Majority Of PCAF Disclosures Are Based On Bad Data

As the best-in-class method for estimating financed emissions, PCAF disclosures are essential for investment decisions by financial institutions. However, the 2° Investing Initiative estimates that more than 70% of PCAF disclosures are reliant on sector and regional economic activity averages, rather than direct emissions data. Instead of actual decarbonization performance, banks’ emission reports are, in effect, only disclosing their industry and geographic investment focus.

Corporate emissions disclosures are currently inaccessible and too bespoke to allow for easy comparison, but progress is on the horizon. The emissions disclosure paradigm is now undergoing a significant evolution towards a new emissions data chain, which will improve accessibility, reliability and comparability. In much the same format as financial reports, this new emissions data chain makes corporate disclosures machine-readable by financial institutions. Relevant emissions data – both qualitative and quantitative – are digitally tagged through frameworks such as the SASB Standards XBRL Taxonomy. This tagged report can then be automatically parsed by financial institutions, which can incorporate the data into decision-making. Progress towards this development is well underway; both Etsy, Inc. and Gap Inc. have published such machine-readable reports.

It's clear to see the benefits for financial institutions: they will be able to substitute inaccurate activity information for direct data, straight from source, and therefore improve their own disclosure quality and understanding of net zero progress. But corporates will benefit too; by demonstrating performance to financial institutions, they will be able to capitalize on decarbonization initiatives and gain better access to capital.

Connor Taylor

Connor is an Industry Analyst in the ESG & Sustainability practice. His current research agenda focuses on emerging software solutions across financial markets, and broader market trends in the ESG space. Connor joined Verdantix in 2021 and has experience in EHS technology sales and development. He holds a B.A from Cambridge University in Anglo-Saxon, Norse and Celtic.