Q&A: Can FinServ Pass the Scope 3 Test for Climate Goals?

In light of David Attenborough’s 100th Birthday, climate conversations have re-emerged as the priority for financial institutions globally. 

Perhaps a more pressing reason for the shift in focus to ESG is the measurable damage that has occurred as the result of unchecked emissions. 

According to the UN, fossil fuels make up almost 90% of all carbon dioxide emissions. 

How are financial services curbing Scope 3 as the push for sustainable finance continues to quietly power financial institutions and ESG commitments?

In this exclusive Q&A with FinTech Magazine, Simin Zhou, Vice President and General Manager of Risk & Compliance Software at UL Solutions, explains how financial services leaders can prepare as Scope 3 emissions catch up with regulations.

What does Scope 3 mean to financial services leaders?

For financial institutions, Scope 3 emissions – specifically GHG Protocol Category 15, or financed emissions – represent the single largest source of climate impact. Unlike industrial sectors where emissions are tied to physical operations, banks, insurers and asset managers influence emissions primarily through the capital they allocate. 

Loans, project finance, equity investments and debt holdings connect financial institutions directly to real-economy emissions, often making financed emissions many multiples larger than Scope 1 and 2 combined.

The Partnership for Carbon Accounting Financials (PCAF), a global coalition of financial institutions, has become the de facto global standard for measuring these emissions. As of its 2025 third-edition update, PCAF covers ten asset classes and is now used by institutions representing nearly US$100tn in assets under management.

The widespread adoption of PCAF signals that financed emissions accounting has moved from an emerging practice to core financial infrastructure.

For financial services leaders, understanding financed emissions is increasingly viewed as a marker of credibility –  particularly when net zero or portfolio alignment commitments are publicly stated. Without a defensible Scope 3 Category 15 baseline, decarbonisation targets risk being perceived as aspirational rather than operational.

What is changing that makes Scope 3 harder to ignore now?

Three forces are converging. First, regulations. In the EU, the Sustainable Finance Disclosure Regulation (SFDR) requires large financial market participants to disclose climate-related Principal Adverse Impacts (PAIs), which in practice rely on financed emissions data.

This is reinforced by the Corporate Sustainability Reporting Directive (CSRD), which will require large banks to disclose full Scope 3 emissions at entity level. In the US, California continues to move forward with expanded Scope 3 reporting through SB 253 and SB 261.

Second, global capital markets are embedding climate exposure into valuation. Green and sustainable bond issuance reached approximately US$1.1tn globally in 2025 despite regional and sectoral shifts, with financial institutions among the largest issuers and underwriters. 

Investors increasingly expect transparent, decision-useful emissions data backing these instruments, not just use-of-proceeds narratives.

Third, external scrutiny is sharpening. The Transition Pathway Initiative (TPI) Centre’s 2025 State of the Banking Transition found that while most large global banks now publish financed emissions, coverage remains partial and sectoral alignment uneven. This gap between disclosure and strategic integration is becoming more visible to supervisors and investors alike.

How do regulations factor into this for financial organisations?

Climate-related disclosure is no longer siloed. Regulators increasingly treat financed emissions as part of core risk management and governance. Under SFDR, financed emissions inform mandatory climate PAIs such as carbon footprint and greenhouse gas intensity.

Under the International Sustainability Standards Board and emerging jurisdictional adoption of IFRS S2, banks must demonstrate how climate metrics feed into strategy, risk and capital allocation.

Importantly, certain regulatory scrutiny is shifting from whether numbers are disclosed to how they are used. Supervisory reviews and 2025 European Supervisory Authority reports highlight expectations for methodological transparency, consistent data quality scoring and clear links between emissions exposure and decision-making.

What makes Scope 3 challenging to act on in practice?

For financial institutions, Scope 3 challenges reflect familiar structural issues: reliance on client-reported data, heterogeneous methodologies and uneven disclosure coverage across sectors and geographies.

Even when emissions data exists, it may not be decision-grade and data quality – rather than availability alone – remains the limiting factor.

This creates tension between reporting and strategy. Many institutions can now produce a PCAF-aligned inventory, yet struggle to use it to steer portfolios, engage clients or assess transition risk.

Without integration into credit, underwriting and investment processes, financed emissions risk remaining a backward-looking metric rather than a forward-looking management tool.

Why is software especially important for managing financed emissions?

Financed emissions management is fundamentally a data and governance challenge. Institutions must aggregate emissions across asset classes, score data quality, manage methodological updates and maintain audit-ready documentation. 

Manual or fragmented approaches quickly break down under regulatory and investor scrutiny.

Purpose-built carbon and risk management software enables financial institutions to operationalise frameworks like PCAF, align disclosures with SFDR and CSRD and connect emissions data to portfolio analytics, client engagement workflows and green finance products.

As 2025 regulatory guidance makes clear, repeatability, traceability and integration are now baseline expectations.

What is the business case for financial services leaders to act now?

Financed emissions data is no longer just a compliance artifact. Institutions that treat Scope 3 as strategic infrastructure are better positioned to price transition risk, design credible green bond and sustainability-linked products and respond to stakeholder scrutiny with confidence.

The direction of travel is indicating that standards are converging, supervisory attention is increasing and market expectations are rising faster than methodologies can stand still.

Financial institutions that invest early in robust Scope 3 software will not only meet disclosure requirements – they will help shape how capital flows in a climate-constrained economy.