Greenhouse gas accounting at project and portfolio level

Explanation

The EIB appears to have a comprehensive system for tracking portfolio emissions which has been in place since 2009.   

The EIB Carbon Footprint Exercise includes “direct investment loans and large framework loan allocations”, however it is notable that intermediary lending is “not currently included due to the limited information available to carry out a useful calculation”. International Financial Institutions (IFIs), in general, have only committed to account “for the GHG emissions of direct investment projects that they finance”. 

Recommendation: The EIB should extend carbon footprint methodology to financial intermediaries. 

The inclusion threshold for projects is for absolute (gross) emissions greater than 20,000tCO2e and relative emissions (either positive or negative) of greater than 20,000tCO2e, which the EIB states capture approximately 95% of the absolute and relative GHG emissions from projects. 

The sectoral coverage is broad with emissions from the waste, industrial, transport and energy sectors included. On agricultural emissions an Ex-ante Appraisal Carbon Balance Tool (EX-ACT), was developed by the Food and Agriculture Organization of the United Nations (FAO) to provide ex-ante measurements of the impact of agriculture and forestry development projects on GHG emissions and Carbon (C) sequestration, indicating their
effects on the carbon balance. The EIB can use EX-ACT for projects in the Agriculture, Forestry and Other Land Use (AFOLU) sub-sectors, including – besides others – cropland agriculture, forestry, livestock and fisheries. Drinking water supply networks don’t have their own methodology, but their footprint can be calculated with the same tool used for waste water treatment.

It is notable that the EIB has been a leader in terms of reporting on absolute (gross) emissions as well as relative emissions, a key step to understanding the climate impact of any portfolio, and the EIB has been advocating for other MDBs and IFIs to adopt this approach and to report absolute and relative emissions*. The 2016 carbon footprint analysis showed that total absolute GHG emissions were estimated at 2.4 million tonnes of CO2e per year, with carbon sequestration by forestry estimated at 3.5 million tonnes of CO2e per year, meaning, for the first time, aggregated sequestration of carbon by forestry financing exceeded the absolute emissions from other sectors. 

The EIB, seemingly, does not have a specific commitment to reduce portfolio emissions. We are awaiting further clarification on this point. 

The EIB’s guidance details that where a baseline is used to calculate the relative emissions, it is important to check that the proposed scenario is credible.

The guidance states that the baseline scenario must meet three conditions:

1. a socio-economic test that the baseline has an economic rate of return;
2. a legal requirement test that the baseline complies with legal requirements; and
3. the life-expired asset test: the baseline alternative could not assume to continue existing assets beyond their economic life. 

In July 2020, the EIB published its updated Project Carbon Footprint Methodologies. The document contains the carbon footprint methodology of the EIB. It provides guidance to the EIB staff on how to calculate the carbon footprint of the investment projects financed by the EIB. The document also presents how the EIB calculates the carbon footprint of its investment projects to its auditors, external stakeholders and other interested parties. 

The methodology is used to calculate the carbon footprint of the investment projects financed by the EIB. These carbon footprints are published on the project’s Environmental and Social Data Sheet (ESDS). The EIB also publishes the aggregated results annually as part of its Carbon Footprint Exercise in the EIB Group’s Sustainability Report. The EIB reports 100% of a project’s emissions even if the Bank is only contributing a portion of the total project investment cost. At the reporting stage, results are prorated to the EIB’s share of the financing plan. 

Finally, the EIB carbon footprint methodology is considered “work in progress” that is subject to periodic review and revision in the light of experience gained and as knowledge of climate change issues evolves.  

The project boundary defines what is to be included in the calculation of the absolute and relative emissions. The EIB methodologies use the concept of “scope” based on definitions from the GHG Protocol ‘Corporate Accounting and Reporting Standard’, when defining the boundary to be included in the emissions calculation.  

Scope 1: Direct GHG emissions. Direct GHG emissions physically occur from sources that are operated by the project. For example emissions produced by the combustion of fossil fuels, by industrial processes and by fugitive emissions, such as refrigerants or methane leakage.  

Scope 2: Indirect GHG emissions. Scope 2 accounts for indirect GHG emissions associated with energy consumption (electricity, heating, cooling and steam) consumed but not produced by the project. These are included because the project has direct control over energy consumption, for example by improving it with energy efficiency measures or switching to consume electricity from renewable sources.  

Scope 3 emissions are all other indirect emissions that can be considered a consequence of the activities of the project (e.g. emissions from the production or extraction of raw material or feedstock and vehicle emissions from the use of road infrastructure, including emissions from the electricity consumption of trains and electric vehicles). 

Recommendation: EIB should consider introducing a bank-wide or sector-specific portfolio level absolute GHG emissions target. The Emissions Performance Standard partially plays this role in the energy sector, but GHG emissions from other sectors are not covered by specific standards or targets.

*Information received from the EIB. This has been noted as an example of institutional leadership (see institutional leadership metric).