Carbon accounting for investors: how to comply

Carbon accounting for investors: how to comply

The standards and regulations governing carbon accounting for investors have increased. We explain the key changes.

If you’re an investor looking to conduct a fully-compliant carbon footprint, there’s never been a more confusing array of standards and regulations that have a bearing on that process. As pressure has grown for the industry to take climate action seriously, so too have attempts by governments, academics and working groups to specify the right processes for carbon accounting and the right metrics to report.

Despite this proliferation, there remains only one standard that’s properly tailored to the unique carbon accounting requirements of investors. An investor’s portfolio companies count towards their carbon footprint, which raises a range of quite specific challenges for the investor: How should you account for those emissions, particularly if some companies don’t yet report emissions data? How exactly should those emissions be attributed to us, as the investor? The iCI/ERM standard, published in 2022, provides solid answers to these questions, and our investor product – seedlingInvest – is built in full compliance with this. But it is based on other more generic standards that have been well-established globally for some time.

The standards

The GHG Protocol

The GHG Protocol is really the “master” standard from which all other standards are derived. Developed and maintained by the World Resource Institute, it has established the dominant global framework for any organisation to measure and manage their greenhouse gas emissions, used by at least 90% of publicly listed businesses. Other general standards (such as ISO 14064) are designed to be interchangeable with the GHG Protocol, while industry-specific standards (such as PCAF and iCI) use the GHG Protocol’s principles as a base from which to provide more detail and guidance.

The standard provides an uncontroversial process for GPs to account for their internal, operational emissions, but leaves too many questions unanswered to provide a standardised process for portfolio emission accounting. For example, where an investor holds a majority stake in a portfolio company, it’s unclear whether this company should be counted as part of the firm’s own operations (thus overlapping with their own Scope 1 and 2 emissions), or as an investment (falling purely under the Scope 3.15 “Investments” category).


The Partnership for Carbon Accounting Financials (PCAF) exists to provide more detailed guidance to the financial services industry. Created in 2015 by Dutch financial institutions, it has been adopted globally across financial services since 2019, providing a harmonised standard for the carbon accounting of loans and investments in general.

PCAF’s standard is fully-aligned to the GHG Protocol, and has been approved as such by the GHG Protocol itself. It builds on the master standard by:

- Outlining new principles – in addition to those of the GHG Protocol – that govern how financial institutions should measure and categorise portfolio emissions.

- Providing detail on how a financial institution should attribute the emissions of its portfolio to its own footprint.

- Introducing a hierarchy of data quality for portfolio emissions, enabling financial institutions to develop a strategy for improving data quality over time.

In addition, it contains detailed methodological guidance for seven specific asset classes, one of which is “Business loans and unlisted equity” – covering the VC and PE sector. This addresses some of the quirks of VC and PE carbon accounting directly, providing a strong basis for the measurement of portfolio company emissions.


Published in 2022, the iCI/ERM standard is the only one with a sole focus on equity investors. Its key contribution is that it draws on both the GHG Protocol and the PCAF standards to provide an integrated methodology for accounting and reporting on both internal (or operational) emissions and portfolio emissions. It is also framed entirely in the language of the VC and PE world and settles some important nuances for investors, such as:

- The need or desire to report at different levels (portfolio company, fund, firm).

- The influence of LPs and how LPs can calculate their own financed emissions.

- The nature of the fund lifecycle (e.g. dealing with hold periods).

The regulations


The Taskforce on Climate-related Financial Disclosures (TCFD) was set up by the Financial Stability Board in 2015 in response to increasing demand from investors and governments for consistent, clear information on how companies and financial institutions were helping to tackle to climate crisis. Although initially voluntary, its recommendations have been rapidly adopted by regulators globally as a framework for mandatory disclosure, including in the UK. In 2022, the FCA began to require the largest asset managers (£50bn+ in AuM) to report in line with the TCFD, extending to smaller managers (£5bn+ AuM) in 2023.

Under the new FCA rules, managers are required to produce both an “entity” and “product” (i.e. fund) level report. The former involves standard disclosures against the TCFD’s main reporting requirements (known as “pillars”), as well as some FCA additions. The latter is a more specific document which is supposed to be made available to any “client” of the fund (which for PE can be read as LPs). It involves, among other things, a requirement to report some key greenhouse gas emissions for the fund specifically, and a qualitative explanation of the climate change risks and opportunities that affect the fund. Although most firms are unlikely to meet the £5bn threshold for mandatory reporting, some have begun to report on a voluntary basis in response to investor demand.

The range of data and metrics required for TCFD compliance is broader than that reported under the iCI/ERM carbon accounting standard. However, the iCI/ERM standard does provide a solid base of emissions data which can be complemented in order to comply with the TCFD.


In the context of growth in “ESG investing” the EU’s Sustainable Finance Disclosure Regulation (SFDR) is intended to improve the transparency and accuracy of ESG data within financial services, with the intention of steering investment towards genuinely sustainable financial products. The regulation is far-reaching in scope, applying to all financial market participants in the EU (or providing services in the EU), and requiring disclosures on a broad range of ESG factors (rather than being climate-focused only).

Under the rules, funds are placed into three categories:

- Article 6. Funds that either integrate ESG considerations into the investment process, or can explain why they do not; but do not meet the conditions of Article 8 or 9.

- Article 8. Funds with investments that promote environmental and/or social considerations, but do not have ESG investing as a core defining objective.

- Article 9. Funds that have ESG investing as a core objective.

There’s some confusion over the distinctions here – if a fund integrates ESG into the investment process, do their investments not in some way promote ESG considerations? And when does the mere promotion of ESG become holding ESG as a core objective? The EU has promised to clarify.

This is important because the reporting requirements differ between fund categories. Under the rules, all funds are expected to report on:

- Their level of integration of ESG into the investment process, in the form of a sustainability policy.

- The “Principle Adverse Impacts (PAIs)” of their investments on ESG factors, including qualitative and quantitative metrics (e.g. emissions data).

But funds classed as Article 8 and 9 must, in addition, publish further information to underpin their claims to promote ESG goals in a more proactive manner. This explains exactly what ESG objectives they promote and how this is measured, designed to prevent “greenwashing” with respect to financial products.

For the time being, firms with under 500 employees, and that do not operate Article 8 or 9 funds, do not need to fully comply with the regulation. They can avoid most reporting obligations by making it clear that they do not consider PAIs in their investment process, and explaining why. Almost all VC and PE firms fall into this size bucket and analysis by Deloitte suggests that most are currently choosing to opt out, albeit this is likely to change as more firms develop the processes and resources needed to report. A key driver is that most LPs have over 500 employees, meaning that they must implement a policy to consider sustainability in their investment decisions; this has knock-on effects for VC and PE funds, which are facing increasing demands for ESG-related data to help their LPs comply with the new regulation.

With our dedicated product, seedlingInvest, investors can conduct an iCI/ERM-compliant footprint that can be used for reporting against both the TCFD and SFDR regulations. Get in contact at to learn more and request a demo.

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