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The concept of Scope 1, 2, and 3 emissions originated from the Greenhouse Gas (GHG) Protocol, a widely recognized international accounting framework developed to help businesses measure and manage their greenhouse gas emissions. Originally, the Protocol stipulated that only Scope 1 and 2 were mandatory for a corporate greenhouse gas inventory, and Scope 3 was encouraged but voluntary. However, as the field of carbon accounting has matured, the importance of Scope 3 has grown. Today, it is considered best practice to include all Scope 3 emissions that are material to your business.
The GHG Protocol is currently being revised for the first time since 2015. GHG Protocol anticipates releasing a draft for public consultation in 2025 and publishing final standards/guidance in the latter half of 2026. Read more about the process here
Avoided emissions, sometimes referred to as “Scope 4”, was not part of the original GHG Protocol standard, but emerged as a concept to address the emissions avoided or reduced due to a company’s products, services, or practices.
The introduction of Scope 4 reflects a growing understanding that companies can contribute positively to climate change mitigation, not just through reductions in their own operations but also by influencing the emissions of their customers and suppliers.
This perspective encourages organizations to innovate and create products that help reduce overall carbon footprints. At Morescope, we believe that the “solution mindset” is critical to achieving large-scale decarbonisation. Quantifying and promoting the avoided emissions from climate solutions will enable the urgently needed emission reductions in Scope 1, 2 and 3.
The hybrid approach to carbon accounting is a methodology that combines both top-down and bottom-up accounting techniques to provide a comprehensive assessment of an organization’s greenhouse gas emissions.
At Morescope, we allow companies to use their existing financial spend data to provide a top-down analysis of greenhouse gas emissions in Scope 1, 2 and 3 (“spend-based method”). Then, companies can easily replace these top-down estimates with more granular data per emission-inducing activity (“activity-based method”) wherever they have this data available. As a minimum, users need to replace spend-estimates with activity data in Scope 1 and 2 as per the GHG Protocol and wide-ranging best practice.
Overall, the hybrid approach facilitates a balanced and nuanced understanding of greenhouse gas emissions, enhancing transparency and accountability in sustainability reporting. Read more about the Morescope Hybrid Approach here.
Morescope's Environmental Economic Model (MEEM) is a market leader within Environmentally Extended Multi-Regional Input-Output models, built on a decade of research at SINTEF, one of Europe's largest independent research institutions. This model transforms financial data (transactions) into highly granular spend-based emission estimates. The model matches suppliers with their sector of operation and region, linking spend data with emission factors from global databases, taking into account global trade relations, production technology and emission intensities for specific sectors in specific regions. Our platform ensures that spend-based estimates are derived from high-quality data, making them a reliable foundation for further analysis.
Collecting the vast amount of data needed for sustainability disclosures is the number one challenge we hear from companies. To address this challenge, Morescope has a comprehensive data collection strategy, both for top-down data and bottom-up data. Here are some of the ways our platform allows our clients to collect data efficiently:
Data quality is of utmost importance for the integrity of our platform. Our clients have to be confident that the data we use is a reliable source for decision making. Our extensive work to ensure data accuracy and reliability can be summarized in three areas:
Input-Output Tables (IOTs) capture economic relationships between sectors, illustrating how industries depend on each other to produce goods and services. Multi-Regional IOTs (MR-IOTs) highlight global economic connections by mapping cross-border trade and supply chains. IOTs are widely used for economic analysis, helping to reveal sector interdependencies and identify key economic drivers and resilience factors. When extended with emissions and resource use data, IOTs become essential tools for assessing environmental impacts. Environmentally extended IOTs, such as the OECD Inter-Country Input-Output (ICIO) tables, offer valuable insights into the environmental footprint across supply chains.
Morescope leverages the OECD ICIO tables and other global datasets alongside environmental extensions to provide a detailed view of environmental impacts across sectors and geographical areas. Economic data is available for over 70 countries, enabling us to support companies globally. Environmental extensions include indicators for emissions and greenhouse gases. CO2 emissions from fossil fuel combustion are tracked in the ICIO extensions, along with methane (CH4) and nitrous oxide (N2O), using data from multiple sources: OECD's Air Emissions Accounts (Eurostat), OECD estimates based on IPCC standards for conversion to SEEA, and EDGAR datasets. These integrated datasets enhance the capacity to analyze both economic and environmental dimensions across global supply chains. We work closely with research institutions to ensure this data source remains comprehensive and aligned with ongoing methodological and data improvements.
We have created a robust system for assessing and labeling the quality of the data sources for emission factors in our library. It takes into account the year and source reliability, with a quality score for each. Based on the reliability of a source and (peer-reviewed studies and authoritative bodies being the most reliable, and non-peer reviewed articles and websites being the least reliable) and from which year the parameter dates (recent being the highest rated and 10+ years old being the lowest rates), we give parameters quality values from 1 to 5, where 5 is highest quality parameter and 1 is lowest quality parameter.
At the end of the reporting process, users have to set their inventories to “Complete” and when this is done, the system does an automated inventory check to make sure there are no data gaps, missing activity data or other irregularities in the data.
Our team has deep dived into the multiple other frameworks within carbon accounting and emerging best practices for sustainability disclosures and low carbon transition plans, including but not limited to ISO-14064-1, CSRD, GRI, CDP, PCAF, and SBTi. However, all of them are based on the GHG Protocol, which means that our platform is widely compliant with most major frameworks today.
This article explores the methodology provided by the Partnership for Carbon Accounting Financials (PCAF) to measure and attribute greenhouse gas (GHG) emissions financed by financial institutions. PCAF is a global collaboration that develops standardized approaches to GHG accounting, supporting transparency and comparability in climate impact reporting.
PCAF offers three key guidance frameworks, one of which focuses on financed emissions, a method for calculating the GHG emissions tied to loans, investments, and other financial activities. Within the financed emissions framework, PCAF identifies seven distinct asset classes.
Head over to our Product guidance to learn how to easily account your financed emissions using Morescope.
This article delves into three of them in detail: Listed Equity and Corporate Bonds, Business Loans and Unlisted Equity, and Project Finance.
This asset class encompasses all on-balance sheet listed corporate bonds and on-balance sheet listed equity that are traded on public markets and serve general corporate purposes. The defining feature of these instruments is the unknown use of proceeds, as outlined by the GHG Protocol.
Corporate bonds: All types issued for general corporate purposes.
Common stock: Publicly traded shares of a company.
Preferred stock: Shares that provide fixed dividends and have priority over common stock in case of liquidation.
GHG Emissions Data: Use company-reported GHG emissions for Scopes 1, 2, and optionally Scope 3, sourced from sustainability reports or directly provided from companies
Financial Data: Collect the enterprise value including cash (EVIC) or total equity plus debt for private companies.
The attribution factor determines the share of a company’s emissions attributable to the financial institution’s investment:
For listed companies:
Outstanding amount = The market value (market price × number of shares)
Enterprise Value Including Cash = EVIC is defined as the sum of the market capitalization of ordinary shares at fiscal year-end, the market capitalization of preferred shares at fiscal year-end, and the book values of total debt and minorities’ interests. No deductions of cash or cash equivalents are made to avoid the possibility of negative enterprise values.
C = borrower or investee company
For bonds to private companies:
Outstanding amount = The book value of the debt owed to the lender
Total equity + debt = Sum of total equity and debt as listed on the company’s balance sheet.
C = borrower or investee company
Financed emissions are calculated using the formula:
C = borrower or investee company
The PCAF standard assigns a data quality score (1–5) based on the accuracy and reliability of the emissions data.
Score
Description
1
Verified emissions of borrower or investee company reported by the borrower or investee.
2
Borrower or investee company emissions calculated by the borrower or investee but not verified, or calculated by the financial institution using investee/borrower-reported energy consumption data.
3
Borrower or investee company emissions calculated by the financial institution using physical activity data and emission factors specific to that activity.
4
Borrower or investee company emissions calculated by the financial institution using the borrower’s revenue and sector-specific emission factors per unit of revenue.
5
Borrower or investee company emissions calculated by the financial institution using outstanding amounts, sector-specific emission factors, and sectoral asset turnover ratios.
This asset class includes on-balance sheet business loans and unlisted equity investments held for general corporate purposes, where the use of proceeds is unknown.
Business loans: Loans provided to businesses for general operations.
Unlisted equity: Investments in privately held companies.
GHG Emissions Data: Collect emissions data for Scopes 1, 2, and optionally Scope 3, preferably reported by the borrower or investee company.
Financial Data: Collect the enterprise value including cash (EVIC) for business loans to listed companies or total equity plus debt for private companies.
The attribution factor represents the share of a company’s emissions attributed to the financial institution’s exposure.
For business loans and investments to/in private companies:
Outstanding amount = The market or book value of the financial institution’s shareholding in the company.Consistency in measurement (calendar or fiscal year-end values) is essential.
Total equity + debt = The sum of total equity and debt as listed on the company’s balance sheet.
C = borrower or investee company
For business loans to listed companies:
Outstanding amount = The book value of the loan as recorded on the financial institution’s balance sheet. Consistency in measurement (calendar or fiscal year-end values) is essential.
Enterprise Value Including Cash = EVIC is defined as the sum of the market capitalization of ordinary shares at fiscal year-end, the market capitalization of preferred shares at fiscal year-end, and the book values of total debt and minorities’ interests. No deductions of cash or cash equivalents are made to avoid the possibility of negative enterprise values.
C = borrower or investee company
Total equity + debt = Sum of total equity and debt as listed on the company’s balance sheet.
C = borrower or investee company
Financed emissions are calculated using the formula:
C = borrower or investee company
The PCAF standard assigns a data quality score (1–5) based on the accuracy and reliability of the emissions data.
Score
Description
1
Verified emissions of borrower or investee company reported by the borrower or investee.
2
Borrower or investee company emissions calculated by the borrower or investee but not verified, or calculated by the financial institution using investee/borrower-reported energy consumption data.
3
Borrower or investee company emissions calculated by the financial institution using physical activity data and emission factors specific to that activity.
4
Borrower or investee company emissions calculated by the financial institution using the borrower’s revenue and sector-specific emission factors per unit of revenue.
5
Borrower or investee company emissions calculated by the financial institution using outstanding amounts, sector-specific emission factors, and sectoral asset turnover ratios.
This asset class includes financing provided for specific projects where the use of proceeds is known. Project finance is typically used for large-scale infrastructure, energy, or development projects, often involving long-term financing structures.
Loans or investments tied to the development of specific projects, such as:
Renewable energy projects (e.g., wind farms, solar plants).
Infrastructure development (e.g., transportation systems, water treatment facilities).
Industrial projects (e.g., manufacturing plants, resource extraction).
GHG Emissions Data: Collect emissions data for the project’s direct emissions (Scope 1), indirect emissions from energy use (Scope 2), and where relevant, value chain emissions (Scope 3).
Financial Data: Gather the total project cost (equity + debt).
The attribution factor determines the proportion of a project’s emissions attributable to the financial institution:
P = Project
Outstanding amount = The book value of the loan or investment provided by the financial institution.
Total equity + debt = The total fundint required to complete the project, including all sources of equity and debt financing.
Outstanding amount can be calculated as
Financed emissions for a project is calculated using the formula:
P = Project
The PCAF standard assigns a data quality score (1–5) based on the accuracy and reliability of the emissions data.
Score
Description
1
Verified emissions of the project.
2
Emissions reported by the project but not verified, or calculated by the financial institution using energy consumption project-specific primary data.
3
Emissions estimated by the financial institution based on primary physical activity data for the project’s production.
4
Emissions estimated by the financial institution based on project’s revenue and sector-specific emission factors per unit of revenue.
5
Emissions estimated by the financial institution using outstanding amounts, sector-specific emission factors, and sectoral asset turnover ratios.
We are currently not supporting with guidance and calculations for the other asset classes defined by PCAF. Please let us know if they are needed and we will prioritise them for implementation.
Avoided emissions is a concept that can be used by companies to show the positive climate impact of their products or services, or by investors to stress test their impact investing strategies. In addition, avoided emissions can also be used to describe the potential emission reduction a company can expect on their own emissions (Scope 1-3) by implementing a specific climate solution. The methodology description below is agnostic of user type and gives an overview of the methodology and steps involved in an avoided emissions assessment.
The theory of impact serves as the foundation for understanding how specific climate solutions can lead to reduced greenhouse gas emissions. The theory of impact posits that by implementing or scaling a climate solution, companies can effectively displace higher-emission alternatives. The impact is measured in terms of avoided emissions, emphasizing the role of proactive climate strategies in mitigating climate change.
The baseline or incumbent scenario represents the existing practices and conditions prior to the climate solution implementation. It includes an assessment of current energy use, technologies in operation, and associated greenhouse gas emissions. The analysis is further refined by projecting future emissions based on existing trends, policies, and practices without any intervention. By establishing the baseline scenario, we create a reference point against which the climate solution’s effectiveness can be evaluated.
To quantify avoided emissions, we calculate the difference between the baseline emissions and the emissions from the climate solution. This involves identifying the specific unit of measurement, such as kilowatt-hours (kWh) for energy projects or metric tons of CO2 for other solutions. This comparative analysis is essential for accurately quantifying the potential emissions that would be avoided as a result of the proposed solution.
Finally, users can project potential future avoided emissions based on planned activities and their scalability. This modeling considers various scenarios, such as increased adoption rates of the technology, future technological changes, and evolving market conditions. By using forecasting tools, we estimate the long-term impact on emissions reduction, providing stakeholders with a comprehensive view of the anticipated benefits over time. This forward-looking perspective not only aids in planning but also helps secure buy-in from decision-makers.
Verification is a crucial step in ensuring the credibility and accuracy of the avoided emissions claims. Users of Morescope have been through robust assessments, involving independent third-party audits to assess compliance with the defined methodology. Verifiers will review solution documentation, emissions calculations, and assumptions to ensure transparency and accuracy in reporting. This step is vital for building trust among stakeholders and ensuring that the claimed avoided emissions are sound.
The Morescope methodology has been developed along with pilot clients and based on best practices from multiple initiatives and frameworks, including the GHG Protocol, Project Frame convened by Prime Coalition, the World Business Council for Sustainable Development, Mission Innovation, and many others.
Like all science-based endeavors, the Morescope methodology is not final or static. Our team spends a significant amount of time and effort on exploring new technologies and data sources with the aim of improving our approach and testing out new ways of solving sustainability challenges.
