- Nearly 600 financial institutions reported environmental data through CDP’s global environmental disclosure platform in 2023, expected to increase in 2024.
- PCAF is a partnership of 500 financial institutions committed to disclosing on the emissions associated with their financial activity (Scope 3, Category 15) transparently and consistently.
- CDP’s alignment with PCAF will simplify the reporting of portfolio impact metrics and further promote standardised and elevated quality of disclosure of these metrics.
- We are supporting FIs to prepare to meet increasing mandatory disclosure requirements around financed, facilitated, and insurance-associated emissions disclosures.
As financial institutions (FIs) strive to meet their portfolio net-zero targets and regulatory expectations, the significance of robust portfolio impact metrics has never been more critical. These metrics provide the foundation for setting informed climate targets, managing risks, and demonstrating accountability.
For FIs, climate impact is largely driven by activities they finance and facilitate in the wider economy – their portfolio impacts. Financial institution disclosure through CDP in 2022 showed that financed emissions are on average over 750 times larger than their operational emissions. As such, it is crucial that FIs are transparent about their climate impacts and prioritize driving real-economy emissions reductions across their portfolios and lending activities. The Partnership for Carbon Accounting Financials (PCAF) provides the global standard for financial institutions to measure and disclose the GHG emissions associated with the aforementioned portfolio and lending activities, and is currently adopted by more than 500 institutions across the world.
Promisingly, CDP has seen that FIs are increasingly measuring their portfolio impacts. In 2023, 575 FIs disclosed to CDP’s Financial Services sector-tailored questionnaire. This marked a 73% increase on the number of FIs that disclosed through CDP when the questionnaire launched in 2020 and indicates a growth in FIs’ interest to understand and act on the environmental risks and opportunities they face.
Recent developments, including the International Sustainability Standards Board (ISSB) S2 disclosure standard underscore the necessity for transparent and consistent reporting from FIs. Moreover, the Basel Committee on Banking Supervision’s consultation on disclosure of climate-related financial risks further emphasises the role of financed emissions and other portfolio impact metrics for the purpose of understanding risk exposures.
Recently, CDP and the Partnership for Carbon Accounting Financials (PCAF) hosted a capacity-building webinar offering insight into the 2024 CDP questionnaire aligned with the PCAF Standard for GHG Accounting for the Financial Industry. The questionnaire simplifies the disclosure process for FIs and enables compliance with regulations while ensuring accurate reporting on their portfolio impact metrics. Through this alignment, CDP continues to serve as a critical mechanism to track and show progress against GFANZ-related commitments and Investor Agenda Climate Action Plans (ICAPS).
This collaboration offers FIs the tools to navigate evolving disclosure requirements around financed and facilitated emissions, and will ensure they can disclose the most comprehensive, comparable, and decision-useful environmental data that accelerates emissions reduction. CDP’s questionnaires have included questions on portfolio impact metrics since 2020, and this new alignment with the PCAF Standard in 2024 forms part of CDP’s goals to increase harmonization and boost investor compliance, no matter the market or regulatory demands.
The alignment also offers practical benefits to FIs that disclose through CDP and are PCAF signatories, or those that otherwise independently choose to align the measurement and reporting of Scope 3, Category 15 emissions with the PCAF Standard. By harmonizing the reporting requirements, CDP and PCAF aim to simplify and streamline emissions reporting for FIs, enhance the quality and comparability of the disclosed data, and support better decision-making and strategic planning within FIs and across regulatory and supervisory bodies.
This alignment furthers a shared mission to foster greater transparency on the GHG emissions associated with financial activities and enables urgently needed emissions-reductions. Furthermore, CDP and PCAF remain jointly committed to bolster FIs’ efforts to align with the ISSB S2 Standard. CDP will continue to iterate on its questionnaire to ensure it remains relevant and robust in the face of evolving mandatory disclosure requirements.
Streamlined reporting incentivizes more robust disclosure and improves data quality. The outcome is a robust dataset that forms the foundation for efficient capital allocation, business efficiency, and the development of innovative financing solutions that drive the transition to the next phase of transformational and sustainable change.
For more information on PCAF-aligned CDP questions in module 12 of CDP’s questionnaire for financial institutions, watch the CDP and PCAF webinar recording.
CDP’s 2024 reporting window is now open – visit the CDP Portal and view our disclosure guidance to learn more about how to disclose as a financial institution.