ESG overall Context and PCAF
The "European Green Deal" has significantly influenced the sustainable Environmental, Social, and Governance (ESG) transformation within the financial sector in recent years, a trend that is expected to continue and strengthen in the future. Alongside regulatory requirements, a growing number of interest groups are emerging, aiming to develop an industry standard for various aspects, such as accounting for CO2 emissions associated with their respective product portfolios.
Established in the Netherlands in 2015, the Partnership for Carbon Accounting Financials (PCAF) has garnered participation from 365 institutions worldwide as of February 2023. These institutions include banks, insurance companies, and asset managers. Through the adoption of a globally standardized methodology, PCAF aims to enable participating institutions to compare and monitor their respective contributions (attribution factor) to CO2 emissions from their customers. Based on this information, individual or collective measures can be derived and implemented to effectively reduce overall CO2 emissions, thus contributing to the achievement of climate neutrality by 2050, as outlined in the European Green Deal and the Paris Climate Agreement.
PCAF envisions that the global financial industry will adopt the PCAF standard for carbon accounting as a widely accepted practice.
Relevance and individual Approach
The collection of CO2 emissions from customers varies depending on the business model of the financial service provider. PCAF has taken this variability into consideration and developed three distinct sections:
- Part A: "Financed Emissions"
This section focuses on banks engaged in seven specific business areas, including equity and debt capital raising in the capital markets, commercial corporate finance or fundraising outside regulated markets, project finance, commercial real estate finance, mortgage loans, motor vehicle loans, and sovereign debt or public sector finance. - Part B: "Facilitated Emissions"
This section primarily targets trading venue operators and addresses emissions associated with capital markets transactions. The guidelines for this section are expected to be published in 2023. - Part C: "Insurance-Associated Emissions"
This section is designed for (re)insurance companies and emphasizes the collection of emissions linked to products in the business areas of commercial insurance (including commercial motor insurance) and private motor insurance.
The significance of this initiative is further exemplified by its references in regulatory consultations, highlighting its relevance and importance within the industry. (e. g. https://www.eba.europa.eu/node/104702/submission/109445)
4C Support Approach
In our support for decision-makers, we follow an end-to-end approach, just like the PCAF standard setters, from analysing the available and required information and processing it through to publication and forwarding it to internal risk management.
A particular focus is on the joint conception of the process model. Due to the constantly evolving framework parameters, we design a modular framework that can be adapted or expanded as required.
Challenges in the industry
Due to the high number of parallel challenges, we are experiencing increased interest among our clients in an integrated approach and close dovetailing of the various sustainability aspects (e.g. EU Taxonomy Regulation, net zero emissions, etc.) with the overall ESG concept. The aim is to jointly avoid redundancies, differences in models and, in principle, to maintain efficiency.
Integration into the corporate culture of each institution is the foundation of successful transformation implementation. This is precisely where we empower courageous decision-makers.
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