Within the financial services sector there are many common challenges relating to the reporting and assurance of Scope 3, Category 15 greenhouse-gas emissions. Here we outline the most common.
The challenges facing preparers and assurers are largely data-related. Here ICAEW's Financial Services Faculty details some of the most common challenges, alongside practical considerations for assurance providers.
Obtaining and sourcing data
It can be difficult to gather accurate data from various financed assets, insured assets and investments. This often involves dealing with multiple data sources and varying data quality. While larger counterparts may produce Scope 1 and 2 data, many small and medium-sized companies do not.
Practical considerations for assurance providers
- Clarity and completeness of data inputs in the model.
- Importance of walkthroughs up front – do they stack up with documented model?
- Third parties and management oversight – how are management comfortable with information from these sources?
Use of proxies and estimates
As a result of the lack of direct data available relating to certain financed assets, insured assets and investments, reporting companies frequently rely on proxies and estimates, often from third-party data providers. This can lead to inconsistencies and less reliable reporting.
There may be a time lag in data availability given that emissions data will typically be available 12-15 months after the calendar year-end. This can lead to a mismatch between financial holdings and underlying emissions.
Practical considerations for assurance providers
- Ensure hierarchy of data, proxies and estimates are adequately disclosed in the model.
- Clarity of estimation uncertainty in model and disclosures.
- Clarity of data quality in model and disclosures.
Reliance on third-party data vendors - report data
Typically reporting organisations rely on a data vendor (or vendors) to provide investee level data (both financial data such as revenue and EVIC, and non- financial data such as emissions). There is limited visibility as to how data vendors have extracted/determined these amounts based on public company reporting, including adjustments that the vendor may make over and above what has been reported.
Practical considerations for assurance providers
- It is challenging for assurance practitioners to perform testing over reported data. The results of testing usually show differences, which require follow up and engagement with the data provider to understand whether the differences represent misstatements.
- There is no controls report / shared assurance comfort in place over the major data vendors.
- It is often difficult to obtain underlying evidence or perform even a basic ‘sense check’ on the completeness of Scope 3 data.
- When an asset class contains a mix of actual and estimated data, and completeness is uncertain, there is discretion as to how the estimated portion should be treated.
- Without a clear understanding of the full population, it may not be possible to reach a clean or even qualified conclusion.
- In some cases, the level of uncertainty may warrant the use of a disclaimer rather than a conclusion.
- While data quality scores may partially reflect this uncertainty, there is a need for clearer guidance to support preparers and reviewers in navigating these grey areas.
Reliance on third-party data vendors - modelled data
Where public reporting is not available or is not reliable for a particular investee, data vendors will use their proprietary model to estimate an emissions value. There is limited visibility over the specific methodologies and data inputs used by vendors to determine these values.
Practical considerations for assurance providers
- It is challenging for assurance practitioners to design appropriate tests and to challenge the accuracy of estimates prepared by data vendors.
- There is no controls report / shared assurance comfort in place over the major data vendors.
Diverse portfolios
Different types of assets and investments require different approaches to data collection and estimation, adding complexity to the process. For example, fixed income and sovereign assets are a particularly difficult asset class to calculate the emissions for.
The treatment of portfolio changes—specifically divestments and new investments - and the timing of what is reported and when remains a significant challenge. In the absence of clear guidance, this often results in inconsistent practices across reporting entities, undermining comparability and transparency
Disclosures often exclude the Scope 3 emissions of underlying investees - something that may be less relevant for residential mortgage portfolios but becomes a significant gap when assessing broader investment activities.
Consistency and comparability
Ensuring that the presentation of emissions data is consistent and comparable across different reporting periods and entities is a significant challenge. Given the evolving standards relating to Scope 3 emissions, prior year adjustments and re-baselining exercises are often required. There is also the challenge of assessing how material prior-year errors and adjustments are and whether these need to be re-reported or not.
Given the multiple different data inputs and variables in financed emissions calculations, it can be difficult to understand whether movements are due to portfolio decisions, movements in financial data, improving data quality or other factors.
Lack of understanding
A common challenge in Scope 3 emissions reporting lies in the fundamental understanding and definition of what falls within its boundaries. This is compounded by the basis of reporting itself, which often has inherent limitations - particularly around completeness - leading to inconsistencies or partial disclosures.
Many organisations grapple with a lack of internal knowledge, both among those preparing disclosures and within governance functions, making it difficult to apply strong oversight or effectively challenge the data, unlike with traditional financial reporting. In such cases, companies may lean heavily on third-party providers, creating further dependencies.
Manual and complex processes
Scope 3 calculations are often highly manual and complex, requiring diverse data inputs from across the value chain, which are not always readily available or reliable. This process is not only time-intensive but also prone to error. Manual processes, especially for non-liquid assets.
Manual processes are particularly more prevalent in more illiquid asset classes (for example, infrastructure, private debt), data is gathered and calculations are performed in spreadsheets. This reflects the generally more manual and less systemised control environment for these asset classes.
Practical considerations for assurance providers
- Manual processes and use of spreadsheets with complex formulae introduce additional risks of error and inaccuracy.
Limited guidance
There is limited guidance available on additional financial sector activities and products that are associated with facilitating emissions. This is expected to expand in the coming years.
Moreover, currently there is no harmonized accounting standard is yet in place for facilitators of capital market transactions.
Practical considerations for assurance providers
- Be aware of upcoming changes to the PCAF facilitated emissions guidance.
- Assess whether the model is consistent with PCAF and differences are adequately disclosed.
Scope 3 reporting
Reporting of Scope 3 emissions is phased-in depending on the sector in which they are active, ie, where they earn revenues over time.
There is an inherent degree of double counting that is assumed in carbon accounting. Because financial services firms are typically exposed to a broad range of sectors and companies, including scope 3 of financed emissions can introduce a much higher degree of double counting.
Practical considerations for assurance providers
- Difficulty in understanding and interpreting scope 3 of financed emission, particularly “scope 3 of 3” disclosures.
These challenges need to be appropriately navigated by reporting companies such that assurance practitioners are able to reach a conclusion on the data.
ISAE 3000 (Revised) is the typical assurance standard under which sustainability-related assurance is obtained at present, with ISAE 3410 the standard for assurance engagements on greenhouse-gas statements.
However, the International Standard on Sustainability Assurance (ISSA 5000) is effective for assurance engagements on sustainability information reported for periods beginning on or after 15 December 2026; or as at a specific date on or after 15 December 2026.
This will see ISAE 3000 (Revised) and ISAE 3410 withdrawn, and no longer applicable for sustainability assurance engagements after that effective date.
Many firms may already be in the process of updating methodology so that they can deliver assurance engagements under ISSA 5000.
The UK version of the standard, ISSA (UK) 5000, was published by the FRC in November 2025, and, as with the international version of the standard, early adoption of ISSA 5000 is permitted – IAASB encourage this, and ICAEW is supportive.
Guidance created with permission from PCAF
This guidance is based, with permission, upon the work of the Partnership for Carbon Accounting Financials (PCAF) including the data quality score tables from The Global GHG Accounting and Reporting Standard for the Financial Industry.
More support
Read our series of case studies on how to calculate Scope 3, Category 15 emissions across different financial asset classes from loans to the oil and gas sector to insuring aviation firms.
Case studies