Carbon accounting has become a strategic priority across the investment landscape. For investment funds, the increasing urgency is driven not only by regulatory developments, such as the EU’s Sustainable Finance Disclosure Regulation (SFDR), but also by rising expectations from limited partners and stakeholders seeking environmental transparency.

What is a corporate carbon footprint?

A corporate carbon footprint refers to the total greenhouse gas (GHG) emissions attributable to an organization’s operations, both direct and indirect. The GHG Protocol classifies emissions into three categories:

• Scope 1 – Direct emissions from sources owned or controlled by the organization, such as fuel combustion in vehicles or heating systems.

• Scope 2 – Indirect emissions from the generation of purchased electricity, heat, or steam.

• Scope 3 – All other indirect emissions occurring along the value chain, including business travel, procurement, and investments.

For funds, Scope 3 emissions dominate, particularly category 15: investments, which typically represent more than 99% of the total footprint.

The emission profile of investment funds

As detailed in the CDP Technical Note on Scope 3 Categories by Sector, the emissions profile of funds is significantly influenced by indirect value chain emissions. According to CDP, the portfolio emissions of financial institutions are, on average, more than 700 times greater than their direct operational emissions.

While investment emissions (Scope 3.15) represent the most significant share, additional Scope 3 categories commonly relevant to funds include:

• Purchased goods and services

• Fuel- and energy-related activities

• Waste generated in operations

• Business travel

• Employee commuting

Understanding the materiality of each category is a critical first step in establishing a robust reporting framework.

How to measure emissions: a step-by-step guide for funds

Scope 1: Direct emissions

These emissions arise from sources that are directly owned or operated. In the context of a fund, Scope 1 typically includes heating systems that use fossil fuels or company-owned vehicles powered by combustion engines.

Where applicable, emissions can be calculated using data from utility bills or fuel receipts. In cases where this information is unavailable, proxies, for example based on costs and standard fuel prices, may be used to approximate consumption.

Scope 2: Purchased energy

Funds’ Scope 2 emissions can arise from externally sourced electricity or heat. These can be estimated using two approaches:

• Location-based: Reflects average emissions from the local grid.

• Market-based: Reflects the specific emissions profile of the provider, if such data is available.

Required inputs include total energy consumption (in kWh), typically sourced from utility invoices. In the absence of precise figures, reasonable estimates can be developed using for example office floor area and energy intensity benchmarks.

Scope 3: Other indirect emissions

Scope 3 includes a broad range of emissions that occur outside a fund’s direct control, often making data collection challenging, particularly in the early stages of a carbon accounting journey. To address this, several calculation methodologies are available, each offering different levels of precision.

• Spend-based: Calculates emissions using financial expenditure and sector-specific emission factors.

• Activity-based: Uses physical units, such as kilometers travelled or tonnes of waste.

• Supplier-specific: Relies on emissions data disclosed directly by vendors or partners.

These methodologies form a progression, from approximate to more precise. It is common, and often necessary, for organizations to begin with higher-level estimates such as spend-based methods, gradually enhancing accuracy over time as data availability and internal capabilities improve. Initiating the process early, even with limited data, establishes a critical foundation for building robust carbon management practices.

Financed emissions: Focus on scope 3.15

Within Scope 3, the most material category for investment funds is typically category 15: investments, also referred to as financed emissions. These represent the emissions associated with the activities of portfolio companies and other financial exposures.

The leading methodology for measuring financed emissions is provided by the Partnership for Carbon Accounting Financials (PCAF). This framework uses an attribution approach to allocate emissions proportionally to a fund’s share of financing. For unlisted equities and business loans the formula is as follows:

Financed Emissions = Investee Emissions × (Outstanding Amount / Total Equity + Debt)

In this model, the outstanding amount reflects the value of equity or debt held by the fund, while the total equity and debt are drawn from the investee’s balance sheet.

PCAF's methodology is structured into three tiers of emission data quality:

• Reported emissions: Collected directly from portfolio companies (most accurate, but often unavailable).

• Activity-based estimates: Derived from physical metrics such as energy use or production volume.

• Economic-based estimates: Based on financial indicators such as revenue, using sector-specific emission intensities.

In the absence of company-level data, many funds begin with economic-based estimates and refine their methodology over time. Encouraging portfolio companies to improve their emissions reporting is a key step toward higher-quality results.

Reporting Best Practices & Pitfalls

Establishing a solid foundation for carbon footprint reporting requires more than just calculations, it involves consistent methodology, transparency, and strategic planning. Below are several best practices to consider, as well as common pitfalls to avoid.

Best Practices

• Be transparent about assumptions: Clearly document all assumptions, estimation methods, and data sources. Transparency enhances credibility and allows others to interpret results accurately.

• Rely on recognized frameworks: Use established standards such as the GHG Protocol and PCAF to ensure methodological consistency and comparability.

• Continuously improve data quality: Over time, aim to transition from estimates to more granular, activity-based or supplier-specific data.

• Engage portfolio companies: Proactively collaborate with investee companies to support their own carbon measurement efforts. This improves the accuracy of financed emissions and strengthens ESG alignment across the portfolio.

Common Pitfalls

• Underestimating the time needed: Especially during the initial reporting cycle, carbon accounting can require significant time and coordination. Rushing the process often leads to incomplete or low-quality outputs.

• Lack of a scalable data system: Failing to establish a structured and repeatable data collection process can lead to inefficiencies and inconsistencies in future reporting cycles. 

• Overlooking Scope 3 emissions: These typically represent the majority of a fund’s footprint, particularly financed emissions. Neglecting them results in an incomplete and misleading emissions profile.

How Atlas Metrics supports funds on their carbon journey

Atlas Metrics offers a dedicated suite of tools tailored to the needs of funds looking to measure and manage their carbon footprint.

Our carbon accounting module streamlines the footprinting process, offering multiple calculation methodologies to suit different levels of data availability. Whether a fund is just beginning or already advanced in its sustainability journey, the platform adapts accordingly.

In addition, Atlas provides an automated financed emissions calculator, aligned with the PCAF standard. This tool integrates emissions data directly from portfolio companies and includes features to address data gaps where disclosures are missing.

To explore how Atlas can support your fund’s climate reporting and strategy, get in touch with us, we would be happy to share more!