New proposed guidance on measuring the carbon footprint of green bonds shows meaningful progress towards a standardised approach, which could affect how carbon footprints are recorded across bond and equity portfolios.
The new guidance, published as part of a public consultation on the Global GHG Accounting and Reporting Standard by the Partnership for Carbon Accounting Financials (PCAF) in December 2024, clarifies and addresses many of the issues that Insight highlighted in previous research.
In our paper Carbon footprinting for green bonds: a way forward, we explained how investors, in many cases, are forced to estimate the carbon footprint of green bonds, but the available approaches produce very different results.
This has implications not just for green bond holdings but for the carbon footprint of conventional bond and equity portfolios, given the need to adjust companies’ overall metrics to reflect any green bonds they issue.
Our research prompted extensive discussion of this issue across the industry, and we are pleased that the proposals from PCAF reflect many of our recommendations, as we illustrate in the table below.
We are encouraging our clients with an interest in the carbon footprint of their portfolios to consider responding to the PCAF consultation, which is available here. The deadline for responses is 28 February 2025.
Table 1: How the PCAF proposals fulfil Insight's recommendations
| Insight’s recommendation | PCAF proposal |
| “To ensure transparency and comparability, we believe it is important that a credible and robust market standard emerges for calculating the carbon footprint of green bonds.” |
PCAF now suggests investors separately account for carbon emissions in relation to use-of-proceeds structures. This recommendation is not limited to only green bonds, but wider use-of-proceeds structures including Special Purpose Vehicles. |
| “Insight proposes an estimation methodology for the carbon footprint of green bonds that builds on the PCAF standard and takes into account the lack of reported data in post-issuance reporting, while aiming for a robust and theoretically sound estimation approach.” |
PCAF has acknowledged that an estimation approach can be used for green bond carbon footprinting if issuers do not report this data separately. It has also confirmed that the PCAF data quality scores and Exiobase dataset can be used as part of those estimations, as well as estimations done by external data providers (such as MSCI). This was another methodology that Insight put forward in its research. |
| “By giving green bonds a potential preferential carbon treatment, to avoid undercounting overall emissions, we believe the issuer’s emissions profile should be adjusted to exclude green bonds and the projects they have financed.” |
PCAF has suggested this is best practice and expects issuers to report a higher carbon footprint for non-green bonds relative to their green bonds. However, PCAF does not suggest investors do this if there is no carbon footprinting data available on the green bonds. We believe this is acceptable – as stated in our research, “the perfect should not be the enemy of the good”. |
| “To promote a widescale adoption of…estimation methodology all data points required for assumptions need to be readily available. There also needs to be industry wide agreement mapping the appropriate carbon emission factor to each ICMA-aligned green project activity.” |
PCAF has not suggested appropriate carbon emission factor mapping to ICMA aligned green project activity. Insight will seek to highlight this point in our response to the PCAF consultation. |
Source: Insight Investment. For illustrative purposes only.
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