Financed Emissions for Jordanian Banks: PCAF, IFRS S2 and the Data Challenge

Introduction

When a Jordanian bank starts preparing for IFRS S2, one requirement dominates the effort: financed emissions. A bank’s own offices and branches produce very little in the way of emissions. The emissions that matter are the ones locked into everything it lends to and invests in. Measuring them is the hardest part of climate disclosure for any bank, and it is where Jordan’s ASE20 banks will find their biggest gap. This article explains the requirement, the PCAF method, and why the data is the challenge.

What financed emissions are

Financed emissions are the share of a borrower’s or investee’s greenhouse gas emissions attributed to a bank through its financing. If a bank provides a tenth of a company’s capital, roughly a tenth of that company’s emissions are attributed to the bank. Summed across the loan book and investment portfolio, financed emissions are almost always a bank’s largest emissions source, far larger than the Scope 1 and Scope 2 emissions from its own operations. This is the mirror image of the situation for a factory, and it is why banks are a special case in climate accounting. Our note on financed emissions for GCC banks covers the concept in more depth.

Where the requirement comes from

For banks facing mandatory IFRS S2 disclosure, financed emissions are not optional. IFRS S2 requires Scope 3 emissions, and financed emissions are Scope 3 Category 15, Investments. The specific hook is paragraph 29(a)(vi)(2), which requires additional information about Category 15 for commercial-banking activities, read together with the Industry-based Guidance for Commercial Banks. That guidance points banks to the PCAF methodology.

The PCAF method

PCAF, the Partnership for Carbon Accounting Financials, publishes the standard method for financed emissions. It works by asset class. A bank maps its balance sheet onto PCAF’s classes and attributes emissions for each.

PCAF asset class	Examples
Business loans and unlisted equity	Corporate lending, SME facilities
Listed equity and corporate bonds	Investment portfolio holdings
Project finance	Financed infrastructure and energy projects
Commercial real estate	Financed commercial buildings
Mortgages	Residential home loans
Motor-vehicle loans	Financed vehicles
Sovereign debt	Government bond holdings

For each exposure, PCAF also requires a data-quality score from 1 to 5, where 1 is the highest quality, based on measured data, and 5 is the lowest, based on broad estimates. The score is disclosed with the emissions, so a reader can see how solid the number is.

Why the data is the hard part

The difficulty is that the data lives outside the bank, in its borrowers and investees, and most of it is not collected today. Building a financed-emissions capability means three things at once: mapping the portfolio onto PCAF asset classes, gathering or estimating counterparty emissions, and scoring the quality of that data. In the early years, much of the data is proxy or sector-average, so the quality scores are low and the numbers move as data improves. This is a multi-year data programme, not a reporting-season exercise.

“

A bank can write its climate governance in a quarter. It cannot build a credible financed-emissions dataset in one. The data is the work, and it starts long before the first disclosure.

Using the first-year relief well

The ASE framework provides a first-year Scope 3 relief that covers financed emissions, so an ASE20 bank does not have to disclose financed emissions in its very first mandatory year. This is not a reason to defer the work. It is a reason to start it now and use the relief as preparation time, so that when financed emissions are disclosed, the calculation is complete and the data-quality scores are defensible. The banks that treat the relief as breathing room, rather than a delay, will disclose with confidence.

How ESGweise helps

Financed-emissions measurement is central to what ESGweise does. We map the balance sheet onto PCAF asset classes, build the attribution and data-quality scoring, set up the counterparty-data process, and design the improvement path that raises data quality over time. This is exactly the readiness work that turns the IFRS S2 financed-emissions requirement from a gap into a managed programme. See our carbon accounting, reporting and assurance readiness services and our note on IFRS S2 for banks.

Conclusion

Financed emissions are the hardest and most important part of IFRS S2 for a Jordanian bank. The requirement is clear, Scope 3 Category 15 under paragraph 29(a)(vi)(2) and the Commercial Banks guidance, measured with PCAF by asset class and disclosed with a data-quality score. The challenge is the data, which sits outside the bank and takes years to build. The first-year relief gives ASE20 banks room to prepare. The ones that start now, and disclose honestly as the data improves, will be the ones that get it right.