The recently adopted European Sustainability Reporting Standards (ESRS) have made market-based energy consumption reporting mandatory for around 50,000 companies. They could stimulate demand for Guaranteed Origin (GO) products.
EU Taxonomy and Guarantees of Origin: New Energy Tracking System
The European Commission (EC) has approved Guarantees of Origin (GOs) as the primary method for proving renewable energy consumption in line with EU taxonomy by requiring companies to report on “contractual agreements” for energy consumption under the new European Sustainability Reporting Standards (ESRS). This decision could boost demand for documented renewable energies. At the same time, reporting standards could increase the cost of capital for companies that fail to demonstrate clean energy consumption using GMOs.
ESRSs are delegated acts under the Corporate Sustainability Reporting Directive (CSRD), which introduces new disclosure obligations relating to environmental, governance and social issues for almost 50,000 EU companies. As part of energy reporting, the ESRS requires entities covered by the directive to disclose both location-related emissions. As well as market-related sales from purchased electricity, heating and cooling, known as Scope 2. Importantly, the ESRS establishes the method-based market as the only mandatory method of disclosing energy consumption. Entities falling within the scope of the CSRD must demonstrate the use of renewable energies by means of contractual instruments such as GAs.
In appendix 1, page 87, the standards specify that companies should only consider energy consumption “as coming from renewable sources if the origin of the energy purchased is clearly defined in the contractual agreements with their suppliers”.
The ESRS will provide financial entities with essential information on corporate sustainability performance as a basis for investment allocation. The European Investment Bank (EIB). For example, has recently adopted guidelines for assessing investment projects in relation to their alignment with the EU taxonomy.
“The ESRS is a significant sign that the European Commission supports Guarantees of Origin (GOs), the world’s most mature energy tracking system. The purchase of GOs will align companies’ energy consumption taxonomy, increasing their attractiveness to investors. Failure to comply will result in higher capital costs. In other words, not buying documented renewable energy will become increasingly costly and unprofitable. We expect the new reporting criteria to increase companies’ demand for GAs,” says Tom Lindberg, CEO of Ecohz.
