Understanding Estimations in Financial Emissions Reporting

The utility of estimations in emissions reporting

Estimations are crucial in financial institutions' emissions reporting, but why? When precise, real-world data is unavailable (which is common), estimations provide a method to approximate greenhouse gas (GHG) emissions associated with loans and investments. These calculations are essential for financial institutions to assess their climate impact and align with increasingly strict regulations which we will cover later.  

As you can see below, estimated data is also extremely useful for mapping progress. Imagine you had waited for the perfect real data set. You'd have no idea of the progress you'd already made or what's going well in your green transition. 

PCAF as the standard for data quality in Norway

Estimations aren't just your best guesses pulled from thin air, there's a framework for this sort of thing. The Partnership for Carbon Accounting Financials (PCAF) has become the standard framework for financed emissions data quality in Norway, largely due to Finans Norge’s efforts to align the financial sector with global best practices. By adopting PCAF, Norwegian financial institutions benefit from a transparent, consistent, and comparable approach to measuring emissions linked to their lending and investments.

This standardisation is essential as regulatory requirements, such as the Corporate Sustainability Reporting Directive (CSRD), take effect in 2025, requiring large companies to disclose financed emissions. Through PCAF, Finans Norge ensures that institutions can meet these regulations while improving the overall quality, accuracy, and reliability of emissions reporting across the sector.

Why estimating is better than not reporting at all

Why guess if I'm not certain I'll be right? Good question. Firstly regulations like CSRD mean you will HAVE to report. Secondly, while estimates may not be perfect, they provide a starting point for measurement, benchmarking, and improvement, making them far more valuable than no reporting at all for you and your stakeholders to put your best foot forward.

Read more about PCAF Data Quality Scores

From estimates to real data

• Starting point: Estimates allow banks to begin assessing the emissions tied to their loans and investments in buildings or real estate projects, even if the exact emissions data is not available from the tenants or developers.
• Data improvement over time: The data quality hierarchy (as seen above) within PCAF helps banks improve their estimates over time as they gather better data from borrowers, building owners, or tenants.
• Transition to real data: as banks build relationships with clients and encourage better emissions reporting in the building sector, they can transition from estimates to more accurate, real data.

For banks or commercial buildings, using the PCAF for emissions estimation is a crucial first step. Over time, this allows them to refine their reporting and move towards more precise data, ultimately aligning with climate goals and improving sustainability practices within the sector.

The need for real data

While estimations are valuable and worth calculating with as much accuracy as possible, real data is the ultimate goal for any bank or property owner.

High-quality data leads to more accurate reporting, better risk management, and stronger regulatory compliance.

By understanding. benchmarking, and improving the quality of emissions reporting, your bank can take meaningful steps toward a more profitable and lower-risk future.