Achieving global climate Targets
Under the Paris Climate Agreement, all nations around the world sought to limit global warming to less than two degrees Celsius on average compared to pre-industrial levels. Financial service providers must respond to the potential financial impact of a possible loss of 5–20% of global gross domestic product (GDP) per year. Similarly, the need and possibility of a transition to a low-carbon economy are two of the major challenges. This is due to the associated drastic reduction of greenhouse gas emissions to net zero by 2050 and the structural shift towards fossil sources of energy.
Harmonised and transparent greenhouse gas (GHG) balancing is a first step in this direction. The measurement and disclosure of GHG emissions associated with the lending and investment activities of financial institutions are the basis for transparency and accountability. It enables financial institutions to bring their portfolios into line with the Paris Climate Agreement. It is an important step to set targets and measurements for financial institutions. Chris Weber, Head of Global Climate & Energy Pool at WWF (World Wide Fund for Nature), said: “The Science Based Targets Initiative is working on a platform for financial sector goals that are consistent with the goals of the Paris Agreement, and collaborations like the PCAF are an important way for institutions to get started.”
Collaboration with global financial Institutions
PCAF was created in 2015 as a global partnership of financial institutions working together to develop and implement a harmonised approach to assessing and disclosing greenhouse gas emissions (GHGs) associated with their loans and investments. Under the direction of the Dutch bank ASN, altogether 14 Dutch financial institutions founded the initiative. It has developed GHG balancing methods that apply to all financial institutions. Currently, they apply to the following asset categories: listed stocks and corporate bonds, corporate and non-listed shares, project financing, mortgages commercial real estate and car loans.
PCAF will work with banks worldwide, as they account for the bulk of the world’s available capital and play an important role in facilitating the transition. PCAF’s globalisation is aimed not only at banks but also at investors such as pension funds, asset owners, and managers. It is these financial players who play an important role in the financial ecosystem in driving the transition to a low-carbon society in line with the Paris climate agreement.
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PCAF as a measurement Standard
Measuring funded portfolio emissions is the basis for financial institutions to conduct scenario analyses, set targets, take action, and disclose progress. Together, these steps are crucial for decarbonization and portfolio alignment.
PCAF and the Association for Environmental Management and Sustainability in Financial Institutions e.V., a network of financial service providers from Germany, Austria, Switzerland, and Liechtenstein, are calling on financial service providers to participate in the D/A/CH regional group and apply the standard. It is about measuring financial emissions and reporting on them in the medium term. It is planned to exchange experiences through the PCAF Guide, share best practise examples, and improve the quality of the available data. The regional group also acts as an intermediary between German-speaking financial services providers to further develop the PCAF methodology at the global level.
Thus, the initiative is not only important in the European region but also of global importance. “PCAF offers an easy start-up, regardless of your organisation’s size or location. Together, we can make our contribution to the urgent efforts to transition to a sustainable, low-carbon future,” says Jellie Bannga, COO of the British Triodos Bank.
