Client
Expertise
Footprinting
Impact
Overcoming data blockers to accelerate portfolio decarbonisation.
CHALLENGE
How can financial institutions tackle their emissions when data remains limited?
For the past decades, Indonesia’s government and the private sector have invested in new ports, roads, bridges and dams to keep pace with economic changes and urbanisation. However, Indonesia’s goal to achieve Net Zero by 2060 means that the decarbonisation of existing and future infrastructure must happen alongside economic developments.
Indonesia Infrastructure Finance (IIF), a private financial institution that provides long-term loans and guarantees to infrastructure projects, plays a core role in decarbonising this sector. Its investment portfolio houses projects across electricity, transportation, telecommunication and road infrastructure among others. And although IIF had already measured its Scope 1 and 2 emissions, the financial institution recognised that it had to account for the emissions from its investment portfolio (Scope 3, Category 15) to fully understand its climate impact. However, limited data availability, evolving analytical tools, and the need to further build internal capabilities posed challenges in accurately measuring these financed emissions.
With support from sustainable finance experts at the Carbon Trust, IIF and its shareholder DEG wanted to quantify what is the largest sum of IIF's emissions profile: its financed emissions. More so, to lead by example, IIF sought independent verification of its existing Scope 1 and 2 calculations to ensure they conform to international best practices.
Financed emissions
Financed emissions are the greenhouse gas emissions related to the investment and lending activities of a financial institution (Scope 3, Category 15). They often make up the majority of emissions for financial institutions, such as investors, banks, and insurers. The Partnership for Carbon Accounting Financials (PCAF) classifies emissions associated with the following seven asset classes as ‘financed emissions’ in the ‘Global GHG Accounting and Reporting Standard’: listed equity and corporate bonds, business loans and unlisted equity, project finance, commercial real estate, mortgages, sovereign debt, and motor vehicle loans.
SOLUTION
Assessing emissions across the portfolio with a dedicated footprinting tool
IIF had already calculated its Scope 1 and 2 emissions. Next to providing independent assurance of these calculations, we helped IIF gain a clearer picture of its financed emissions, offering a basis for its climate-alignment strategy. Together, we:
Identified the data required for each asset class to measure IIF’s investment portfolio emissions, including suitable proxies if an investee’s data was insufficient.
Developed footprinting methods based on PCAF guidance. From this, we developed a bespoke calculation tool for each asset class, leading to a full emissions inventory of IIF’s portfolio.
Presented the tool to IIF’s team, explaining its key assumptions and unveiling the emission hotspots and outliers it identified. We also coached staff on how to use the tool, improve data quality, and increase the accuracy of the tool’s results over time.
Educated internal staff on emissions inventorying and management, climate risks and reporting as well as carbon markets. These sessions clarified the next steps IIF can take, building upon the insights into its financed emissions.
IMPACT
A foundation for transforming investment strategies
The calculation tool shows IIF that it can still gain strong insights into the carbon impact of its investment portfolio even when it doesn’t have all the emissions data from investees yet. The results from the financed emissions calculator alongside the verification of IIF’s Scope 1 and 2 emissions and capacity building have helped lay the groundwork for immediate action. They enabled IIF to:
Dissect the carbon impact of IIF’s investment portfolios and update results as data quality improves.
Engage with high emitters in its portfolio. Recognising that the tool relies on data input, IIF is now actively engaging portfolio companies to improve carbon accounting practices.
Lead by example. By getting its own Scope 1 and 2 emissions verified, IIF shows its portfolio companies the importance of aligning calculations to the Greenhouse Gas Protocol and seeking third-party assurance.
Demonstrate internally the importance of balancing financial interests with environmental impact in future investment strategies.
The tailored tool developed by the Carbon Trust, provided critical insights into IIF’s financed emissions, forming a robust foundation for our journey towards setting reduction targets and strategies aligned with the Paris Agreement and 1.5C pathways. The verification of Scope 1 and 2 emissions, along with capacity-building initiatives, have also strengthened our reporting integrity and enhanced our team’s capabilities in managing climate-related risks and opportunities.
Financial institutions have a big role to play in supporting the Net Zero transition. They can play this role best when they truly understand the broader impact of their financing.
