FTSE Russell Insights

Conundrum cubed: Scope 3 for financials 

Mobi Shemfe

Senior Lead, Sustainable Investment Research

Jaakko Kooroshy

Global Head of Sustainable Investment Research

Measuring and disclosing Scope 3 emissions presents serious difficulties for corporates and investors alike, and Category 15 emissions are perhaps the most challenging of all. In this blog, we help you understand why.

  • Scope 3 emissions are uniquely difficult to measure and report on.
  • Within Scope 3, Category 15 is widely seen as one of the most challenging categories. 
  • As financed emissions make up a huge proportion of financial institutions’ carbon footprints, these institutions face a series of hurdles.

A common question from clients and other stakeholders on our Scope 3 Conundrum report is why we omitted Category 15 emissions. The answer, in a nutshell, is that this category carries a unique set of conceptual and data challenges, that in many ways go beyond the already complex issues of other Scope 3 disclosures.

Category 15 (Investments) is a relatively obscure Scope 3 category, originally intended to cover emissions that arise from one company having a stake in another.[1] For most corporates this represents a proverbial footnote in their overall emissions profile; indeed, it is not a coincidence that it sits at the very tail end of the Scope 3 catalogue. 

Why Financed and Facilitated Emissions Matter

However, not so for financial institutions where financial transactions are the business. Compared to other industries, financial institutions typically produce low Scope 1 and 2 emissions (mostly emissions from their offices and electricity use) and limited emissions from other Scope 3 categories (mostly linked to their purchased goods and services and business travel). In contrast, their Category 15 emissions are exceptionally large, on average comprising over 99% of their overall emission footprint.[2]

This includes financed emissions – which are on-balance-sheet emissions from direct lending and investment activities, such as the emissions from a company that a bank provides a loan to, or an asset manager holds shares in. It can also include facilitated emissions, or off-balance-sheet emissions from enabling capital market services and transactions. An example of this is the emissions from a company that an investment bank helps to issue debt or equity securities or facilitates a loan for through syndication. 

Financed and facilitated emissions are key to understanding the climate risk exposure of financial institutions. This could be substantial, for example, for a bank with a large lending book focused on airlines, or an insurance firm specialised in oil and gas operations. So, it is not surprising that various initiatives have been advocating for more disclosures. These include the Partnership for Carbon Accounting Financials (PCAF), but also the Principles for Responsible Investing (PRI), the Glasgow Financial Alliance for Net Zero (GFANZ), the Science Based Targets Initiative (SBTi), CDP, and the Transition Pathway Initiative (TPI).

As Scope 3 disclosures are becoming mandatory in several jurisdictions, this takes on even greater urgency for the finance industry. The European Union’s Corporate Sustainability Reporting Directive, for example, requires all large companies listed on its regulated markets to report their Scope 3 emissions, with similar requirements emerging in other jurisdictions around the world. While disclosure regulations usually don’t prescribe which Scope 3 emissions categories should be included in disclosures, they typically ask for material categories to be covered, making it difficult for financial institutions to argue against disclosing their financed and facilitated emissions.

This poses a considerable challenge. While financial institutions’ Scope 3 reporting rates are among the highest across all industries (see Figure 1), only a third disclose their financed emissions – often only covering parts of their portfolios[3] – and, to date, only a handful have attempted to disclose their facilitated emissions. A recent report from the TPI, examining the climate disclosures of 26 global banks, shows that none have fully disclosed their material financed and facilitated emissions.[4] 

Three Key Challenges

Financial institutions face three key challenges in disclosing their financed and facilitated emissions, which need to be overcome to improve corporate reporting rates.

First, in contrast to other Scope 3 categories, the rulebook for reporting on financed emissions and facilitated emissions is in many ways still nascent and incomplete. Accounting rules for financed emissions were only finalised by PCAF and endorsed by the Greenhouse Gas (GHG) Protocol – the global standard setter for GHG accounting – in 2020.[5] These codify the accounting rules for banks, asset managers, asset owners and insurance firms. Rules for facilitated emissions followed in 2023[6], covering large investment banks and brokerage services. Those for reinsurance portfolios are currently pending the approval of the GHG Protocol[7], while rules for many other types of financial institution (not least exchanges and data providers like us) currently don’t exist. 

Companies reporting material and other Scope 3 vs non-reporting companies, in 2022 FTSE All-World Index, by Industry

chart displays Companies reporting material and other Scope 3 vs non-reporting companies, in 2022 FTSE All-World Index, by Industry

Source: LSEG, CDP. Please see the disclaimers for important legal disclosures.

Second, there are significant challenges around acquiring client emissions data. In principle, financed and facilitated emissions calculations are quite simple. They require two main inputs: the Scope 1-3 emissions generated from a client’s business, and an attribution factor that determines the share of a client’s emissions that a reporting financial institution has exposure to or is responsible for. 

In practice, financial institutions often lack robust emissions data for large parts of their diverse client base. Such data is often available for large, listed companies, but rarely available for privately held companies or SMEs that commonly make up large shares of financial institutions’ client books. This can lead to huge data gaps in the emissions data inventory of financial institutions. 

Features of PCAF’s Financed and Facilitated emissions standards

chart displays Features of PCAF’s Financed and Facilitated emissions standards

Source: PCAF.  (See footnotes 5 and 6)” Please see the disclaimers for important legal disclosures.

Third, there are complexities around attribution factors. For financed emissions, this is the ratio of investments and/or outstanding loan balance to the client’s company value. However, market fluctuations of share prices complicate this picture and can result in swings in financed emissions that are not linked to the actual emissions profile of client companies.[8]

The same problem persists for facilitated emissions, but worse. Determining appropriate attribution factors is often conceptually difficult due to the myriad ways that financial institutions facilitate financial transactions, from issuing securities to underwriting syndicated loans. As the Chief Sustainability Officer of HSBC recently explained,[9] “This stuff sometimes is hours or days or weeks on our books. In the same way that the corporate lawyer is involved in that transaction, or one other big four accounting firms is involved… they are facilitating the transaction. This is not actually our financing.” 

Where do we go from here?

Given these complexities and the significant reporting burden, financed and facilitated emissions are likely to remain a headache for reporting companies, investors and regulators alike for some time to come. 

Meanwhile, proxy data and estimates are likely to play a significant role in plugging disclosure gaps. One tangible way forward could be to encourage financial institutions to provide better disclosures on the sectoral and regional breakdown of their client books. This is readily available, if rarely disclosed, data. This could allow investors and regulators to gain a better, if imperfect, understanding of the transition risk profile of financial institutions while reporting systems for financed and facilitated emissions continue to mature.

1. The Greenhouse Gas Protocol, A Corporate Accounting and Reporting Standard Revised Edition, 2011.

2. CDP, Climate Change Questionnaire; Technical Note: Scope 3 relevance by Sector, 2023. [Accessed 07 May 2024].

3. CDP, CDP Financial Services Report, 2023.

4. The Transition Pathway Initiative, Banks and the net zero transition, 2023.

5. The Partnership for Carbon Accounting Financials, PCAF, PartA: Financed Emissions_v9a (carbonaccountingfinancials.com), 2022. [Accessed 07 May 2024].

6. The Partnership for Carbon Accounting Financials, PCAF, PartB_DesignDraft_v9b (carbonaccountingfinancials.com), 2022. [Accessed 07 May 2024].

7. The Partnership for Carbon Accounting Financials, PCAF, PartC (carbonaccountingfinancials.com), 2022. [Accessed 07 May 2024].

8. Granoff, I and Lee, Tonya, Shocking Financed Emissions: The Effect of Economic Volatility on the Portfolio Footprinting of Financial Institutions, 2024.

9. The Financial Times, HSBC caves to investor pressure on capital markets emissions, HSBC caves to investor pressure on capital markets emissions (ft.com). [Accessed 07 May 2024].


Read more about

Stay updated

Subscribe to an email recap from:


© 2024 London Stock Exchange Group plc and its applicable group undertakings (“LSEG”). LSEG includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, “FTSE Canada”), (4) FTSE Fixed Income Europe Limited (“FTSE FI Europe”), (5) FTSE Fixed Income LLC (“FTSE FI”), (6) FTSE (Beijing) Consulting Limited (“WOFE”) (7) Refinitiv Benchmark Services (UK) Limited (“RBSL”), (8) Refinitiv Limited (“RL”) and (9) Beyond Ratings S.A.S. (“BR”). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, WOFE, RBSL, RL, and BR. “FTSE®”, “Russell®”, “FTSE Russell®”, “FTSE4Good®”, “ICB®”, “Refinitiv” , “Beyond Ratings®”, “WMR™” , “FR™” and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of LSEG or their respective licensors and are owned, or used under licence, by FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, WOFE, RBSL, RL or BR. FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator. Refinitiv Benchmark Services (UK) Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator.

All information is provided for information purposes only. All information and data contained in this publication is obtained by LSEG, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical inaccuracy as well as other factors, however, such information and data is provided "as is" without warranty of any kind. No member of LSEG nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or LSEG Products, or of results to be obtained from the use of LSEG products, including but not limited to indices, rates, data and analytics, or the fitness or suitability of the LSEG products for any particular purpose to which they might be put. The user of the information assumes the entire risk of any use it may make or permit to be made of the information.

No responsibility or liability can be accepted by any member of LSEG nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage in whole or in part caused by, resulting from, or relating to any inaccuracy (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing, editing, transcribing, transmitting, communicating or delivering any such information or data or from use of this document or links to this document or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if any member of LSEG is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.

No member of LSEG nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this document should be taken as constituting financial or investment advice. No member of LSEG nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset or whether such investment creates any legal or compliance risks for the investor. A decision to invest in any such asset should not be made in reliance on any information herein. Indices and rates cannot be invested in directly. Inclusion of an asset in an index or rate is not a recommendation to buy, sell or hold that asset nor confirmation that any particular investor may lawfully buy, sell or hold the asset or an index or rate containing the asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index and/or rate returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index or rate inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index or rate was officially launched. However, back-tested data may reflect the application of the index or rate methodology with the benefit of hindsight, and the historic calculations of an index or rate may change from month to month based on revisions to the underlying economic data used in the calculation of the index or rate.

This document may contain forward-looking assessments. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking assessments are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially. No member of LSEG nor their licensors assume any duty to and do not undertake to update forward-looking assessments.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of LSEG. Use and distribution of LSEG data requires a licence from LSEG and/or its licensors.