All the major Canadian banks have joined PCAF, the Partnership for Carbon Accounting Financials. PCAF helps organisations measure and report the financed emissions of their loans and investments and, by joining, the banks have committed to reporting their financed emissions to the PCAF standard.
PCAF provides a detailed specification for how to calculate financed emissions. The methodology extends the standard widely used for calculating greenhouse gas emissions, The GHG Protocol. The extensions are necessary for accurate reporting of banks’ and asset managers' financed emissions.
The first PCAF extension is attribution – i.e. what proportion of a firm’s emissions should be attributed to a particular organization that provides financing to that firm. The attribution is based on how much financing the institution provides (for example the amount outstanding on a bank loan) as a proportion of the total financing of the firm. The second important feature of PCAF is a quality score. The quality score is a number between 1 and 5, where 1 is the highest quality emissions estimate and 5 is lowest quality. A score of 1 typically equates to the company that receives the financing doing a thorough calculation of its emissions based on things like the amount and type of fuel it uses, and that calculation having been verified by an independent third party, such as an auditor. A score of 5 generally uses an industry average for emissions per dollar of financing to estimate the emissions of a particular loan or investment.
Most of the banks provided their first financed emissions disclosure earlier this year. The disclosure varies widely, both in the percent of their loan portfolios included in the disclosure, and the corresponding quality score. Likewise, the targets for reductions in financed emissions, a key part of the banks' net-zero commitments, differ significantly. The table below summarises the disclosure provided by the Canadian banks which have joined PCAF.
| Date Joined PCAF | First Financed Emissions Disclosure | Financed Emissions Scope 1 & 2 KtCO2e | Percent of Loans Included | Average Quality Score | Disclosed Targets for Financed Emissions Reduction |
BMO | Jan 2021 | Mar 2022 | 4,441 | 27.4% | 4.1 | Oil & Gas, Power, Motor Vehicles |
CIBC | Feb 2021 | Jun 2022 | 3,536 | 49.6% | 3.2 | Oil & Gas, Power |
Desjardins | Oct 2021 | Dec 2021 | 1,525 | 77.1% | 4.9 | Plan to set in 2022-2023 |
NBC | Apr 2022 | Mar 2022 | 1,200 | 1.7% | 3.1 | Oil & Gas |
RBC | Feb 2022 | Mar 2022 | 45,000 | 95.0% | 4.8 | Plan to set in 2023 |
Scotia | Mar 2022 | Mar 2022 | 12,900 | 43.6% | 4.5 | Oil & Gas, Power |
TD | Nov 2022 | Mar 2022 | 3,500 | Not available | 3.2 | Oil & Gas, Power |
Vancity* | Mar 2021 | May 2021 | 97 | 86.0% | 4.1 | None |
*Vancity, while technically a Credit Union, is an early adopter of PCAF and in 2022 issued its second annual financed emissions disclosure.
PCAF specifies that banks should disclose the scope 1 and 2 emissions of all financed companies, and scope 3 for customers in certain high emitting sectors only.
It is worth noting that where a bank discloses emissions for only a relatively small proportion of their outstanding loan portfolio, it is not necessarily a small proportion of their total financed emissions. If the sectors disclosed include the most carbon intensive industries, their emissions could actually constitute the bulk of the bank’s financed emissions.
The chart below shows the percentage of the loan portfolio for which financed emissions are disclosed versus the average emissions quality score for the banks.
The fitted trendline indicates that banks which disclose emissions for higher proportions of their loan portfolios tend to have the poorest average quality scores.
While the Canadian banks have shown their commitment to calculating and disclosing their financed emissions, and have overall made a decent start on it, it seems there is still much work to be done to meet the full requirements of PCAF, and the needs of all bank's stakeholders.
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