In order to promote and support sustainable finance development and implementation of the environmental risk management processes in the Georgian financial sector, the National Bank of Georgia (NBG), in cooperation with German Sparkassenstiftung for International Cooperation (DSIK) Georgia, has developed the tool and methodology for calculating financed emissions for Georgian financial sector.
Financial institutions have a direct or indirect impact on the environment throughout their core activities. However, in the case of financial institutions, the main source of Greenhouse Gas (GHG) emissions is not the emissions produced directly by financial institutions via operating their business processes or their energy consumption, but GHG emissions produced by other sectors that are financed by the financial institutions. These type of emissions are known as Financed Emissions. Therefore, systemic assessment of financed emissions is of significant importance for the financial sector in environmental risk management processes.
The Financed Emissions Tool is used to calculate financed emissions throughout the lending activities of commercial banks. The principle of the tool is based on international standards, namely, the methodology of The Partnership for Carbon Accounting Financials (PCAF). This methodology is used for different categories of assets, including assets as important for the banks as business loan portfolios. Capital provided as a loan by the bank is used by companies for business processes as well as for financing GHG emissions.
The tool is used to calculate financed emissions from the perspective of the business loan portfolio of a bank, as well as for a sector or individual customer. Moreover, it is a useful tool for comparative analysis.
The Financed Emissions Tool enables financial institutions to analyze their credit portfolio better, determine the share of financed emissions, identify climate change-related risks and opportunities, and improve business processes in the direction of environmental management while making better strategic decisions.