Greenhouse gas accounting at project and portfolio level

Paris AlignmentReasoning
Paris alignedFMO has strong portfolio-level procedures in place for GHG accounting, reporting financed absolute emissions and financed avoided emissions ex post for its entire portfolio (covering scopes 1 – 3) using the Joint Impact Model (JIM). Despite not having annual or multi-year targets in place for either of these metrics, it does have a portfolio wide net-zero target and a dedicated power sector emissions reduction target. At the project-level, the IFC Performance Standards ensure an inclusion threshold comparable with best practice for ex ante and ex post accounting is applied across direct investments.
Year startedInclusion threshold
(CO2e/ year)
Sectors coveredTarget
N/AOn the basis of FMO applying the IFC Performance Standards, direct investments over an annual inclusion threshold of 25 ktCO2e, are required to both estimate ex ante (absolute) emissions as part of project due diligence, and report ex post on emissions annually. Moreover, specifically for ex post reporting the “Impact Cards” used have an inclusion threshold instead based on the size of FMO’s financial commitment.  FMO’s Climate Action Plan confirms its commitment to report on financed absolute greenhouse gas (GHG) emissions for Scopes 1 to 3 of all FMO operations. The Bank does so ex post, providing a breakdown of its portfolio-level financed emissions by scope and sectors of operation. At the project-level, for all direct investments above the inclusion threshold, the Bank conducts ex ante GHG estimation and ex post reporting.FMO has committed to reducing power generation linked CO2e emissions by 50% from 2021 until 2030, as well as having a net zero portfolio by 2050. However, the Bank does not have a portfolio-level annual or multi-year target for either total financed absolute GHG emissions, or total financed avoided GHG emissions. These would serve as valuable interim milestones and indicators of progress towards the long-term net-zero portfolio target.

Portfolio-level GHG accounting

FMO’s Climate Action Plan confirms its commitment to report on financed absolute greenhouse gas (GHG) emissions for Scopes 1 to 3 of all FMO operations. This reporting extends to Scopes 1 to 3 of its customers’ portfolios, representing best practice among development finance institutions in this regard. Power Enabling and Induced Emissions are excluded from reporting.[1] Financed absolute emissions are estimated using the economic modelling of the Joint Impact Model (JIM), or using direct emissions data in the minority of cases where it is available. This reporting is conducted ex post, providing a snapshot across all clients in the portfolio at the time of reporting.

Financed avoided GHG emissions are also reported – with both figures provided in ktCO2e terms. Reporting is in line with the Partnership for Carbon Accounting Financials (PCAF) Global Standard. As investments in funds and loans to financial institutions (FIs) are not covered under this, FMO has “made assumptions on how to classify and calculate emissions for the investees of funds and the borrowers of FI customers in its portfolio”. These assumptions are usefully set out in further detail in the JIM Application by FMO, confirming that FMO aggregates all Finance Enabled emissions, including through borrowers of FI customers and fund investees, as part of its Scope 3 reporting. The Scope 1 and 2 emissions of investees through funds are reported as part of FMO’s financed Scope 1 and 2 emissions.

FMO usefully provides a breakdown of its financed emissions by scope and sectors of operation (categorised as either: (1) agribusiness, food & water; (2) energy; (3) financial institutions; (4) private equity; and (5) other). 

Key statistics (taken directly from the 2022, 2021 and 2020 Annual Reports) are outlined below:[2]

Financed absolute GHG emissions[3]: A figure of 6,530 ktCO2e for 2022 represents an approximately 21.9% increase on the 2021 figure of 5,355 ktCO2e, which in turn rose by approximately 7.9% from the 2020 figure of 4,963 ktCO2e. This increasing trend is driven by a substantial increase in Scope 3 emissions from 3,350 ktCO2e in 2020 to 5,153 ktCO2e in 2022. FMO cites this as due to a combination of factors including “data refinements and increased exposure in sectors with significant modelled Scope 3 emissions, such as agriculture”. In contrast, scope 1 and 2 emissions fell from 1,613

Financed avoided GHG emissions: A figure of 1,439 ktCO2e for 2022 represents an approximately 8.3% increase on the 2021 figure of 1,329 ktCO2e but falls short of the 1,578 ktCO2e figure for 2020.

Sectoral breakdown: As of 2022, financed avoided GHG emissions were heavily concentrated in the energy (EN) segment of FMO’s portfolio, accounting for approximately 79.3% of the whole portfolio total, with private equity the only other significant contributor at 20.6%. Financed absolute emissions were more evenly distributed. Despite the EN segment of FMO’s portfolio contributing the largest proportion of Scope 1 and 2 emissions (at approximately 43.2%), the financial institutions and private equity sectors were the largest net contributors, driven by much larger Scope 3 emissions, amounting to 35.8% and 28.7% respectively of the portfolio total (for Scope 1 to 3).

Portfolio-level GHG targets

FMO does not state a portfolio-level annual, or moving multi-year interim, target for either total financed absolute GHG emissions, or total financed avoided GHG emissions as part of its annual report.[4] 

However, the Bank has committed to “reducing  Scope 1 power generation-linked CO2e emissions by 50% from 2021 until 2030”. As part of establishing this absolute emissions power generation target, FMO modelled emissions reductions required to adhere to a 1.5°C pathway, also taking into consideration the regions where it is active. Having established this baseline, the Bank subsequently decided to set an aggregate target for emissions reduction that goes beyond this, based on its stated focus on renewable energy and strong fossil fuel position statement. Setting an informed and context-sensitive emissions reduction target anchored in a 1.5°C pathway represents a strong precedent for other institutions to follow.

To date, the emissions in question have fallen to a reported 541 ktCO2e in 2022, down from the 580 ktCO2e 2021 baseline. FMO recognises that given the composition of its portfolio, achieving this emissions reduction target will not necessarily involve a linear pathway. However, it is worth noting that even under a linear reduction over the nine years of the target, this trend would imply FMO is on track. It should also be highlighted that the target exclusively applies to Scope 1 power generation linked CO2e emissions of FMO’s portfolio, on the basis of reliable data availability and negligible Scope 2 emissions.

FMO has also committed to a net zero portfolio by 2050, to be achieved through both reducing financed emissions, as well as through contribution to removals and/or sequestration. This doesn’t include offsets. Discussions with the Bank have revealed that target-setting is considered difficult due to data quality and unclear sector/country pathways. It is also worth noting that as a regulated bank (a unique characteristic for a development finance institution), FMO may also have to comply with any forthcoming EU regulations requiring additional target-setting.

Project-level GHG accounting

As part of applying the IFC Performance Standards across its direct investments (and specifically as part of PS3), FMO requires projects that are expected to or currently produce above 25ktCO2e annually to quantify absolute emissions for Scope 1 and 2. In practice, this means that ex ante emissions estimation takes place over this threshold at the project appraisal stage as part of due diligence processes, as well as ex post accounting annually.

FMO’s ex post project-level GHG accounting is also carried out on the basis of its “Impact Cards” (part of the Bank’s Sustainability Information System (SIS)), which are used to collect data on impact-related indicators for a given investment and a client. These are filled in after contracting and they are updated annually. The indicators covered by a given Impact Card can vary depending on sector and investment type. Some transactions are exempt from this reporting, e.g., if FMO is not the lead arranger, or if FMO has committed less than 500,000 Euros.  

FMO will be further reviewing its project-level GHG monitoring and accounting procedures as part of the ongoing development of its investment-level Paris alignment approach.[5]   


  • FMO should ensure that procedures and assurances are put in place when designing operations with FIs such that a “lack of data” does not inhibit emissions estimations for specific use of proceeds. Whilst not ring-fencing financed emissions estimates for FIs does provide more conservative estimates, it also obscures the specific contribution of FMO in these investments, which could serve as a valuable data point for the Bank.

[1] These are defined as follows: “Power Enabling: impacts associated with the additional output created by companies that use the additional power generated by the client company/ project, as well as by non-power using firms in their supply chain (e.g. small-scale agriculture); Induced: impacts associated with the spending of wages earned by employees of the client company/project, its suppliers and their suppliers”.

[2] Refinement of the accounting methodology in 2021 means that figures for 2020 were taken as reported in the 2021 Annual Report, rather than the 2020 Annual Report.

[3] In FMO’s Climate Action Plan, it is stated that as part of the 1.5ºC pathway alignment of its portfolio, first results indicate aggregate portfolio financed emissions “remain[ing] flat or increasing slightly to 2030 and then declining to 2050”. This is due both to FMO’s portfolio being scheduled to grow faster than GDP assumptions in its 1.5ºC pathway scenarios, as well as the 1.5ºC scenarios of sectors such as industrial processing showing an initial increase in emissions.

[4] A “moving multi-year interim target” refers to having a target for each of “x” years ahead, which is updated annually to retain this same time horizon of “x” years.

[5] Once this has been finalised, E3G will review changes and update this metric as and where required.

Last Update: February 2024

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