Handbook on Financed Emissions
A Practical Guide for Pakistan’s Financial Institutions to Measure and Manage Financed Emissions
Financed Emissions and the Banking Sector
Financed emissions are emerging as a core risk and performance metric for banks globally. For Pakistani financial institutions, these emissions are not only an ESG reporting requirement but a direct lens into credit exposure, market vulnerability, and strategic lending alignment.
As the country faces mounting physical climate risks (especially in agriculture, textiles, and energy sectors), banks must understand where their portfolios are most exposed. International capital markets, development finance institutions, and regulators now expect portfolio-level climate transparency, making financed emissions central to both risk mitigation and capital access.
Financed emissions refer to the greenhouse gas (GHG) emissions generated by companies or projects that receive loans and equity from a financial institution. These emissions fall under Scope 3, Category 15 in the Greenhouse Gas Protocol (GHGP).
Unlike operational emissions, financed emissions represent the indirect climate footprint of lending and investment decisions. For most banks, they are many times greater than Scope 1 or 2 emissions and far more material to long-term risk.
- Regulatory Exposure: Emerging sustainability reporting regulations may impose penalties or stricter scrutiny on institutions that fail to measure and disclose financed emissions.
- Portfolio Vulnerability: Lack of visibility into carbon-intensive exposures may lead to financial losses as markets transition to low-carbon alternatives.
- Reputational Risk: Stakeholders increasingly expect transparency; institutions lagging behind may lose market credibility.
- Market Access: Investors are prioritizing low-carbon portfolios, non-compliance may affect access to funding.
- GHG Protocol (GHGP) – Establishes the global structure for GHG inventory, including financed emissions under Scope 3.
- Partnership for Carbon Accounting Financials (PCAF) – Offers standardized methods to calculate financed emissions by asset class.
- IFRS S2 – The global climate-related financial disclosure standard has now been adopted by Pakistan’s SECP.
- Pakistan Green Taxonomy (PGT) – Classifies sustainable and transition-aligned activities across economic sectors.
- SBP Green Banking Guidelines & ESRM Framework – Mandate integration of environmental and climate risks into credit processes.
- SBP Green Banking Guidelines & ESRM Framework – Mandate integration of environmental and climate risks into credit processes.
- Pakistan’s Nationally Determined Contributions (NDCs) – Commit to reducing GHG emissions by 50% by 2030.
The Handbook is structured around seven core modules, guiding institutions from awareness to action:
a. Understanding Financed Emissions
Explains the importance of Scope 3, Category 15 emissions and how they link to lending, investment, and underwriting decisions.
b. Framework Alignment
Provides detailed interpretation of GHGP and PCAF standards, and shows how they align with IFRS S2, SBP guidelines, and the Pakistan Green Taxonomy.
c. Asset-Class Specific Methodology
Covers step-by-step calculations for all relevant asset classes:
- Listed Equity & Corporate Bonds
- Listed Equity & Corporate Bonds
- Business Loans & Unlisted Equity
- Business Loans & Unlisted Equity
- Project Finance
- Commercial Real Estate
- Mortgages
- Motor Vehicle Loans
- Sovereign Debt
d. Attribution and Data Quality
Introduces the use of attribution factors and Data Quality Scores (DQS 1–5) to standardize emissions calculations and reporting.
e. Environmental and Social Risk Integration
Demonstrates how emissions data can feed into credit policy, ESRM, and transition planning frameworks.
f. Target Setting & Portfolio Steering
Guides financial institutions on setting Science-Based Targets (SBTs), using Economic Emissions Intensity metrics, and integrating financed emissions into long-term decarbonization plans.
g. Reporting, Disclosure, and Regulatory Compliance
Explains how financed emissions disclosures support IFRS S2 and future-proof the bank’s climate reporting posture.
- Credit Risk Visibility: Identify carbon-intensive exposures before they manifest as repayment risk or capital flight.
- Capital Mobilization: Meet the expectations of green bond investors, blended finance providers, and ESG-linked credit facilities.
- Regulatory Readiness: Position ahead of future mandates under SBP, SECP, and Ministry of Climate Change.
- Product Innovation: Enable sustainability-linked loans, green sukuk, and transition finance solutions tailored to sectoral decarbonization needs.
By embedding financed emissions in core business functions, banks can future-proof their portfolios and lead the transition to a low-carbon economy.
Crowe Pakistan offers technical and strategic support to financial institutions, including:
- Portfolio Diagnostics: Financed emissions baseline analysis using PCAF tools
- Custom Methodology Development: Tailored solutions aligned with your asset mix and data availability
- PGT Mapping & SBT Target Setting: Support to align portfolios with Pakistan Green Taxonomy and decarbonization targets
- PGT Mapping & SBT Target Setting: Support to align portfolios with Pakistan Green Taxonomy and decarbonization targets
- Regulatory Compliance: Readiness support for IFRS S2 climate disclosures, SBP ESRM requirements, and investor-level ESG reporting
- Capacity Building: Training credit officers and risk managers on integrating emissions into lending decisions
With a deep understanding of Pakistan’s regulatory context and global climate accounting frameworks, Crowe Pakistan is positioned to support your bank’s full journey, from measurement to market leadership in sustainable finance.