As a financial institution, we are planning to submit Scope 1+2 and Scope 3 Portfolio reduction targets.
Before setting the targets, I would like to ask couple questions regarding the calculation methodology and data that we will be using.
(1) In “The Global GHG Accounting & Reporting Standard for the Financial Industry (2020),” PCAF recommends to use verified emissions when we calculate scope 3 portfolio emissions. We are planning to use company data provided by S&P Global (Trucost ESG Analysis). These data includes GHG emission data for companies in which we have invested. The emission data are calculated based on the ratio of our client’s investments to their respective corporate values (EVIC).
Is data from S&P admittable to use for SBTi validation? If not, what methodology we should apply to get emission data of each company?
(2) Furthermore, if there are companies’ data that are not included in the data specified in (1), can we calculate and use “Economic Activity based Emissions” option as stated in PCAF guideline?
(3) Currently, SBTi requires financial institutions to calculate Scope 3 Portfolio emissions on corporate loans, listed equity, bonds, ETFs, and buildings sector separately for SDA. Can we still proceed with the SBTi validation procedure even if we cannot set targets on some sectors(e.g. ETF, commercial estate) due to internal problems(e.g. insufficient data collection)? Or is there any exception rules that could be applied?
(4) If we are using the temperature score methodology, is it possible for us to use temperature scores provided by MSCI (“Implied Temperature Rise”) instead of using the methodology stated in the Guidance?
Thank you very much, and I look forward to your anwers!!
Thanks for your questions and welcome to the community.
If you are referring to historical and modelled emissions data from S&P Trucost, then yes. If you are referring to their model for ITR (implied temperature rise) the answer is unfortunately no, at this point, as this has not yet been approved to be used in submissions to the SBTi.
For the temperature rating methodology you should apply a default score to companies where there is no available data for targets and/or emissions.
Unfortunately, if your organisation have assets/activities that are required in table 5.2 of the guidance, then they have to be included in your target submission to the SBTi.
Currently the MSCI ITR method in not approved by the SBTi, and currently you have to use a tool or service that uses the CDP-WWF Temperature Rating Methodology. Currently Bloomberg, CDP and Urgentem provide temperature scores and/or tools that comply with this methodology.
Dear, Mr. Donald Linderyd.
First of all, thank you very much for your quick response.
Your response will be very helpful for us to set GHG emissions reduction targets.
I am writing this email to ask one more question regarding the climate change risk management for financial institutions.
What if our client is giving a loan to Corporate A, an oil-and gas company. Corporate A needs this loan for its eco-friendly project (e.g. renewable energy project).
However, in our client’s taxonomy, Corporate A is included in the high GHG emissions industry.
If our client gives a loan to Corporate A, should we include this activity in our client’s scope 3 financial emissions?
Please let me know if you have any questions.
Thank you again, and I look forward to your answers.
Seong Wook Moon
Hi @Donald ,
Thanks for you response.
I’d like to ask similar question about the calculation of financed emission.
Because the limit of data about Physical activity-based emissions, can we use “Economic activity-based emissions” from PCAF standard to calculate financed emission, and use Economic activity-based emissions result to set SDA targets ?
Welcome to the community @IW_LIU
Please refer to our Guidance, but in general we do not allow economic intensity to be used for target setting for portfolios in the framework for financial institutions.
Yes, that loan should be included in the scope 3 footprint and target. But this is one of the reasons forward looking targets are more important than footprinting. As companies need to transition, they may need to invest temporarily in activities that increases their current footprint in order to be able to reduce them in the medium-term.
For financial institutions this is even more evident, as they invest in and lend to companies in transition, which may increase the financial institution’s footprint initially. However, the targets and future emissions profile may be Paris-aligned, which is really what matters, especially since the company without that investment/loan may not be able to transition at the required pace.
Hi Donald, how is it possible to avoid the use of EEIO estimations for GHG emissions? Ghg emissions are required for every company in the fundamental_data and not all companies will be disclosing emissions yet. p147 of the Financial Sector guidance states that when direct disclosure of scope 1 & 2 emissions is not available, emissions can be calculated by two approaches: physical activity-based emissions or economic activity-based emissions, and that the latter approach is preferred. Does this then not apply to the temperature rating approach?