‘Not a single signatory’ is fully compliant with PCAF standard, report finds

Think tank 2 Degrees Investing Initiative says study shows investors are flouting partnership’s requirements.

Signatories to the Partnership on Carbon Accounting Financials (PCAF) are exposed to risks “in terms of misleading marketing”, researchers have claimed, after finding no signatories aligned with the body’s standard.

Think tank 2 Degrees Investing Initiative (2DII) assessed reports published by 70 unnamed PCAF signatories to establish how many are adhering to the influential partnership’s disclosure requirements.

PCAF, which is developing methodologies that market participants can use to track their climate performance, has 279 signatories. All are expected to follow a set of “requirements and recommendations”, and reports from 82 signatories are published on the initiative’s website.

After excluding 12 reports due to “language barriers”, 2Dii assessed the remaining 70 and concluded “that for all intents and purposes, not a single PCAF signatory is fully compliant with the PCAF standard”.

The findings centre on PCAF’s requirement for signatories to develop re-baselining policies, in which they explain how they will recalculate their emissions baseline to account for significant changes in their portfolios from year to year. This process seeks to reduce the chance of investors taking credit for decarbonisation that occurs as a result of reweighting a portfolio rather than decarbonising its holdings.

“It is apparent that for the majority – if not all PCAF signatories – such a policy does not exist, contravening both PCAF (2020), GHG Protocol (2011), and other best practice guides (FSEG 2022),” the report stated. It also found that most signatories fell foul of PCAF’s expectations on how much of their portfolio should be covered by the disclosures.

“This raises significant questions for PCAF and the related process,” the report’s authors said. “If PCAF membership does not require compliance with the standard, how can PCAF protect against greenwashing and ensure harmonisation of approaches?” According to the report, in some cases signatories acknowledged that they “specifically and explicitly violate the PCAF standard on other items”.

“If such violations are possible while remaining a PCAF signatory, what role does the standard serve?” the authors asked.

They added: “In the context of growing awareness of financial regulators around the risks of greenwashing, this report highlights the significant risks that PCAF signatories are exposed to in terms of misleading marketing as it relates to compliance with industry standards.”

PCAF’s executive director Giel Linthorst told Responsible Investor that he was “not very surprised” at the lack of re-baselining policies because the market is still in the early days of grappling with such calculations and methodologies still need to be developed.

In response to questions about how PCAF signatories could retain their status despite not adhering to the partnership’s explicit “requirements”, Linthorst said: “PCAF is a voluntary standard-setting initiative and we don’t play an audit role.”

PCAF regularly congratulates signatories for “using” its standard – often sharing their disclosures and press releases on social media.

“It’s up to other stakeholders to audit and scrutinise the reports of signatories to see if they comply with PCAF’s standard,” said Linthorst.