The Partnership for Carbon Accounting Financials (‘PCAF’) has become the reference point for how banks measure financed emissions through its Global GHG Accounting and Reporting Standard, Part A.
In December 2025, PCAF updated its standard to broaden coverage and improve consistency by:
- Introducing three new asset classes, being:
- Use‑of‑proceeds structures (e.g. equity funds, debt funds, green bonds, sustainability-linked loans and bonds, etc.
- Securitisations and structured products (e.g., RMBS, CLO, CDO, etc.)
- Sub‑sovereign debt (e.g. bonds issued by regional, city or local governments of all maturities)
- Introducing the option to report undrawn loan commitments in line with IFRS S1 and S2.
Furthermore, PCAF issued supplemental guidance on accounting for financed avoided emissions and forward‑looking metrics, to allow banks to capture positive GHG emission impacts of a product and to assess the future decarbonisation potential of financial exposures, respectively.
This article focuses on the aspects introduced by PCAF on financed avoided emissions and forward-looking metrics, which may be considered more interesting to the local banking industry.
Financed avoided emissions
Definition
Avoided emissions are the reduction in emissions resulting from a project, product, or service (i.e. a “climate solution”) compared to a counterfactual scenario, or put simply, emissions reductions that would not occur should the climate solution in question, not exist. It estimates the emissions reductions in society due to the climate solution and are, generally, outside a company’s own value chain.
Financed avoided emissions are simply the avoided emissions associated with a financial institution’s investments or loans. The newly published PCAF guidance focuses specifically on this and states that it should not be used by non-financial corporates as a basis for calculating their own avoided emissions.
Source: GFANZ (2022). Scaling Transition Finance and Real-economy Decarbonization
Example – Financed avoided emissions of a solar photovoltaic (PV) farm:
Company A sets up a solar PV farm, the introduction of which would reduce reliance on the country’s existing fossil fuel-based energy supply.
Scope
Eligible climate solutions
It is crucial for financial institutions to understand how to account for the various climate solutions that they finance. In the context of the PCAF standard, there are two types of climate solutions that would qualify:
Projects, products, or services that do not fall within these definitions would not qualify as avoided emissions under the guidance.
Source: GFANZ (2022). Scaling Transition Finance and Real-economy Decarbonization
Source: GFANZ (2022). Scaling Transition Finance and Real-economy Decarbonization
Avoided emissions vs. carbon removals
It is important to understand the difference between “carbon removals” and “avoided emissions”. Carbon removals refer to “the action of removing GHG emissions from the atmosphere and store it through various means, such as in soils, trees, underground reservoirs, rocks, the ocean, and even products like concrete and carbon fibre.” Some examples of carbon removal projects/products include Direct Air Capture with Carbon Storage, afforestation projects, soil carbon enhancement, and ecosystem restoration.
Source: PCAF (2025). The Global GHG Accounting and Reporting Standard Part A: Financed Emissions. Third Edition.
The distinction between the two is important as PCAF has not yet issued specific guidance on measuring financed carbon removals. Projects, products, or services that fall under the definition of carbon removals are therefore not applicable under PCAF’s current accounting and reporting standards.
How financed avoided emissions are calculated and reported
Step 1
Obtain reported/measure counterparty’s avoided emissions
For counterfactual emissions, PCAF recognises that estimates are inherently subjective and can raise greenwashing concerns. It therefore requires transparent disclosure of the methodology and assumptions used to calculate emissions in the counterfactual scenario.
For actual emissions, PCAF prohibits the use of economic intensity-based estimations. Financial institutions must instead rely on reported avoided emissions or estimate actual emissions using physical activity data obtained from counterparties.
Avoided emissions are therefore the difference between the emissions in the counterfactual scenario (i.e. with no solution being deployed) and the actual emissions (i.e. considering the solution that the bank has financed).
Step 2
Attribute emissions to your financing
The bank then attributes its share using the relevant PCAF approach. Both general corporate instruments (e.g. working capital loans) and specific corporate instruments (e.g. project finance, commercial real estate loans) can be accounted for, however, only general corporate instruments that finance companies selling solutions that directly reduce GHG emissions through the end product can be accounted for.
The attribution factor represents the share of avoided emissions that the bank contributed to through its financing.
Step 3
Report financed avoided emissions
Avoided emissions can be reported on a facility-level or portfolio-level but must be reported separately from absolute emissions and financed (generated) emissions, i.e. no netting off.
What this means for banks in Malta
Banks in Malta that are scaling green solutions and transition finance offerings can report their financed avoided emissions to provide a clearer view of how they are currently contributing to decarbonisation. It supports banks with sustainability ambitions by providing a clear metric to track the impact of their financing.
Forward-looking metrics
Forward‑looking metrics complement today’s financed emissions by showing the future trajectories of portfolio emissions, not just their current levels. PCAF focuses on two optional disclosures, both of which must be reported separately from financed emissions and financed avoided emissions.
Expected Emissions Reduction (EER)
Definition
EER estimates how much a counterparty’s absolute emissions are expected to fall between a base year and a future year, based on its decarbonisation plans and targets.
How it’s calculated and reported
Step 1: Calculate facility-level EAE
EAE must be calculated on an annualised basis. Furthermore, the same guardrails and disclosure requirements for counterfactual scenarios used in the calculation of financed avoided emissions apply to the calculation of EAE.
Step 2: Attribute EAE to your financing
The bank then attributes its share using the relevant PCAF approach. The attribution factor represents the share of emissions reductions that the bank contributed to through its financing.
Step 3: Reporting financed EAE
Financed EAE can be reported on a facility-level or portfolio-level, but must be reported separately from absolute emissions, financed (generated) emissions, and financed avoided emissions.
Step 4: Reporting in subsequent periods
Since EER has the potential of reflecting overly ambitious or unrealistic expectations, PCAF requires banks that report EER to also report achieved emissions reductions in subsequent periods, showing how far counterparties are actually progressing against their targets, both in absolute and relative terms.
At the facility-level:
At the portfolio-level:
Example – EER and AER:
Source: PCAF (2025). The Global GHG Accounting and Reporting Standard Part A: Financed Emissions. Third Edition.
Current reporting period:
Company A has 100,000 tCO2e Scope 1 emissions in 2025 and its expected emissions are 50,000 in 2030. Financial Institution A provides a €10m loan in 2025. Company A has €100m EVIC.
For the sake of this example, Financial Institution A only calculates the EER for Company A and not for the rest of the portfolio. This means financial institution A reports portfolio-wide Scope 1 EER of (€10m/€100m) *(100,000-50,000) = 5,000. Financial Institution A reports this number only in 2025.
| Company A | 2025 | 2030 (Expected) |
|---|---|---|
| Scope 1 (tCO₂e) | 100,000 | 50,000 |
| EVIC (MEUR) | 100 | |
| EER Scope 1 (tCO₂e) | 50,000 |
| Financial Institution | 2025 | |
|---|---|---|
| Loan (MEUR) | 10 | |
| Attribution factor | 0.1 | |
| Attributed EER Scope 1 (tCO₂e) | 5,000 |
Subsequent reporting periods:
In the above example, Company A has 85,000 tCO2e Scope 1 emissions in 2027. The AER is (100,000 - 85,000) = 15,000. % AER: Assuming that Financial Institution A still only reports EER for Company A and the attribution factor remained constant, Financial Institution A reports a portfolio-wide Scope 1 AER of 10% * 15,000 = 1,500 in 2027. The % achieved EER for Company A in 2027 is (15,000/50,000) = 30%.
| Company A | 2025 | 2027 |
|---|---|---|
| Scope 1 (tCO₂e) | 100,000 | 85,000 |
| EVIC (MEUR) | 100 | 100,000,000 |
| EER Scope 1 (tCO₂e) by 2030 | 50,000 | |
| AER Scope 1 (tCO₂e) | 15,000 | |
| % achieved Scope 1 EER | 30% |
| Financial Institution | 2027 | |
|---|---|---|
| Loan (MEUR) | 10 | |
| Attribution factor | 0.1 | |
| Attributed EER Scope 1 (tCO₂e) by 2030 | 5,000 | |
| Attributed AER Scope 1 (tCO₂e) | 1,500 | |
| % achieved Scope 1 EER | 30% |
| In their report an FI would include: | ||
| Attributed Scope 1 EER | 5,000 by 2030 (2025 base year) | |
| Attributed Scope 1 AER (2027) | 1,500 | |
| % Achieved Scope 1 AER (2027) | 30% | |
Expected Avoided Emissions (EAE)
Definition
EAE estimates the annualised emissions expected to be avoided outside an entity’s value chain over a project’s useful life compared to a counterfactual scenario, then attributes a share to the bank
Step 1: Calculate facility-level EAE
EAE must be calculated on an annualised basis. Furthermore, the same guardrails and disclosure requirements for counterfactual scenarios used in the calculation of financed avoided emissions apply to the calculation of EAE.
Step 2: Attribute EAE to your financing
The bank then attributes its share using the relevant PCAF approach.
Step 3: Reporting financed EAE
Financed EAE can be reported on a facility-level or portfolio-level, but must be reported separately from absolute emissions, financed (generated) emissions, and financed avoided emissions.
Example – EAE:
Company A reported 100,000 tCO₂e Scope 1 emissions in 2025. In 2026, it will deploy cutting-edge green technology with a five-year useful life. This technology is expected to reduce Scope 1 emissions to 80,000 tCO2e per year, starting in 2026 and continuing through its useful life. The counterfactual scenario (without the technology) has the following emissions pathway
| Year | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 |
|---|---|---|---|---|---|---|
| Counterfactual scenario (tCO₂e) | 100,000 | 98,000 | 96,000 | 94,000 | 92,000 | 90,000 |
| Projected emissions (tCO₂e) | 80,000 | 80,000 | 80,000 | 80,000 | 80,000 | 80,000 |
Financial Institution A provides a €10m loan in 2025 to finance the purchase of the green technology. Company A has €100m EVIC. The attribution factor is therefore 10/100. For the sake of this example, Financial Institution A only calculates the EAE for Company A and not for the rest of the portfolio. This means financial institution A compares the emissions projected over the period 2026-2030 of 400,000 tCO2e (80,000 tCO2e per year), versus the counterfactual scenario pathway total emissions, 470,000 tCO2e. In 2025 (the year of contracting), financial institution A calculates a cumulative and annualised EAE number.
Cumulative EAE= (470,000 - 400,000) * (10/100) = 7,000 tCO2e
Annualized EAE = 7,000 / 5 = 1,400 tCO2e
What this means for banks in Malta
EAE is most relevant for banks financing climate solutions, such as renewables, energy efficiency, and low-carbon technologies. It helps banks demonstrate how their financing enables emissions avoided in the wider economy. While more complex and assumption-driven, EAE can strengthen impact narratives and support more informed client and investor discussions on sustainable finance.
Key differences between EER and EAE
|
EER
|
EAE
|
What it measures
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How much a company’s own emissions are expected to go down between a starting year and a future year.
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How many emissions a project is expected to avoid over its life, compared with a counterfactual scenario.
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Where emissions are counted
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Focuses on emissions within the company or facility’s own inventory.
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Includes emissions avoided outside the company or facility’s own value chain.
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Complexity
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Less complex as it solely relies on counterparty’s targeted emissions and absolute emissions data.
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More complex as it requires detailed assumptions to estimate emissions in the counterfactual scenario.
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How it treats growth
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Does not capture growth. It only looks at total emissions going up or down.
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Can capture growth. It compares actual plans to a counterfactual, so it can show that emissions per unit improve, even if total output grows.
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Tracking over time
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Can be tracked every year against actual emissions, so it works well as a performance metric.
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Calculated once at contracting. Hard to track later because the counterfactual may no longer be realistic.
|
Next steps
Pick a few portfolios or products where financed avoided emissions, EER or EAE, are most relevant, and test what you can realistically calculate with the data you have. Use these pilots to understand your gaps, refine your approach to counterfactuals and assumptions, and then decide where it makes sense to build this into regular reporting.
We work with you to turn the PCAF guidance into simple, practical steps - from scoping and method choices to running pilots, setting up basic governance, calculating financed emissions, and embedding them into reporting - so you can focus on aligning your financing decisions with your sustainability ambitions.
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