PCAF Third Edition for Indian Banks + NBFCs (Dec 2025) — What's New + India Chapter

What changed on 2 December 2025

PCAF (Partnership for Carbon Accounting Financials) published its Third Edition of the Global GHG Accounting and Reporting Standard for the Financial Industry on 2 December 2025, updating both:

• Part A — Financed Emissions (loans + investments)
• Part C — Insurance-Associated Emissions

Both PDFs are downloadable directly from PCAF’s standard-launch landing. Part B (Capital Markets Facilitated Emissions) was a separate 2023 release and is unchanged by this update.

The Third Edition does NOT invalidate inventories prepared under the Second Edition (December 2022). FIs that have an established Second-Edition baseline can continue reporting on that basis until they choose to migrate. For FY 2025-26 onwards, however, Indian FIs scoping fresh inventories should adopt the Third Edition — particularly for the four new methodology areas where the Second Edition was silent.

Four new financed-emissions methodologies (Part A)

The Third Edition’s Part A introduces methodologies for four asset classes the Second Edition didn’t cover:

1. Use of Proceeds structures

Use of Proceeds covers instruments where the proceeds are contractually ring-fenced to specific eligible activities (typically green / social / sustainability-linked):

• Green bonds — proceeds restricted to environmentally beneficial activities per the bond’s framework
• Sustainability-linked loans + bonds — coupon / margin tied to sustainability performance targets
• Equity funds — pooled vehicles with documented investment thesis (e.g., a climate-tech fund)
• Debt funds — pooled debt instruments with stated lending criteria

Attribution: the FI’s emissions share equals the FI’s outstanding investment ÷ the issuer’s enterprise value (EVIC for equity-type, total balance sheet for debt-type), restricted to the activity financed by the proceeds. This is meaningfully different from generic Business Loans attribution because the denominator is the proceeds-financed activity’s emissions, not the issuer’s total emissions.

2. Securitizations and Structured Products

Tranched instruments where the FI holds exposure to an underlying asset pool through a structured vehicle:

• RMBS (Residential Mortgage-Backed Securities) — pool of mortgages
• CLO (Collateralised Loan Obligations) — pool of corporate loans
• CDO (Collateralised Debt Obligations) — pool of mixed debt instruments

Attribution is look-through to the underlying asset pool: the FI’s emissions share equals the FI’s outstanding investment ÷ the structured vehicle’s total liability stack, multiplied by the underlying pool’s aggregate emissions. The methodology requires the structured vehicle to disclose pool composition with sufficient granularity to compute pool emissions — a known data-quality friction point.

3. Sub-Sovereign Debt

Distinct asset class from full sovereign debt — bonds issued by state, city, regional, or local government entities. The Third Edition treats sub-sovereign debt with its own attribution mechanics because the relevant emissions base is the sub-sovereign jurisdiction’s GHG inventory, not the full national inventory. For Indian FIs holding state-government bonds, this means attributing to the relevant state’s GHG inventory (where available) rather than the all-India figure.

4. Undrawn Loan Commitments

Optional reporting, aligned with IFRS S1 + S2 disclosure expectations:

• Drawn portion — reported under existing Business Loans methodology (no change)
• Undrawn commitment — disclosed separately as a potential-future-financed-emissions number

The undrawn commitment disclosure is intentionally separate from drawn — it does NOT roll into the absolute financed-emissions total. This is a transparency disclosure, not an additional liability number.

Part C — Insurance-Associated Emissions updates

The Third Edition expands Part C with two new methodologies:

Treaty reinsurance portfolios

Reinsurer’s share of cedant exposure across the ceded book. The reinsurer takes a fraction of the cedant insurer’s commercial-lines book (typically through a quota-share or excess-of-loss treaty); the reinsurer’s insurance-associated emissions equal its fractional share of the cedant’s underlying insurance-associated emissions. Requires cedant cooperation on data exchange.

Project insurance

Insurer’s share of project-finance facility coverage. Where an insurer provides cover (construction all-risk, operational property, business-interruption) for a specific project, the insurer’s emissions share equals the insurer’s share of the project’s total insured value × the project’s annual operational emissions. The methodology aligns with Part A’s project-finance attribution so reinsured project-finance debt + project insurance can be measured consistently.

These complement the commercial-lines methodologies introduced in the Second Edition (motor + property + general liability). Health and life insurance remain outside Part C scope — Part C is property + casualty + reinsurance only.

PCAF India Chapter (launched September 2025)

PCAF launched its India Chapter in September 2025, formed in direct response to Indian financial institutions’ requests for India-specific guidance on Scope 3 Category 15 measurement and disclosure.

Item	Detail
Launch date	September 2025
Indian signatories	12 (as of launch)
Of which large banks	3 of India’s largest
Collective financial assets	~USD 1.5 trillion
Geographic focus	India-specific proxy datasets, sector emission factors, MSME data-quality work
Expected guidance	India-specific guidance over 2026-2027

The India Chapter’s near-term work is expected to focus on the data-environment friction Indian FIs encounter: heterogeneous MSME borrower data quality, proxy emissions factors for sector-level attribution where verified Scope 1 / 2 data is unavailable, and Indian state-grid emission factors (CEA Baseline Database V21.0) integration into the PCAF Score 4 / 5 fallback mechanics.

RBI Climate Disclosure Framework crosswalk

The RBI Draft Disclosure Framework on Climate-related Financial Risks (February 2024) is the upstream regulatory driver for most Indian FIs’ financed-emissions work:

Item	RBI Draft requirement	PCAF Third Edition mapping
Reporting start	Large FIs from April 2025	Use PCAF methodology to compute the disclosed figures
Climate targets	From start of 2027	PCAF inventory provides the baseline for target-setting
Disclosure granularity	By industry + asset class for SCBs, AIFIs, applicable NBFCs	PCAF Part A’s asset-class-specific methodologies map directly
Indian accounting approach	RBI mentions developing an approach “interoperable with PCAF”	The PCAF India Chapter is the natural development pathway

The RBI Draft Framework remains in draft as of 2026-05-26; the final framework is expected to formally reference PCAF as the methodology. Indian FIs preparing FY 2025-26 inventories should treat PCAF Third Edition as the de-facto standard.

Data quality — the five-level Score

PCAF retains the five-level Data Quality Score from prior editions:

Score	Quality level	Typical data source
1	Highest	Verified Scope 1 + 2 emissions data from the borrower / investee + verified outstanding amount
2	High	Unverified Scope 1 + 2 emissions + verified outstanding amount
3	Medium	Sector-average activity data (e.g., MWh consumed per ₹ revenue) × emission factor
4	Low	Sector-average emissions intensity (e.g., t CO₂ per ₹ revenue)
5	Lowest	Asset-class average emissions intensity (very coarse proxy)

The score is required disclosure alongside the absolute financed-emissions number. Two FIs reporting “₹100 crore tCO₂e financed emissions” with Score 1 vs Score 4 data are reporting fundamentally different things — the Score makes the methodology-quality dimension explicit.

For BRSR Core assurance partners, the Data Quality Score is the primary indicator of whether a financed-emissions disclosure is ready for limited assurance (Score 3-4 acceptable, with clear methodology documentation) or reasonable assurance (typically requires Score 1-2 on material portfolios, with verified borrower data).

What Indian FIs should do for FY 2025-26 inventories

A practical sequence for FY 2025-26 financed-emissions work:

1. Sign the PCAF Commitment Letter if not already a signatory — non-binding, signals intent to measure within 3 years.
2. Adopt the Third Edition methodology for any new asset classes (use of proceeds, securitizations, sub-sovereign, undrawn commitments) where exposure is material.
3. Refresh the Data Quality Score inventory — if portfolio has materially scaled in any sector, the data-quality mix may have shifted. The Score is a disclosure, not a calculation, so the documentation discipline matters more than the score itself.
4. Begin RBI Draft Framework alignment — even though the Framework is still draft, the directional signal is clear. FIs that wait for the final notification will compress their first-year implementation runway materially.
5. Coordinate with BRSR Core assurance partner early — financed emissions are the most data-intensive disclosure in any Indian bank’s BRSR Core. Limited-assurance vs reasonable-assurance scope decisions should happen at engagement-letter stage, not mid-engagement.
6. Watch for PCAF India Chapter outputs — expected India-specific guidance over 2026-2027 will likely affect Score 4 / 5 fallback mechanics (the proxy datasets used when verified borrower data is unavailable).

Where Batchwise fits

BatchWise coordinates the operational + assurance workflow Indian FIs need to convert PCAF methodology into a signed BRSR Core assurance opinion. We’re not a PCAF advisory firm — the methodology pieces above are reference content for entities already committed to PCAF.

For the operational financed-emissions data preparation + reconciliation + BRSR Core assurance coordination, see the Financed Emissions Consultant India guide and the BRSR Core Assurance service.

Related reading

• Scope 3 Category 15 Financed Emissions — India methodology pillar — the broader Scope 3 framing
• PCAF — glossary definition — definitional spoke
• BRSR for Banks and NBFCs — sector page
• Financed Emissions Consultant India — coordinated engagement guide
• GHG Protocol Land Sector and Removals Standard — sister-standard for agricultural-exposure financed activities