Climate change threatens us all, and consequences of inaction have been dire for many of the world’s most vulnerable. We face a present and future with rising sea levels, extreme weather events, drought, poor air and water quality. Banks, as financiers for all industries, must take action to reduce the carbon footprint of their investments. In order to do so, banks should measure, disclose, and set targets to reduce their contributions to greenhouse gas emissions and ecological destruction. Partnership for Carbon Accounting Financials (PCAF) is the first public report outlining a methodology to measure these greenhouse gas contributions.
The majority of a bank’s carbon footprint does not come from its branches or other offices; rather, a bank’s contribution to greenhouse gases occurs indirectly, through loans and investments–for example, small business loans, or project financing for the construction of oil pipelines. In carbon accounting practice, the latter is referred to as Scope 3 (investments), while the former is typically limited to Scopes 1 and 2. (Diagram below)
Source: Carbon Trust
Some banks–including Beneficial State Bank, engage third party evaluators to calculate their carbon footprint. These largely evaluate Scope 1 and 2 emissions.
Few, if any, US banks measure or disclose the carbon footprint of their lending and investment portfolios.
Furthermore, there was no internationally-recognized methodology to do so, despite urging by many international organizations such as the UN Environmental Program Finance Initiative on the importance of financial institutions measuring their carbon footprints.
In January 2019, facilitated by associates from the consulting firm Navigant, Beneficial State Foundation engaged with seven other banks and credit unions to draft the beginnings of the PCAF-North America methodology and report. The group completed this report by October 2019 and publicly launched it during Climate Week in New York City.
The group was initially led and convened by Ivan Frishberg of Amalgamated Bank, who sought and found eager participation by members of the Global Alliance for Banking on Values (GABV). The project was generously supported by the Hewlett Foundation.
While Partnership for Carbon Accounting Financials (PCAF)–Netherlands was the first to outline such a methodology in detail, it was clear that banks, credit unions, and CDFI’s operating in the US and Canada needed to adjust this methodology to align more closely with American/Canadian financial reporting practices and regulatory requirements.