AVOIDED EMISSIONS REPORTING: A GREENWASHING BONANZA FOR FINANCIAL INSTITUTIONS?

Reclaim Finance critiques PCAF's proposed expansion of avoided emissions reporting and the introduction of Expected Emission Reductions (EER), warning that these counterfactual-based metrics are subjective and prone to greenwashing. The briefing also highlights flaws in the 'financed emissions' formula, noting that it often fails to track real-world emissions due to its sensitivity to corporate value fluctuations. Reclaim Finance recommends that PCAF withdraw these proposed methodologies and instead adopt metrics that reflect actual counterparty performance and physical emissions intensities for target setting.

• The proposal to expand Financed Avoided Emissions (FAEs) reporting to general corporate loans and investments creates significant greenwashing risks because these metrics rely on counterfactual scenarios that cannot be proven or disproven.
• The attribution methodology for FAEs uses corporate value as a variable, meaning reported avoided emissions will fluctuate based on company value changes rather than actual emission reductions, making the metric a poor indicator of financing trends over time.
• Expected Emission Reductions (EER) metrics—both expected absolute emissions (EER1) and expected avoided emissions (EER2)—are viewed as powerful greenwashing tools because they allow financial institutions to claim credit for future reductions that may not occur.
• The standard 'financed emissions' formula is weakly correlated with real-world emissions because it is highly sensitive to variables like corporate value (EVIC), allowing institutions to meet targets without actual decarbonization of their portfolios.
• Analysis of the MSCI All Country World Index (ACWI) between 2018 and 2022 showed that while real Scope 1 and 2 emissions declined by approximately 4%, financed emissions (using EVIC) fell by approximately 14% assuming constant investment.
• Data misalignment and poor corporate reporting quality significantly distort financed emissions calculations; for example, a two-year misalignment can result in Scope 3 financed emissions being reported 62% lower for the industrials sector.
• Reclaim Finance recommends that financial institutions move away from metrics with financial components for target setting, proposing instead the use of Sectoral Portfolio Weighted Average Physical Intensity (WAPI) targets for most sectors and financial exposure targets for fossil fuel supply sectors.

APA

Reclaim Finance (2025). AVOIDED EMISSIONS REPORTING: A GREENWASHING BONANZA FOR FINANCIAL INSTITUTIONS? https://reclaimfinance.org/site/wp-content/uploads/2025/05/PCAF-Briefing.pdf

Chicago

Reclaim Finance. AVOIDED EMISSIONS REPORTING: A GREENWASHING BONANZA FOR FINANCIAL INSTITUTIONS? 2025. https://reclaimfinance.org/site/wp-content/uploads/2025/05/PCAF-Briefing.pdf.

Wikipedia

{{cite report |author=Reclaim Finance |title=AVOIDED EMISSIONS REPORTING: A GREENWASHING BONANZA FOR FINANCIAL INSTITUTIONS? |date=May 2025 |url=https://reclaimfinance.org/site/wp-content/uploads/2025/05/PCAF-Briefing.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{reclaimfinance2025avoided, author = {{Reclaim Finance}}, title = {{AVOIDED EMISSIONS REPORTING: A GREENWASHING BONANZA FOR FINANCIAL INSTITUTIONS?}}, institution = {Reclaim Finance}, year = {2025}, month = may, url = {https://reclaimfinance.org/site/wp-content/uploads/2025/05/PCAF-Briefing.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }