The fund's PCAF score is one weighted average. Which holdings you upgrade to improve it decides whether the carbon figure gets any more reliable.
A PCAF data quality score for a fund is the average of each holding's score, from 1 (verified reported emissions) to 5 (crude sector estimates), weighted by the amount invested in each company. In an illustrative eight-company private equity fund with 525 million invested, the weighted score is 3.58, against 3.88 if you take a simple average. Getting it below 3.0 takes only two companies, but which two decides whether the improvement means anything.
Worked in full in The ESG Manager in Private Equity by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The score is the number that sits next to financed emissions in every LP report built on the PCAF Standard. It tells the reader how much of the carbon figure was measured and how much was modelled. Most fund teams compute it once, report it, and set a target to "improve data quality" without working out what it takes. The arithmetic is short and it changes the engagement plan.
For listed equity, business loans and unlisted equity, the PCAF Standard grades each holding by the kind of emissions data behind it. In broad terms: score 1 is reported emissions that have been verified; score 2 is reported emissions that have not been verified, or emissions calculated from the company's own energy consumption data; score 3 is emissions estimated from physical production data and emission factors; score 4 is a sector average per unit of revenue; score 5 is a cruder proxy, such as a sector average per unit of assets. Lower is better. A portfolio company that sends twelve months of energy bills can usually move from 5 to 2 without producing a full greenhouse gas inventory.
| Company | Invested (EUR m) | Weight | PCAF score | Financed emissions (tCO2e) | Share of emissions |
|---|---|---|---|---|---|
| A, industrial manufacturer | 120 | 22.9% | 2 | 18,400 | 26.0% |
| B, logistics | 95 | 18.1% | 4 | 22,600 | 31.9% |
| C, software | 80 | 15.2% | 4 | 900 | 1.3% |
| D, food producer | 70 | 13.3% | 3 | 9,800 | 13.8% |
| E, healthcare services | 60 | 11.4% | 5 | 1,500 | 2.1% |
| F, building materials | 45 | 8.6% | 4 | 15,200 | 21.4% |
| G, business services | 30 | 5.7% | 5 | 400 | 0.6% |
| H, retail | 25 | 4.8% | 4 | 2,100 | 3.0% |
| Fund | 525 | 100% | 3.58 | 70,900 | 100% |
Weighted score = Σ(investedi × scorei) ÷ Σ investedi
Numerator: 120 × 2 + 95 × 4 + 80 × 4 + 70 × 3 + 60 × 5 + 45 × 4 + 30 × 5 + 25 × 4 = 1880 score-points.
1880 ÷ 525 = 3.581, reported as 3.58.
In Excel: =SUMPRODUCT(Invested,Score)/SUM(Invested).
The PCAF Standard weights each score by the outstanding amount of the holding. For an unlisted equity stake that is the value of the fund's investment; this example uses the amount invested as a simple proxy. Each holding's contribution to the fund score is its weight times its score: B contributes 0.724, the largest single slice, and A, the biggest holding, only 0.457 because it already reports.
| Score | Invested (EUR m) | Share of invested | Financed emissions | Share of emissions |
|---|---|---|---|---|
| 1 | 0 | 0.0% | 0 | 0.0% |
| 2 | 120 | 22.9% | 18,400 | 26.0% |
| 3 | 70 | 13.3% | 9,800 | 13.8% |
| 4 | 245 | 46.7% | 40,800 | 57.5% |
| 5 | 90 | 17.1% | 1,900 | 2.7% |
Read the two share columns together. 60.2% of the fund's reported carbon, 42,700 tonnes, comes from revenue-based or cruder estimates. Score 5 holdings take 17.1% of the money but only 2.7% of the emissions: they drag the score down and barely affect the carbon figure.
Assume each company can be brought to score 2 (energy data or an unverified report) and that A, which already reports, can be moved to 1 by having its inventory verified. The gain in the fund score is invested × (old score − new score) ÷ 525.
| Upgrade | Score-points saved | Fund score falls by | New fund score |
|---|---|---|---|
| A, 2 to 1 (verification) | 120 | 0.23 | 3.35 |
| B, 4 to 2 | 190 | 0.36 | 3.22 |
| C, 4 to 2 | 160 | 0.30 | 3.28 |
| D, 3 to 2 | 70 | 0.13 | 3.45 |
| E, 5 to 2 | 180 | 0.34 | 3.24 |
| F, 4 to 2 | 90 | 0.17 | 3.41 |
| G, 5 to 2 | 90 | 0.17 | 3.41 |
| H, 4 to 2 | 50 | 0.10 | 3.49 |
To reach a target of 3.0 the fund must shed 0.58 of score, or 305 score-points. No single company does it; several pairs do.
| Companies upgraded | Fund score | Target of 3.0 | Emissions in upgraded holdings (tCO2e) | Share of fund emissions | Emissions-weighted score |
|---|---|---|---|---|---|
| C + E | 2.93 | Met | 2,400 | 3.4% | 3.28 |
| E + G + H | 2.97 | Met | 4,000 | 5.6% | 3.23 |
| B + E | 2.88 | Met | 24,100 | 34.0% | 2.67 |
| A + B | 2.99 | Met | 41,000 | 57.8% | 2.47 |
| B + F | 3.05 | Missed | 37,800 | 53.3% | 2.30 |
| B + E + F | 2.70 | Met | 39,300 | 55.4% | 2.24 |
This is the uncomfortable result. The software company and the healthcare business, C and E, meet the target while improving the measurement of 3.4% of the fund's carbon. Logistics and building materials, B and F, put real numbers on more than half of it and miss the target by 0.05. A score weighted by money rewards engaging large, low-carbon holdings. If the target is set on the PCAF score alone, the cheapest way to hit it is the least useful one.
The most frequent error is reporting a simple average of the scores, 3.88 here, which treats a 25 million retail stake like a 120 million industrial one. The second is the opposite: weighting by emissions, 3.37 here, and labelling it the PCAF score. It is a better measure of how reliable the carbon figure is, but it is not the number the Standard describes, and an LP comparing funds will be comparing different things. Report the investment-weighted score, and show the emissions-weighted one beside it if you want to make the point that the big emitters are covered. The same split matters for the carbon numbers themselves, covered in how to calculate financed emissions for a private equity fund.
For the data plan: set two targets, not one. An investment-weighted PCAF score for the LP report, and a share of financed emissions at score 3 or better for the engagement team. In this fund, B, E and F together meet both: a score of 2.70, and the share of emissions at score 3 or better rises from 39.8% to 95.2%.
The fund score is one SUMPRODUCT. The work is in reading it: which holdings carry the score, which carry the carbon, and whether an improvement plan moves the second or only the first. The book treats ESG data as something that must survive an investment committee and an exit; its exit valuation workbook is on the free companion page for this book.
By investment. The PCAF Standard recommends weighting each holding's score by its outstanding amount, which for an equity fund is the value of each investment, here proxied by the amount invested. In the illustrative fund that gives 3.58. Weighting by financed emissions gives 3.37, a useful second measure of how reliable the carbon total is, but it should be labelled separately so that LPs compare like with like.
PCAF sets no benchmark. A fund whose holdings are mostly estimated from sector revenue factors sits near 4 by construction, since that is the score for revenue-based estimates. A score near 3 usually means the largest holdings report or provide energy data. In the illustrative fund, upgrading the logistics, healthcare and building materials companies to score 2 takes it from 3.58 to 2.70.
By providing its own energy consumption data, fuel and electricity, so that emissions can be calculated from activity rather than from a sector average. It does not need a verified inventory to do so. In the illustrative fund, moving the 60 million healthcare holding from 5 to 2 lowers the fund score by 0.34, from 3.58 to 3.24.
This article is one calculation from The ESG Manager in Private Equity. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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