ECEEE INDUSTRIAL SUMMER STUDY PROCEEDINGS 381 Financial carbon footprint: calculating banks’ scope 3 emissions of assets and loans Jens Teubler Wuppertal Institute for Climate, Environment and Energy Division Sustainable Production and Consumption Doeppersberg 19 42103 Wuppertal Germany jens.teubler@wupperinst.org Markus Kühlert Wuppertal Institute for Climate, Environment and Energy Division Sustainable Production and Consumption Doeppersberg 19 42103 Wuppertal Germany markus.kuehlert@wupperinst.org Keywords green investments, carbon footprint, sustainable fnance, avoid- ed emissions, carbon accounting Abstract Financial institutions play a crucial role in achieving the 2015 Paris Climate Agreement. Tey can manage capital fows for fnancing the required transformation towards a decarbonized industry. Currently established policy programs and regulations at European and national level increasingly address fnancial institutions to make their climate warming impact measurable and transparent. However, required science-based assessment methods have not been sufciently developed so far. Tis pa- per discusses methodological opportunities and challenges for measuring carbon footprints of fnancial institutions. Based on a scientifc case study undertaken with the German GLS Bank, the authors introduce an innovative method for quantifying greenhouse gas emissions from a bank’s asset with a focus on loans. Te authors apply an input/output database to calculate greenhouse gas (GHG) intensities and allocate them with bank’s loans and investments. Moreover, the paper provides insights of calculating avoided GHG emissions initiated by a bank’s invest- ment and loans. In conclusion, a high degree of consistent and standardized assessment methods and guidelines need to be de- veloped and applied to promote comparability and transparency. Introduction Global climate change is one of the largest challenges for soci- ety, politics, business and fnance in the twenty-frst century. Numerous political steps have been taken at international level to curb global warming and to enable a transition towards sus- tainable societies. Maybe the most critical milestones are the adoption of the United Nations Sustainable Development Goals (SDG) and the Paris Climate Convention in 2015. Climate protection requires both a gradual and disruptive transformation in technology, business, fnance, politics and society. All social and economic actors are challenged to fnd and implement solutions. In this regard, banks and other fnan- cial market player have a special role. As it is unlikely that state budgets alone will sufce in fnancing sustainable transition, they manage and shape the required capital fows. Over the last decade green bonds are on the rise. Te use of proceeds from green bonds worldwide in 2019 indicates that the most relevant sectors are energy (31 %), buildings (30 %) and transport (20 %) (Climate Bonds Initiative, 2020). Moreo- ver, banks are increasingly considering sustainability as a risk factor for their business activities, including climate impact risks themselves and risks arising from the transformation to- wards a sustainable economy. Actors from politics and science refer to the fnancial insti- tutions as a critical stakeholder for the Great Transformation (Jeucken, 2010; Schneidewind, 2018; Urban & Wójcik, 2019). Te EU Commission has set up a High Level Expert Group on Sustainable Finance that suggested a framework for the devel- opment of an EU strategy for sustainable fnance (EU High- Level Group on Sustainable Finance, 2018). Based on the results of the expert group, an EU Action Plan on Sustainable Finance has been established that focuses on 1) reallocating capital fows towards sustainable investments, 2) addressing fnancial risks arising from climate change, environmental degradation and social impacts as well as 3) promoting transparency and a