How do you calculate an investment fund's GHG emissions?

When a financial organisation publishes its Bilan Carbone®, one source outweighs all others: financed emissions, meaning the greenhouse gases of the companies and projects its investments finance. For a bank, insurer or asset manager, they often represent more than 99% of the total footprint: according to CDP, an institution's financed emissions are on average 700 times higher than its direct emissions.

The reference method for quantifying them is called PCAF. The principle fits in one line: the investor is allocated the share of the issuer's emissions corresponding to its share of financing. Here is how it works, what it enables and what it does not tell you.

1Why a financial investment emits CO₂

An investment does not emit by itself. It emits because the money invested finances real activities that consume energy and materials. A portfolio’s footprint therefore simply reflects what it finances, exactly as with retail investments, but from the manager’s perspective.

The mechanism: financing means emitting

Owning part of a company or lending it money supports its activity. PCAF's accounting logic draws the direct consequence: a fraction of the company's emissions is allocated to you, in proportion to what you finance.

The 3 typical cases: savings, equities, bonds

• Savings and loans: the money finances housing, infrastructure and local projects that use materials, energy and transport, and therefore emit.
• Shares in a listed company (NVIDIA, TotalEnergies, EDF...): the company emits through its operations. Owning 10% of its total value means being allocated 10% of its annual emissions.
• Government or corporate bonds: debt finances investments (infrastructure, industrial projects and public spending) that in turn emit.

The exception: currencies, outside the scope

Not everything enters the calculation. Investments in currencies (foreign exchange, speculation on rates) are not linked to concrete emitting activities: they therefore fall outside PCAF’s scope.

2The principle: allocating emissions proportionally

The logic shared by all these cases fits in one sentence: each provider of finance is allocated the share of the issuer's emissions corresponding to its share of financing. PCAF formalises this simple rule with a rigorous formula.

The formula: amount invested ÷ EVIC × emissions

An example: if you hold €1 million in shares in a company with an EVIC of €100 billion, you finance 0.001% of the company, and 0.001% of its emissions are allocated to you. EVIC moves with markets: with unchanged emissions, the same amount invested allocates less CO₂ when market capitalisation rises. This is a denominator effect to keep in mind from year to year.

PCAF, the standard that formalises the method

PCAF (Partnership for Carbon Accounting Financials) is the reference standard recognised by the main frameworks: TCFD, ISSB, SFDR and CSRD. It connects directly with scope 3 category 15 of the GHG Protocol, investments. In practice, a manager wanting to document its financial scope 3 applies PCAF.

The 7 asset classes covered

PCAF is not limited to equities. The standard covers 7 major asset classes, each with its own adapted allocation formula:

• Listed equities and bonds: allocation through EVIC, the best-documented case.
• Business loans and unlisted equity: loans to companies and unlisted private equity holdings, in a single combined class. Denominator: enterprise value or amount lent.
• Project finance: allocation in proportion to project financing.
• Commercial real estate: offices, retail and logistics financed directly. Based on the property’s value.
• Residential mortgages: property loans to individuals. A separate class from offices, based on the dwelling’s energy consumption.
• Motor vehicle loans: according to use-phase emissions of the vehicles financed.
• Sovereign debt: based on the issuing state’s emissions.

3Scope 1, 2, 3: which emissions data should you use?

The formula is simple; the real issue is the emissions figure fed into it. Here, the selected scope changes the entire result.

Why scope 3 changes everything

Scope 1+2 covers only the company’s direct emissions and energy. Scope 3 adds the entire value chain (purchases, product use and end of life), which often accounts for most emissions. For an oil company, ignoring scope 3 means forgetting combustion of the fuel sold: intensity can be divided by ten. PCAF now recommends scope 1+2+3 as data become available, while scope 3 is gradually becoming mandatory.

The market-based pitfall (green electricity)

Take care with scope 2 data. The market-based method allows a company to deduct its green electricity purchases (certificates, PPAs), which can artificially reduce its scope 1+2 without its physical emissions changing. For comparing sectors, location-based scope 1+2+3 remains more robust. This is a familiar methodological difference between GHG Protocol and Bilan Carbone®.

4Double counting: a false problem, a real debate

A legitimate first reaction to PCAF is: "Is there not double counting?" The answer is yes, and it is normal.

Investor / company double counting: normal and intentional

If you own 10% of NVIDIA, 10% of its emissions are allocated to you, and those same emissions also appear in NVIDIA’s Bilan Carbone®. It is the same mechanism as an ordinary company’s scope 3: capturing a panoramic view of all direct and indirect opportunities for action, even if an emission is counted at several points in the chain.

Double counting within a portfolio: the two approaches

A second case arises within the portfolio itself: if it contains both TotalEnergies (which produces gas) and a customer company (which consumes it), the same molecules are counted twice. Two schools of thought can be defended:

• Limit analysis to scope 1+2: simplifies collection and largely neutralises double counting. This is the historical approach, still very widespread.
• Accept double counting by including scope 1+2+3: the approach recommended by PCAF as scope 3 data become more widespread. Double counting becomes a normal methodological feature.

5Carbon intensity: what the figures do not tell you

Estimating financial emissions is an excellent habit: this source is often underestimated or even ignored for lack of data, although it may represent most of a financial organisation’s footprint. But quantitative measurement is not enough to say whether an investment is virtuous.

The sector spread: a factor of around 400

The gap between sectors is enormous. Across the calculator’s 6 typical companies, intensity ranges from ~8 tCO₂e/€million for service technology to ~3,000 for oil, a factor of around 400. This sector gap, far more than the amount invested, determines a portfolio’s footprint. The spread summarises the reality better than scope 1+2 figures alone, which are often distorted by market-based green electricity. The interactive calculator below quantifies the footprint allocated for these 6 typical companies according to the amount held.

Why low intensity does not make an investment virtuous

• A technology company, with naturally low intensity, reports a few dozen tCO₂e/€million. But its usefulness for the transition remains debatable.
• A major projects company such as Grand Paris is inherently more intensive (several hundred tCO₂e/€million), while financing public transport and active and sustainable travel, and therefore decarbonising society.

In other words, intensity measures a footprint, rather than a contribution. Low-carbon capital may be useless to the transition, and high-intensity capital may be at the heart of the solution.

Qualitative indicators: CIA, SBTi, CDP, ITR

The quantitative score must therefore be complemented by a qualitative reading of the asset’s relevance. Four indicators recur: CIA (Climate Impact Analytics, Carbone 4), SBTi alignment (Science Based Targets initiative), the CDP score (formerly Carbon Disclosure Project) and ITR (Implied Temperature Rise, expressed in degrees). They also incorporate dimensions beyond carbon (biodiversity, water and human rights) and help substantiate ESG claims without drifting into greenwashing.

6Which solution for which portfolio?

Depending on the number of issuers and the level of detail sought, two main approaches emerge.

Build a bespoke tool

Start with the portfolio’s actual composition (ISIN codes, market values) and scripts that query open ESG databases (CDP, ADEME and public data). Advantage: total flexibility, the ability to challenge each holding, complete methodological transparency. Limitation: collection becomes burdensome beyond a few hundred different issuers.

preview

Bespoke tool

A dashboard adapted to your portfolio

Projet Celsius can build a financed emissions management tool, calibrated to the actual composition of your investments. Total flexibility, methodological transparency and the ability to challenge each holding. Manual collection becomes burdensome beyond a few hundred different issuers: at that point, an ESG data provider becomes relevant.

Contract with an ESG data provider

Then subscribe to a specialist provider (ISS ESG, MSCI ESG, Trucost, Carbone 4 CIA). Advantage: extensive coverage (more than 10,000 listed issuers), automation and additional ESG indicators (controversies, SBTi alignment and exclusions). Limitation: a cost of €15,000 to €80,000/year depending on scope (comparable to the cost of a company Bilan Carbone®), less control over data accuracy, and methodologies that vary between providers for unlisted assets.

7Key takeaways

• Every investment (except currencies) emits because it finances emitting activities. It is often the largest source in an investor’s Bilan Carbone®, and this is what PCAF documents.
• The principle is simple: allocation proportionally to EVIC (market capitalisation + debt). Own 10% of a company, and 10% of its emissions are allocated to you. PCAF applies this logic to 7 asset classes.
• Double counting is normal once scope 3 is included: it captures the whole financing chain, rather than distorting the calculation.
• Low intensity does not make an investment virtuous. The sector matters more than the amount: a factor of around 400 between service technology (~8 tCO₂e/€million) and oil (~3,000). Always complement the quantitative with the qualitative (SBTi, CDP, ITR and exclusions).

For a manager or financial institution starting financed emissions reporting, the challenge is to acquire a management tool, rather than achieve perfection on the first attempt. Measuring where money goes then enables new investments to be directed towards transition organisations: industrial decarbonisation, low-carbon infrastructure and renovation, by directing finance towards the transition. This move from regulatory reporting to investment decisions turns measurement into an opportunity for action. For individuals, see our comparison of retail investments and our explanation of cryptocurrencies.

Further resources

Frequently asked questions

1EVIC: what is it and how do you calculate it?

EVIC (*Enterprise Value Including Cash*) is the sum of a company’s market capitalisation (ordinary and preference shares), total debt and minority interests. It is its complete economic value, allowing emissions to be allocated among all providers of finance (shareholders and creditors). PCAF uses it as a denominator because it avoids double counting between equity and debt holders and remains more stable than market capitalisation alone. Note: EVIC moves with markets, so the same amount invested allocates fewer emissions when market capitalisation rises (denominator effect).

2Is PCAF mandatory?

PCAF is not a legal requirement in itself, but it is the reference methodological standard for meeting requirements that are. The CSRD requires financial institutions within its scope to publish their scope 3 category 15 (financed emissions) through ESRS E1, and ESRS E1 refers to the PCAF standard for financed emissions. In practice, documenting financed emissions without PCAF is difficult to defend before an auditor today.

3What is the difference between financial scope 3 and ordinary scope 3?

A company’s ordinary scope 3 covers 15 categories (purchases, transport, product use, etc.). Financial scope 3 corresponds to just one of these categories, number 15 (Investments), but for a financial organisation it represents most of the footprint. This is precisely the source PCAF calculates: it turns an often-ignored category into a documented, auditable figure. For a complete view of scope 3, see the Bilan Carbone® scope 3 guide.

4Does PCAF cover unlisted funds (private equity, infrastructure)?

Yes. Unlisted funds are covered by PCAF in a dedicated asset class ("Business Loans and Unlisted Equity"), with an adapted denominator: net asset value instead of EVIC. This covers *private equity*, unlisted equity investment and infrastructure financing. For cryptocurrencies, PCAF does not yet have a standardised method: the approach uses an energy footprint (network consumption × the mix’s emission factor), detailed in our guide to the carbon footprint of cryptocurrencies.

5Must financed emissions be published for the CSRD?

Yes, for financial entities within its scope, which the Omnibus I Directive limits to companies with more than 1,000 employees and €450 million in turnover. The CSRD requires ESRS E1 (climate) reporting, which includes scope 3 category 15 and therefore financed emissions. ESRS E1 asks financial institutions to consider the PCAF standard (Part A, "Financed Emissions"); the ESRS are adopted by the European Commission on EFRAG’s technical advice. See also whether a Bilan Carbone® is needed for the CSRD for the application timetable and exact scope.

6Where should financed emissions reporting start?

Start by mapping your portfolio by PCAF asset class and identifying the largest issuers by value, which account for most of the footprint. For this subset, obtain published scope 1+2+3 emissions and apply the EVIC formula. An initial estimate for the 20% of holdings accounting for 80% of the portfolio already gives a usable order of magnitude, to refine later. The initial aim is a management tool, rather than methodological perfection.

7PCAF or a conventional Bilan Carbone®: what is the difference for a bank?

The two are complementary, rather than competing. A conventional Bilan Carbone® measures a company’s operational emissions across scopes 1, 2 and 3 (energy, travel, purchases, property and waste). For a bank or insurer, this source typically accounts for less than 1% of the total. PCAF specifically measures financed emissions, meaning a financial organisation’s scope 3 category 15, which accounts for more than 99% of the total footprint. A financial institution publishing its Bilan Carbone® must therefore do both: the conventional BC for its operations, PCAF for its loan and investment book.

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