Why Financed Emissions Matter
Financial institutions are indirectly connected to nearly the entire economy through their lending and investment portfolios. This connection extends the financial sector's climate impact far beyond its own operational emissions. Under the GHG Protocol, financed emissions constitute a financial institution's Scope 3 Category 15 emissions (WRI/WBCSD, 2011).
The Partnership for Carbon Accounting Financials (PCAF) has developed a global methodology for financial institutions to measure portfolio emissions in a consistent and comparable manner (PCAF, 2022).
What Is PCAF?
PCAF was launched in 2015 by a group of Dutch financial institutions and has since grown into a global initiative with more than 400 participating financial institutions. PCAF's Global GHG Accounting and Reporting Standard is aligned with and endorsed by the GHG Protocol (PCAF Global Standard, 2022).
Core Concepts
Attribution Factor
PCAF's core mechanism uses the proportion of a financial institution's relationship to a company to allocate emissions. The formula:
Financed Emissions = Attribution Factor x Borrower/Investee Company Emissions
The attribution factor is calculated as the ratio of financing provided to the total enterprise value (debt + equity) of the financed company.
Data Quality Score
PCAF defines a five-level data quality scale:
| Score | Data Type | Description |
|---|---|---|
| 1 | Verified primary data | Emissions reported and verified by the borrower |
| 2 | Unverified primary data | Emissions reported but not verified by the borrower |
| 3 | Physical activity data | Emissions calculated from physical data such as energy consumption |
| 4 | Economic activity data | Revenue or asset-based emissions intensity estimates |
| 5 | Sector average | Estimates using sectoral emission factors |
The goal is to transition to higher-quality data for a larger share of the portfolio over time.
Asset Classes
PCAF defines methodologies for seven asset classes:
- Listed equity and corporate bonds: Investments in publicly traded companies
- Business loans and unlisted equity: All commercial loans including SMEs
- Project finance: Infrastructure and energy projects
- Commercial real estate: Building portfolios
- Mortgages (residential): Home finance
- Motor vehicle loans: Vehicle finance
- Sovereign debt: Government bonds and public debt
The attribution approach and emissions calculation method differ for each asset class (PCAF Global Standard, 2022).
Implementation Steps
Step 1: Define Your Scope
Determine which asset classes to start with. Most financial institutions begin with their largest portfolio items: business loans and mortgages. A practical approach is the "80/20 rule" — identify the asset classes that represent 80 percent of your total balance sheet and start there. For most Turkish commercial banks, this means business loans to large corporates and SMEs, followed by residential mortgages. Project finance and motor vehicle loans can be added in subsequent cycles.
Step 2: Data Collection
Identify appropriate data sources for each asset class:
- Business loans: Borrower sustainability reports, CDP disclosures
- Mortgages: Energy performance certificates, building characteristics
- Motor vehicles: Vehicle emissions data, fuel type information
Step 3: Calculate Emissions
Use PCAF formulas to calculate financed emissions for each asset class. Record the data quality score for each calculation.
Step 4: Report and Improve
Report results annually. Create an improvement plan to increase data quality each year.
Context for Turkish Financial Institutions
Measuring financed emissions is becoming increasingly important for banks operating in Turkey. Three converging forces are driving adoption:
TSRS requirements. KGK's TSRS, based on IFRS S1 and S2, requires Scope 3 emissions reporting. For banks, Scope 3 Category 15 (investments) is the dominant emissions category — typically exceeding 95 percent of total footprint. Without PCAF-based measurement, TSRS compliance for banks is incomplete.
SPK sustainability principles. SPK's Communique II-15.1 requires listed companies, including banks, to report on sustainability performance. Quantitative emissions reporting, including financed emissions, is becoming a mandatory disclosure item.
BRSA sustainable banking expectations. The BRSA's guidance principles expect banks to integrate environmental risks into credit processes (BRSA, 2022). Measuring portfolio carbon exposure is the prerequisite for climate-informed credit risk assessment and stress testing.
International financing access. Turkish banks regularly access international capital markets through syndicated loans and eurobond issuances. EBRD, IFC, and EIB green credit lines increasingly require demonstrable climate risk management capacity — and financed emissions measurement is the entry point.
A Practical Starting Point for Turkish Banks
Most Turkish banks should start with their largest corporate lending relationships. The top 50-100 corporate borrowers typically represent 30-50 percent of the commercial lending portfolio by value — and these borrowers are most likely to have published sustainability reports or CDP disclosures from which emissions data can be extracted.
For these borrowers, Score 1-2 data (primary data from the borrower) is achievable. For the remaining portfolio, Score 4-5 data (economic activity or sector averages) is a realistic starting point. The weighted average data quality score will improve as more borrowers begin disclosing their emissions — a trend accelerated by TSRS and CSRD data requests flowing through supply chains.
Action Plan
- Assess readiness: Evaluate your organization's current data on borrower emissions — what do you already have from sustainability reports, CDP, or annual reports?
- Identify priority asset classes: Start with commercial loans to large corporates where data availability is highest
- Design data collection: Create a borrower emissions data request process integrated with credit review cycles
- Conduct a pilot calculation: Calculate financed emissions for your top 50 borrowers as a proof of concept
- Report and set improvement targets: Publish results with data quality scores and commit to annual improvement
Action Item: Measuring financed emissions is a prerequisite for setting targets and decarbonizing your portfolio. Start even if data quality is low — PCAF's data quality scale is designed precisely for this gradual improvement. Your first year's measurement will not be perfect, but it will be foundational.