Financed Emissions

For a financial firm, its own offices cause little pollution. The weight lies in what it lends to and invests in. These emissions are counted as Scope 3, Category 15 under the Greenhouse Gas Protocol. The usual method takes a client's emissions and multiplies them by an attribution factor: the loan or holding divided by the client's total value, such as equity plus debt. Results are added across the book. Data is the main difficulty, since many small borrowers do not report, so estimates based on sector averages are used and given a data quality score. The Partnership for Carbon Accounting Financials sets a common method. Net zero pledges by banks and asset managers rest on this measure. Lenders use the total to find which sectors and clients carry most of their climate impact.

A bank lends 200 to a manufacturer whose total debt and equity is 1,000. The manufacturer emits 50,000 tonnes a year. The bank attributes 20% of that, or 10,000 tonnes, to this loan. It repeats the calculation for each client in its corporate book, and the total becomes the baseline for its portfolio target.