Financial institutions are facing escalating climate risk primarily through the companies and projects they finance rather than from their own operations. This indirect exposure, known as financed emissions, has become central to climate risk management among banks, asset managers, and insurers.
A recent report from LSEG Data & Analytics explores how financed emissions can be made more operationally relevant. It suggests that these metrics yield far greater insights when employed as a structured analytical framework instead of merely a single headline figure. This approach allows stakeholders to understand how capital flows interact with the transition to a low-carbon economy.
Key findings from the report indicate that disclosure rates for financed emissions have increased threefold from 2020 to 2024. Nevertheless, reporting remains inconsistent across different sectors and geographical regions. In instances where data is not available, estimation becomes necessary, influenced by methodological choices and the detail of asset-level disclosures.
The report warns that relying solely on headline figures can lead to misconceptions. Variations in reported financed emissions are often a reflection of changes in portfolio composition or market dynamics rather than actual progress in decarbonization. Comprehensive analysis should include breakdowns by asset class, sector, and emissions scope, rather than depending on an aggregated number.
The findings outline specific actions for various stakeholders. Investors should consider financed emissions as an initial measurement and complement it with additional data for a comprehensive view of climate exposure. Financial institutions are encouraged to enhance their disclosures for better granularity and quality. Data users need to understand the underlying factors driving changes in these figures before forming conclusions, while regulators play a vital role in ensuring consistency and clarity in climate-related reporting standards.
The analysis leverages data from LSEG’s Climate MAP, which includes a GHG emissions estimation model covering Scope 1, 2, and 3 emissions alongside PCAF data quality scores. This dataset is accessible via LSEG Workspace or through a direct data feed.
For additional details, please refer to the full report here.