LONDON, Dec 1 (Reuters) - More banks will need to report and then reduce the carbon emissions linked to their capital markets deals, after an industry-led standard-setter for carbon accounting launched its long-awaited methodology on Friday.

Credible and widely adopted carbon accounting standards are considered vital for improving the transparency and accountability of the role corporations play in generating emissions.

The Partnership for Carbon Accounting Financials (PCAF) had been trying to finalise a standard for so-called facilitated emissions from activities like underwriting since last year, but disagreement between banks over the best approach caused delays.

Banks including Citi and Morgan Stanley have been excluding the emissions from their reduction targets until PCAF's methodology was ready.

Some environmental groups have been unhappy with PCAF's approach, confirmed on Friday, to let banks account for 33% of the emissions linked to their capital markets businesses.

Reuters reported in July that banks working to develop the standard had voted for excluding the other two-thirds.

"Of course it wasn’t easy. Finding the number was complex. The most important objective of PCAF was to find a harmonising methodology that all banks can use," PCAF Executive Director Angélica Afanador told Reuters.

Afanador argued it was important to distinguish between banks as providers of capital via a loan, and as facilitators for capital from investors.

Banks signed up to PCAF must already account for 100% of the emissions from their loan financing. Afanador said lenders could also disclose 100% of their facilitated emissions if they wanted.

Two-thirds of U.S. bank financing for fossil fuel expansion came via underwriting stocks and bonds, Sierra Club said in a July report.

"Banks have an enormous and overlooked climate impact from underwriting investments in big polluters, and disclosure of these impacts is long overdue," said Adele Shraiman, senior strategist for the Sierra Club's Fossil-Free Finance campaign.

Shraiman said banks now needed to set targets for reducing their facilitated emissions and follow through on their pledges.

Not all big banks have joined PCAF. Several including JP Morgan and Goldman Sachs have developed their own methodologies for facilitated emissions.

In explaining its approach, Afanador said PCAF had decided on the 33% weighting because the Basel Committee on Banking Supervision, which assesses the importance of global systemically important banks (G-SIB), previously considered balance sheet exposures such as bank lending as three times more impactful than underwriting.

"We needed an anchor for the decision and G-SIB was the anchor," she said. (Reporting by Tommy Reggiori Wilkes; Editing by Jamie Freed)