The European Commission has endorsed Guarantees of Origin (GOs) as a primary method for proving renewable energy consumption in line with the EU Taxonomy by requiring companies to report on ‘contractual arrangements’ for energy consumption under the newly adopted European Sustainability Reporting Standards (ESRS).
This could in turn drive demand for documented renewables covered by Guarantees of Origin (GOs). The reporting standards could simultaneously increase the cost of capital for companies that do not prove clean energy consumption using GOs. The ESRS are delegated acts under the Corporate Sustainability Reporting Directive (CSRD), which introduces new disclosure obligations related to environmental, governance, and social issues for close to 50,000 companies in the EU.
As part of energy-related reporting, the ESRS instruct entities covered by the Directive to disclose both location-based and market-based emissions from purchased electricity, heating, and cooling, known as Scope 2. Importantly, the ESRS establishes the market-based method as the only mandatory method for disclosing energy consumption. Entities within the scope of the CSRD shall prove the use of renewables through contractual instruments such as GOs.
The ESRS will provide essential information on business sustainability performance to financial entities as a basis for allocating investments. The European Investment Bank (EIB), for example, recently adopted guidelines for evaluating investment projects against their EU Taxonomy alignment.
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