Financed Emissions Notes & White Papers
| Financed Emissions Notes & White Papers |
NOTE: The US Securities and Exchange Committee (SEC) has dropped its requirements
for company Scope 3 reporting; however, the state of California
passed two bills in October 2023 that require
Scope 3 emissions disclosures for financial firms "doing business" in the state.
The "doing business in California" criterion is met if the firm has property in
California exceeding $75,000, or payroll in California exceeding $75,000.
CA Scope 3 emissions reporting is required in 2027 with data from 2026. With such a short
time horizon, financial firms should be finalizing reporting strategies and data in 2025.
These emissions can easily account for more than 95 percent of total emissions for
financial and other firms. This huge new reporting requirement opens the door to independent
auditing and challenging of the reported results, so affected firms need to take this new rule
seriously and to conscientiously conduct required analysis and reporting to avoid challenges
to corporate CSR commitments.
Financial institutions outside California should also take notice as trends
in California often lead to similar requirements in other states.
While these white papers focus on the SEC's Scope 3 reporting, these issues are
just as relevant to Scope 3 reporting requirements in California an voluntary Scope 3 reporting
in all states.
MAISY Scope 3 Financed Emissions Notes and Whitepapers
MAISY Databases are the most accurate, advanced and cost-effective source of Scope 3 financed energy use and emissions
available in US markets. The data are applied in two ways: (1) ZIP-level data are provided for financial institution
mortgagors and commercial real estate customer segments and (2) an AI-powered API accepts data on individual loan customers
to provide energy use and emissions estimates for individual customers based on loan customer characteristics.
This page provides a summary of notes - brief commentaries on issues relevant to Scope 3 mortgage and commercial real estate (CRE) financed emissions estimates, as well as more detailed white papers that delve more deeply into issues associated with emissions estimation processes. The importance of distinguishing emissions across ZIP code areas and customer segments is critical to accurate emissions intensity estimates used to compare progress in emissions reductions from year to year. These notes and white papers reflect Jackson Associates insights based on responding to regulatory information and forecast requirements for more than three decades. |
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Mortgagor & CRE Emissions Calculations: A 3-Page Summary, June 21 2023
Financial institutions are facing increasing pressure to report Scope 3 financed emissions – that is, emissions of their mortgage and commercial real estate (CRE) customers. A soon-to-be issued SEC rule will likely require mid-to-large financial institutions to report these data. Since these emissions can account for 90 – 95 percent of all financial institution emissions, a reliable calculation of current emissions is important. More critical are the year-to-year emissions intensity estimates (e.g., emissions/mortgagor) presented for investors to evaluate emissions improvements over time. Inaccurate emissions calculations and emissions intensity statistics can sabotage a financial institution’s public image by reflecting increased emissions intensities when the opposite is true. Or, in a worst-case scenario, result in an external audit showing that reported emissions intensities are overestimating emissions improvements. This paper spares readers working through the 400+ pages of the SEC’s proposed rule documentation and 150+ page PCAF recommendations. The PCAF (Partnership for Carbon Accounting Financials) is an international organization of financial institutions that provides a guide to Scope 3 calculation methodologies sanctioned by the SEC. The methodologies presented here are the most accurate and up-to-date recommendations available consistent with PCAF and likely SEC guidelines. |
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Scope 3 Financed Emissions Reporting: Beware - How Good Intentions Can Lead to Bad Outcomes,
April 18 2023
A proposed SEC rule will soon (May?) likely require mid-to-large publicly traded financial institutions to calculate and report emissions of their residential mortgagors and commercial real estate (CRE) loan customers (so-called downstream or Scope 3 emissions). This proposed rule creates a huge new reporting requirement, reputational risk, reporting pitfalls and a challenging data development effort for financial firms. While many financial institutions have already made a commitment to reporting Scope 3 emissions the new rule will prompt more to embark on this process, even if the final rule is delayed by legal challenges The road to emissions reporting is filled with hazards. Results of this study using actual mortgagor data show that initial emission estimates with aggregate data can set financial firms up for disappointing year-to-year emissions reductions reports that show increasing emissions per mortgagor when mortgagor emission are actually declining. Study results show that: • accurately estimating emissions and year-to-year emissions changes requires at the least ZIP-level detailed data and • unbiased annual emissions intensities require the application of economic price index methodologies to reflect changes in mortgagor population characteristics. |
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Avoiding Scope 3 Financed Emissions Data Development Pitfalls, June 2022 A proposed SEC rule will soon require mid-to-large publicly-traded financial institutions to calculate and report emissions of their residential mortgagors and commercial real estate (CRE) loan customers (so-called downstream or Scope 3 emissions). These proposed rules create a huge new reporting requirement and a challenging data development effort for financial firms. This white paper provides context to these data issues in the proposed rule along with issues associated with geographic detail, estimation of average dwelling unit energy use, and issues associated with emissions intensity calculations. The paper illustrates the dangers of using inappropriate data to fulfill these new reporting tasks. More specifically, examples show how using aggregate geographic and customer population energy use data (e.g., national, regional or state averages) biases estimates and can easily either overstate or understate emissions and changes in emissions intensity estimates over time. Since emissions intensity is promoted as a metric to determine increasing or decreasing emissions efficiency and risks over time, these errors carry the potential for reputational risk as increasing focus is placed on individual company calculations of these reporting requirements. The paper addresses emissions intensity calculation challenges and offers a new price-index based methodology drawn from economic theory that adjusts for changes in customer geographic and household characteristics to minimize biases in reported emissions statistics. This methodology is used by the US Department of Commerce in price index calculations and is a well-accepted approach to account for the kind of computational complexity inherent in the emissions intensity statistic. |
Other MAISY Financed Emissions Accounting Data and Services Topics |