In corporate climate strategy, most attention tends to gravitate toward scope 1 (direct emissions) and scope 3 (indirect value chain emissions). Yet it is scope 2 emissions—those arising from the purchase of electricity, heat, or steam—that now pose a rapidly escalating compliance and reputational risk.
As firms face new disclosure mandates from the EU’s Corporate Sustainability Reporting Directive (CSRD) and growing pressure from investors, regulators, and rating agencies, the inadequacies of traditional scope 2 reporting practices—particularly overreliance on renewable energy certificates (RECs)—are being exposed. For companies aiming to meet science-based targets or align with net-zero pathways, accurately tracking and reducing scope 2 emissions is no longer optional.
This article explores why scope 2 is gaining prominence, how global regulations are converging on more rigorous methodologies, and what companies must do to integrate electricity-related emissions into their decarbonization plans effectively.
Scope 2 emissions typically account for 20–40% of a company’s total carbon footprint, depending on the sector. For industries like retail, tech, and real estate—where direct emissions are limited—scope 2 often represents the largest controllable source of emissions. Despite this, many firms treat electricity procurement as a fixed input rather than a strategic lever for decarbonization.
The Greenhouse Gas Protocol, the global standard for carbon accounting, allows companies to report scope 2 emissions using two methods:
While market-based reporting allows for flexibility and alignment with renewable energy goals, it has also led to criticism. Companies can claim carbon neutrality using RECs that may not reflect actual emissions reductions on the grid. For example, purchasing unbundled RECs—credits not tied to physical energy delivery—has been called into question by organizations such as the Carbon Trust and RE100, which advocate for 24/7 carbon-free energy as a more credible benchmark (RE100 Technical Criteria).
Investors and auditors are becoming more attuned to this distinction. As a result, businesses that rely on outdated or symbolic REC-based strategies may find themselves under increased scrutiny in 2025 and beyond.
2024–2026 marks a turning point in mandatory ESG disclosure regulation, and scope 2 is squarely in the spotlight. In Europe, the CSRD requires thousands of companies—including non-EU multinationals—to report audited scope 1, 2, and 3 emissions starting as early as 2025 (European Commission).
The CSRD’s alignment with the European Sustainability Reporting Standards (ESRS) imposes strict guidelines on scope 2 methodologies, requiring greater transparency about the source, attributes, and quality of renewable energy claims. RECs alone will not be sufficient unless backed by credible, contract-based procurement—such as Power Purchase Agreements (PPAs) or Energy Attribute Certificates (EACs) with time and location specificity.
Meanwhile, the U.S. Securities and Exchange Commission (SEC), while softening its final climate disclosure rule in 2024, still includes scope 1 and 2 reporting requirements for large filers, subject to attestation by independent auditors (SEC Rule Summary). Many U.S.-based companies are now aligning their emissions tracking systems with global standards to prepare for both investor expectations and potential future mandates.
In parallel, China, Japan, and Australia are rolling out enhanced carbon disclosure frameworks of their own, signaling a broader global convergence on emissions transparency.
The shifting regulatory landscape is pushing companies to rethink how they manage and mitigate scope 2 emissions. Leading companies are moving from symbolic procurement tools to more impactful and traceable approaches. Three strategies are gaining traction:
These tools are reshaping how companies approach electricity procurement—not just as a cost, but as a strategic asset that can deliver emissions, financial, and reputational value.
Financial markets are also elevating the significance of scope 2. ESG ratings agencies such as MSCI, S&P Global, and Sustainalytics now evaluate scope 2 data quality as a proxy for overall climate governance. Companies with low transparency or questionable REC strategies are more likely to receive lower ESG scores, which can affect investor interest, access to capital, and inclusion in sustainability indices.
Additionally, banks and insurers are embedding scope 2 performance into climate risk assessments. For example, under climate stress testing regimes, utilities and real estate firms with high carbon-intensity electricity portfolios face higher capital reserve requirements or higher premiums.
Procurement teams and sustainability officers are increasingly expected to work together to develop cross-functional carbon reduction roadmaps that include robust scope 2 strategies. This integration marks a shift from ESG being the domain of marketing or CSR departments to being a material financial and operational concern.
Scope 2 emissions are no longer a back-office line item—they are now a strategic priority for any company serious about net-zero alignment, regulatory compliance, and stakeholder trust. As 2025 unfolds, firms that fail to modernize their scope 2 strategies risk falling behind both in reporting credibility and real-world emissions performance.
While market-based reporting using RECs may have sufficed in the past, the era of auditable, real-time, and geographically relevant energy data has arrived. Companies must invest in the tools, partnerships, and processes that bring transparency and impact to how they source electricity.
In this evolving climate disclosure landscape, scope 2 performance is emerging not just as a metric of carbon efficiency—but as a litmus test for corporate ESG maturity.
References
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