This pilot has helped to build the groundwork for future work on portfolio-level scenario analysis and we plan to use results from PACTA for Banks as a risk management tool to monitor our portfolio alignment, inform our sector strategies and appetite limits, as an engagement tool for meaningful conversations with our clients, and potentially as an input for our climate target-setting and stress testing, as well as other strategic planning processes in the near future.
Scope 3 Financed Emissions
In 2021, we stepped up our climate pledge by targeting to achieve Net Zero greenhouse gas (GHG) emissions by 2050. As a financial institution, the vast majority of our greenhouse gas emissions come from Scope 3 emissions, notably in the form of “financed emissions”.
Considered as a Category 15 item of Scope 3 activities in the GHG Protocol, financed emissions are from financing of clients and investments that are attributable to us. Achieving Net Zero in our Scope 3 emissions means that our attributed exposure to clients’ emissions must be at least balanced by the same amount of carbon sequestration in our overall portfolio.
In order to achieve our target, we have started conducting analyses throughout our on-balance sheet financing which covers our Wholesale, Commercial and Consumer segments. Nine carbon intensive sectors (as defined by UNEP FI Collective Commitment to Climate Action) were selected for the analyses. These included agriculture; aluminum; cement; coal; commercial and residential real estate; iron and steel; oil and gas; power generation; and transport.
In these initial analyses, we are only taking into account the clients that are representing a significant majority of the exposure for each of the carbon-intensive sectors mentioned above. When compared to the Group’s gross loan, our disclosure represents 19%, 40% and 35% respectively for FY19, 20 and 21. The coverage is lower in 2021 as most of our clients have yet to provide their audited financial statements.
To estimate the financed emissions, we used the PCAF (Partnership for Carbon Accounting Financials) methodology which provides a harmonized approach towards assessing and disclosing the GHG emissions associated with our loans. The data listed in the tables below are based on PCAF Methodology, using total assets as the denominator and principal outstanding amount as attribution metric. Only businesses that are in the upstream segment of their sectors are included in the calculation of the financed emissions, i.e. the production and manufacturing segment.
While we aim to work with our clients’ verified self-reported emissions for our estimation of financed emissions, there is still a very big gap in terms of emissions reporting for companies in the ASEAN region. Where our client-reported emissions are missing, we estimated the emissions using proxies based on the company’s revenue figures. We have also included the PCAF data quality scores in the tables below which should provide an overview on our confidence with the estimated financed emissions.
We acknowledge that our data quality is in the lower spectrum but we do aspire to work closer with our clients to improve their GHG emissions calculation and reporting. Furthermore, our initial set of baseline may require updating as data availability changes over time and methodology and climate science evolve.
