Territorial Approach

Summary:

Under this approach, a sovereign is seen primarily as a national territory, and its direct (Scope 1) GHG emissions are attributable to the emissions produced and consumed within its boundaries.

Description:

Under this approach, a sovereign is seen primarily as a national territory, and its direct (Scope 1) GHG emissions are attributable to the emissions produced and consumed within its boundaries. Similar to the Scope 1, 2, and 3 logic of corporate emissions, the indirect emissions have two dimensions:

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emissions generated from purchased sources (Scope 2: Imports) and emissions generated by activities outside of the national boundaries of a country (Scope 3: Exports).

The approach deems capturing emissions generated by a country’s production, consumption, and trade activity.

One of the limitations of the approach is that given the accounting of all emissions attributable to a national territory, it introduces double counting of emissions generated by other sectors of the economy (corporate, sub-sovereign) and complicates GHG accounting for financial portfolios containing multiple asset classes.

A further limitation of the approach is limited data quality. At the granularity of single Scope 1, 2, and 3 categories, public data is currently available only for Organisation for Economic Co- operation and Development (OECD) countries12 (around 35% of global emissions) and with a considerable time lag (2015). The data is derived from allocation of emissions to countries and sectors on the basis of inter country input-output tables. Extension of data coverage in scope and time is theoretically possible with the help of estimates and modeling, though at a loss of accuracy. PCAF currently does not recommend a particular modeling approach.

To extend the accounting to sub-sovereign and municipal counterparties, FIs might consider using an approximation approach (e.g., by share of GDP generated by sub-sovereigns) to evaluate the emissions attributable to these counterparties, noting that aggregation of GHG emissions at a portfolio level would involve multiple counting.