PCAF and the Private Company Problem: What Banks Get Wrong About Measuring Financed Emissions

Two manufacturers sit in the same lending book. One has just fitted heat pumps and cut its energy use by a third. The other still runs on ageing gas boilers and hasn’t touched its process in a decade.
Look at the bank’s financed emissions numbers for both, and they’re identical.

That’s not a data entry error. It’s what happens when PCAF methodology meets a portfolio of private companies with no primary emissions data to draw on.

What PCAF actually asks for

The Partnership for Carbon Accounting Financials (PCAF) standard gives banks a structured way to calculate financed emissions, the emissions attributable to their loans and investments, based on an attribution factor tied to the size of the exposure.

Crucially, PCAF also grades the quality of the underlying data on a five-point scale, from verified company-reported figures at the top to broad estimates based on sector and asset type at the bottom.

The methodology isn’t the problem. It was designed to accommodate exactly this kind of data scarcity. The problem is what happens when almost an entire portfolio defaults to the bottom of that scale.

Where SME portfolios break the model

Large listed companies typically supply banks with reportable emissions data, keeping them higher up the PCAF scale. Private companies with turnover between £2m and £100m rarely do.

Without company-level data, banks fall back on sector-average estimates. That approach quietly introduces problems that compound across a portfolio:

• Identical assignments:
  Two companies in the same sector are assigned near-identical emissions intensity, regardless of actual performance.
• Incentive blind spots:
  A company actively decarbonising looks no different on paper to one that hasn’t started.
• Distorted portfolio figures:
  Portfolio-level financed emissions figures reflect sector averages more than real client behaviour.
• Flawed risk pricing:
  Transition risk pricing has nothing genuine to differentiate on.

Why this matters beyond the spreadsheet

This isn’t just a reporting technicality. According to the Bank of England’s supervisory statement SS5/25, firms are expected to embed climate-related financial risk into decision-making with evidence, not estimation shortcuts.

“The methodology only works as intended once real company-level data exists to feed it. Until then, every SME financed emissions figure is an educated guess wearing the authority of a regulatory framework.”

Closing the data gap behind the methodology

This is the gap the Climate Action Platform was built to close. The Climate Action Platform, developed and deployed by NatWest and National Australia Bank, structures transition data on private companies at the scale banks need to move up the PCAF data quality scale, company by company, not sector average by sector average. Built on TDH’s underlying sustainability intelligence.