Emissions

An explanation of key terms related to emissions – and how to decarbonise – for property-related businesses, including articles answering common questions.

Financed emissions refer to the greenhouse gas (GHG) emissions that arise from a company’s financial investments. 

These are often refered to as indirect or value chain emissions, classified under Scope 3 Category 15 of the GHG Protocol. They typically make up the vast majority of the emissions linked to a property portfolio.

Financed emissions can be reduced by encouraging and incentivising energy-efficiency upgrades among homeowners, such as through green finance products like retrofit loans and pricing discounts.

In January 2024, UK legislation switched from being based on the Taskforce on Climate-Related Financial Disclosures (TCFD) to the new IFRS Standards developed by the International Sustainability Standards Board (ISSB). IFRS S2 on climate disclosures requirements includes mandatory reporting on financed emissions. 

Read more:

• How government policy impacts financed emissions
• Why financed emissions must be addressed proactively with retrofit financing
• How to quantify financed emissions
• What to disclose for financed emissions (absolute vs LTV-weighted vs emissions intensity) 

Economic emissions intensity measures emissions relative to economic output. It is typically calculated by the tonnes of carbon dioxide emissions (or equivalent) by the investment (for mortgage lenders, this would be the loan value at origination), normally measured in £millions. 

The main use of economic emissions intensity is to compare the carbon emissions of differently sized portfolios, or is a consistent internal comparison even as portfolios grow or contract. 

It is recommended that economic emissions intensity is disclosed alongside absolute and LTV-weighted financed emissions.

Physical emissions intensity measures greenhouse gas emissions in relation to physical property characteristics, such as square footage.

A lower physical emissions intensity signifies better energy efficiency and a lower carbon footprint.

By integrating this metric into portfolio evaluations, businesses can identify high-carbon properties and prioritise energy-efficiency upgrades.

As above, it is recommended that physical emissions intensity is disclosed alongside absolute and LTV-weighted financed emissions.

The Partnership for Carbon Accounting Financials (PCAF) score evaluates the reliability of the data used by financial institutions to calculate financed emissions.

A low PCAF score (measured from 1 to 5) indicates the use of accurate and verifiable data, enabling better climate risk assessments. 

The scoring categories relate to the following:

1. Actual building energy consumption and emission factors specific to the respective energy source. Actual building energy consumption and supplier-specific emission factors are used.
2.  Actual building energy consumption and average emission factors specific to the respective energy source. Actual building energy consumption and average emission factors are used.
3.  Estimated building energy consumption per floor area based on official building energy labels AND the floor area are available.
4.  Estimated building energy consumption per floor area based on building type and location-specific statistical data AND the floor area.
5.  Estimated building energy consumption per building based on building type and location specific statistical data and the number of buildings.

The score helps to quantify portfolio emissions and assess the impact of decarbonisation efforts. Enhanced property data, such as improved EPC modelling, plays a pivotal role in achieving better PCAF scores for portfolio data that it otherwise missing.

As regulatory requirements tighten, maintaining a strong PCAF score ensures compliance and boosts investor confidence in green initiatives.

Read more:

• How to improve PCAF scores