The Green Claims Directive ensures that consumers will be well informed about the sustainability impacts of the goods and services they choose to purchase.
The Taxonomy also provides investors with clear information – and their own reporting obligations – about how they can invest in companies with sustainable business models and practices.
Both require access to knowledge and information that have not typically been accessible in the European market. This is why the CSRD, through the painstakingly precise European Sustainability Reporting Standards (ESRS) - requires that European companies provide detailed information about their own impacts, risks and opportunities within climate, biodiversity, use of marine resources, circular economy and pollution prevention.
The ESRS are not only very detailed and ambitious sustainability reporting standards; they also work as the foundations providing the information necessary to disclose under the Taxonomy and Green Claims Directive.
Climate change impact and risk lies at the core of the ESRS, and any company not reporting on it needs to justify why they have no impact, risk or opportunity related to climate change mitigation or adaptation While the key questions of the chapter revolve around total gross GHG emissions and the existence of a climate transition plan in line with the Paris-agreement, energy consumption is also treated in detail.
Those already using market-based reporting will be happy to see two core principles adopted in the standards.
First, gross GHG emissions shall be reported using both the location-based and the market-based method.
Second, all scope 2 energy consumption, i.e., purchased electricity and heat, shall be reported using only market instruments.
Here, Guarantees of Origin (GOs) and other Energy Attribute Certificates (EACs) like Renewable Energy Certificates (RECs) are specifically mentioned as market instruments that can be used. This means that while companies should report their scope 2 emissions, both market- and location-based, the mandatory disclosure of energy consumption must be market-based.
Because the ESRS also require both up- and downstream scope 3 reporting, this has a cascading effect where companies can use the market-based emissions reporting for their suppliers’ scope 2 emissions.
It also shows that the EU has landed firmly in favour of utilising GOs as an instrument to track the ownership of renewable energy.
The market seems to have already anticipated the upcoming changes. Since summer, the spread between CAL 2022, CAL 2023 and the future vintages has remained significant.
Considering the fundamentals, this has surprised everyone in the market.
While the issuances of the AIB GOs are at an all-time high, making the market long, they are expected to grow larger again in 2024.
Nevertheless, this expected increase in supply seems to leave the futures prices unaffected. The graph below shows how the price spread between 2023 (white line) and 2024 (orange line) has developed this year: