as open-source datasets, specific to financial institutions so that each party uses consistent information for calculating the emissions associated with different\u202fasset class. <\/p>\n\n\n\n

This permits the attribution of emissions from holdings or loans to other\u202forganisations<\/em>\u202fas well as investments in significant properties or projects. <\/p>\n\n\n\n

Yet, the standard doesn\u2019t prescribe each and every data point to be used\u2014and this is deliberate. Instead, it provides the accounting methodology and shares best practice in using proxy and external data sources. <\/p>\n\n\n\n

Crucially, the PCAF understands that the method requires stringent uniformity, but\u2014and this is the key to the partnership\u2014not so far as to stifle sector-specific nuances by those who understand them best of all. <\/p>\n\n\n\n

Whilst all are classified as financial institutions\u2014insurers, investors, and banks deploy capital in quite different ways. <\/p>\n\n\n\n

And so, insight into\u202fthe art<\/em>\u202fof accounting these distinctions is fed back into the working group to continue improving the methodology and guidance for both accuracy and practicality. <\/p>\n\n\n\n

The methodology currently covers the asset classes depicted below, the classifications of which are aligned to the\u202fEU Sustainable Finance Taxonomy<\/a>. <\/p>\n\n\n\n

This makes\u202fthe PCAF standard as consistent and widely relevant as possible. <\/p>\n\n\n\n

The partnership continues to work to add additional asset classes to the methodology as we speak, increasing the proportion of the market able to participate with each release. <\/p>\n\n\n\n

\"\"
\u202f<\/em><\/figcaption><\/figure>\n\n\n\n

How does the PCAF fit into wider carbon accounting?\u202f<\/strong> <\/h2>\n\n\n\n

As Mr Carney says, once financial emissions are measured, they prove their value to the market once publicly reported (and no, that doesn\u2019t mean being filed away in a dark, Corporate Responsibility corner of a company\u2019s website). 
 
As we\u2019ve explored, the UK treasury has stipulated that the TCFD guidance will become mostly mandatory by 2023 and fully by 2025. <\/p>\n\n\n\n

So, as displayed below, these PCAF calculations will be the critical foundation in making those disclosures and other climate actions possible. <\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Measuring the finance emissions of a portfolio of investment or loans is core in enabling financial institutions to perform: <\/p>\n\n\n\n