PCAF Methodology for Mortgages

The PCAF Methodology for Mortgages is specifically for accounting and reporting GHG emissions linked to the financing provided in the form of residential mortgages.

Asset Class Scope

This asset class includes on-balance sheet loans for specific consumer purpose - namely the purchase and refinance of residential property, including individual homes and multi-family housing with a small number of units.

Exclusions

The above definition implies that the property is used only for residential purposes and not to conduct income generating activities.
Home equity loans (HELs) and home equity lines of credit (HELOCs) are not required under this methodology given that these products are generally consumer loans for general consumer purposes (with unknown use of proceeds as defined by the GHG Protocol).
Mortgages used to construct or renovate a house are not required at this point given that the homeowner does not directly account for construction emissions. As a home is often constructed or renovated by a third party (i.e., a home builder) contracted by the homeowner, the emissions of the construction would normally be accounted by the third party during the building’s construction phase.

Emissions Scope

Financial institutions shall cover the absolute scope 1 and scope 2 emissions related to the energy use of the property financed through the mortgage (energy use includes the energy consumed by the building occupant). The mortgage emission factors in the PCAF European building emission factor database refer to the use phase of the building only. The building’s construction or demolishment phase and its emissions are not covered.

The use phase emissions are further distinguished into

scope 1 emissions, i.e. direct emissions from burning fuels on-site for heating (e.g. gas), and
scope 2 emissions, i.e. indirect emissions from electricity, heating and cooling consumption.

Scope 3 emissions such as other purchased goods and services that are used / consumed in the context of utilizing the building are excluded as they are not considered directly relatable or influencable via the mortgage contract.

Examples

If the mortgage is used to purchase a multifamily home with shared facilities, scope 1 and 2 emissions of the whole property should be covered.
If the mortgage is used to buy a single apartment or house, emissions related to the apartment or house should be covered.

Approach

In Mortgage Finance the Use of Proceeds is assumed known. The attribution approach assumes the residential property owner also takes ownership of the building’s emissions.

Attribution

As a basic attribution principle, the financial institution accounts for a portion of the annual emissions of the financed building (via the mortgage) determined by the ratio between the institution’s outstanding financed amount (numerator) and the total value of the building (denominator). This ratio is called the attribution factor.

Attribution Factor Formula

When calculating financed emissions for a given building (b), a building’s annual emissions are attributed to the mortgage provider using a loan-to-value approach. Thus, the attribution is equal to the ratio of the outstanding amount at the time of GHG accounting to the property value at loan origination.

$\mbox{Attribution Factor}_b = \frac{\mbox{Outstanding Amount}_b}{\mbox{Property Value at Origination}_b}$

where:

b is the building
The Outstanding Amount in the numerator is the currently outstanding amount of debt provided by the individual financier
When the property value at origination is not feasible to obtain, financial institutions shall use the latest property value available and keep this value constant for the following years of GHG accounting (i.e., the denominator remains constant)

Financed Emissions

Financed emissions of mortgages are calculated by multiplying the attribution factor by the building’s emissions.

\begin{align} \mbox{Financed Emissions}_b & = \mbox{Attribution Factor}_b \times \mbox{Building Emissions}_b \\ & = \mbox{Attribution Factor}_b \times \sum_e \mbox{Building Emissions}_{b, e} \end{align}

The emissions of buildings are calculated as the sum-product of

a building’s energy consumption and
specific emission factors for each source of energy consumed (within the scope of analysis)

The total energy use of the building includes the energy consumed by the building’s occupant.

Building Emissions Calculation

The PCAF Methodology for Mortgage Finance offers a number of options for calculating and reporting attributed GHG emissions for a building. The different options get assigned different Data Quality scores, with score 1 indicating highest data quality and score 5 indicating lowest data quality.

The Physical Activity-based emission factors for mortgages (i.e. residential buildings) provided in the PCAF European Building Emission Factor Database can be extracted per EPC Rating and are either expressed in:

tCO2e per unit (e.g. per building)
tCO2e per floor area (e.g. square meter)2
MWh per unit (e.g. per building)
MWh per floor area (e.g. square meter)

Option 1

Option 1 utilizes primary data on actual building energy consumption (metered data).

Option 1a

Emissions are calculated using actual building energy consumption and supplier-specific emission factors specific to the respective energy source (e)

\mbox{Building Emissions}_e = \mbox{Actual Energy Consumption}_e \times \mbox{Supplier EF}_e

Option 1b

Emissions are calculated using actual building energy consumption and average emission factors specific to the respective energy source.

\mbox{Building Emissions}_e = \mbox{Actual Energy Consumption}_e \times \mbox{Average EF}_e

Option 2

Estimated building energy consumption per floor area based on official building energy labels or building type and location-specific statistical data.

Option 2a

Estimated building energy consumption per floor area based on official building energy labels AND the floor area are available.

Emissions are calculated using estimated building energy consumption and average emission factors specific to the respective energy source.

\begin{align} \mbox{Building Emissions}_{b, e} & = \mbox{Estimated Energy Consumption from Label}_e \\ & \times \mbox{Floor Area}_{b} \times \mbox{Average EF}_e \end{align}

Option 2b

Estimated building energy consumption per floor area based on building type and location-specific statistical data AND the floor area are available.

Emissions are calculated using estimated building energy consumption and average emission factors specific to the respective energy source.

\begin{align} \mbox{Building Emissions}_{b, e} & = \mbox{Estimated Energy Consumption from Statistics}_e \\ & \times \mbox{Floor Area}_{b} \times \mbox{Average EF}_e \end{align}

Option 3

Estimated building energy consumption per building based on building type and location-specific statistical data AND the number of buildings are available. Emissions are calculated using estimated building energy consumption and average emission factors specific to the respective energy source.

Outstanding amount in the project, total project equity plus debt, and the project’s revenue are known. Emission factors for the sector per unit of revenue or from similar projects is known (e.g., tCOe per euro of revenue earned in a sector)

\begin{align} \mbox{Building Emissions}_{b, e} & = \mbox{Estimated Energy Consumption from Statistics}_e \\ & \times \mbox{Number of Buildings}_{b} \times \mbox{Average EF}_e \end{align}

Notes

A supplier-specific emission factor is an emission rate provided by the energy supplier (e.g., utility) to its customers reflecting the emissions associated with the energy it provides (e.g., electricity, gas, etc.).
Average emission factors represent the average emissions of the respective energy sources occurring in a defined boundary (e.g., national or subnational).

Data Quality Score

Approach	Data Quality
Option 1a	Score 1
Option 1b	Score 2
Option 2a	Score 3
Option 2b	Score 4
Option 3	Score 5

PCAF Methodology for Mortgages

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