Dutch institutions lead the way with the Platform Carbon Accounting Financials

The investor carbon accounting project goes into a second term

The Platform Carbon Accounting Financials (PCAF) initiative – the carbon accounting project backed by 12 Dutch financial heavyweights including PGGM, APG and Actiam – has embarked on a second term, following the publication of its methodologies report in December last year.

The report contains carbon accounting methodologies – covering both direct and indirect emissions – for six asset classes identified by PCAF, including government bonds, listed equity, project finance, mortgages, commercial real estate and corporate debt: bonds and SME loans.

RI spoke to PCAF’s Chair Piet Sprengers about the initiative, which is also a part of the Dutch Central Bank’s Sustainable Finance Platform. Sprengers, who is Head of Sustainability at ASN Bank, is also Founder and Director of VBDO, the Dutch Association of Investors for Sustainable Development.

PCAF launched in late 2015, following the COP 21 conference in Paris, with its original 11 committing to work collaboratively to “define and harmonise” carbon footprinting methodologies (PCAF homepage).

Following the publication of ‘Paving the way towards a harmonised Carbon Accounting Approach for the Financial Sector’ the now 12 members – Achmea Investment Management joined in 2017 – have agreed to extend the initiative for another two years.

Financial institutions’ ability to measure their greenhouse gas emissions is a live issue. A complaint has been filed against ING via the OECD ‘National Contact Point’ grievance mechanism in the Netherlands.

The November complaint alleged that the Dutch bank was in breach of OECD guidelines by not reporting indirect greenhouse gas emissions arising from its global financing activities.

The document itself cited the PCAF initiative, urging ING to commit to its “final outcome”. ING responded to the charge at the time by stating that such disclosure “is currently not technically possible”.

Sprengers says ING is part of PCAF’s sounding board – along with its Dutch peer Rabobank – and that uncertainty about data quality has been a “major issue” in the discussions.

Asked about the reluctance of other financial institutions to account for their Scope 2 and 3 greenhouse gas emissions, Sprenger said some would always use “methodological excuses” around data quality as an excuse not to act, partly because “they fear the outcomes of such calculations”.

Data quality was “as big an issue as you want it to be”.He said: “Often you don’t need 100% correct data, you can use 90% or 80% correct data to check if you are on track. Of course, it can always be improved but that is exactly the same as in financial accounting.

“It is a very theoretical rejection to say we can only account for our carbon foot-printing if we are completely sure that our carbon data is 100% correct. If we do that, we’ll be waiting 50 years for a solution.”

Sprengers spoke optimistically about the progress being made in carbon accounting, and stressed the catalyzing effect methodologies as PCAF could have on improving data quality.

He also cited the importance of the “complementary” Taskforce on Climate-related Financial Disclosures (TCFD) to PCAF. The TCFD was stimulating companies to come out with their carbon footprinting data “so that we as financial institutions can better calculate the climate impacts we have through different investments”.

The difficulty of weighing greenhouse gas emissions equally across the asset classes was touched upon by Sprengers, who said “as far as possible” PCAF had tried to do this but conceded, “you can try to make a methodology uniform but these asset classes are so different, you will never fully succeed in doing so, the backgrounds are so different you have to make nuances per asset class to make assessment possible”.

Sprengers describes the PCAF initiative as a “bottom-up, pragmatic approach” created by Dutch financial institutions. He stated his belief that, “the best way to stimulate, to challenge other financial institutions to follow you…is not to start an international discussion group but come out with the calculations and show how you do it in practice even on a small scale, show how it can be done for pension funds etc.”.

Now in its newly agreed second term PCAF’s members will attempt to improve, implement, and promote the methodologies. Sprengers added that the initiative also hopes to develop science-based targets for the financial sector to help institutions calculate what they need to do to align with the landmark Paris Agreement.

Interest in the initiative appears to be growing. Following a presentation of the initiative in Paris, the PCAF is now in contact with French institutions.

Acknowledging the initiative as an “iterative process”, he summarised: “This methodology isn’t the Holy Grail but we think we have made a big step forward to calculate the effect of financial institutions on global warming and what they can do about it.”

PCAF’s members consist of banks ABN AMRO, ASN Bank, Triodos Bank and De Volksbank, pension funds PMT and PME, asset managers ACTIAM, Achmea Investment Management, APG, MN and PGGM, and development bank FMO.