Table 5.2 in the finance guidance states that long term debt >1 year is required, but short term debt less than one year such as line of credit and overdraft facilities are out of scope. This seems to disagree with PCAF which focuses on any balance at year end is in scope.
Therefore is the key factor the product type or the timescale? Should an overdraft facility and credit lines with maturity greater than 1 year be required or optional scope?
In addition, there are instances where corporate clients have an overdraft facility or credit line but have not drawn down on it. Therefore in this case the on balance sheet exposure is zero, but there is a contingent exposure off-balance sheet. We assume the latter is not in scope - please can you confirm?
Credit lines and overdraft facilities (extended to corporations) would fall under corporate loans. Under the current framework, corporate loans >1 year are required while corporate loans <1 year are also in scope but optional.
Regarding the undrawn portion of a corporate loan, the off-balance sheet exposure is currently out of scope.
Potential changes could be considered in the future but would be communicated ahead of time.
Following it up in this discussion,
While we understand that the undrawn portion of a credit facility (classed as a corporate loan) is regarded as out of scope due to being off-balance sheet, what scenario would be best used when setting the baseline? Given the facility could be drawn down in any amount at any time over a target period, and could be used to finance a large emitter, it would seem reasonable to have to account for the potential increase in emissions when setting the baseline. At present we are looking at 3 scenarios for baseline (and subsequent target) setting: zero drawdown (the current situation); 100% drawdown (unlikely but possible); and average credit exposure (12 month average Exposure At Default). We would welcome your advice on which might be most appropriate, or a view on an alternative approach to solve the potential baselining problem.
Currently, Howard’s reply above is complete. There are no further updates at this time, I’m afraid. The framework is in continuous development and we are adding new asset classes and activities and are updating and clarifying the criteria regularly. We don’t have an ETA for when this particular issue will be addressed.