Are Your Company’s Green Claims About to Face Tougher Scrutiny?
The world of corporate sustainability reporting is on the brink of a major shift, and it could dramatically impact how public companies disclose their environmental impact. The Greenhouse Gas (GHG) Protocol, the gold standard for measuring and reporting emissions, is proposing changes that will make it harder for companies to greenwash their operations. But here’s where it gets controversial: these changes could also complicate how businesses, especially those in Alberta’s booming renewable energy market, report their progress toward sustainability goals.
What’s Changing?
The GHG Protocol has opened a consultation (ending December 19, 2025) on two key amendments. The first revises the Scope 2 Guidance, which deals with emissions from purchased electricity. The second introduces 'consequential accounting,' a method to estimate the broader impact of electricity projects and 'avoided emissions.' This article focuses on the Scope 2 revisions, which are set to tighten the rules on how companies report their carbon footprint.
Understanding the Basics: Scope 1, 2, and 3
Before diving into the changes, let’s clarify the three Scopes of emissions:
- Scope 1: Direct emissions from sources owned or controlled by the company, like factories or vehicles.
- Scope 2: Indirect emissions from the generation of purchased electricity, steam, heating, or cooling.
- Scope 3: All other indirect emissions, such as those from suppliers or product use, which the company does not directly control.
The GHG Protocol is the go-to framework for companies to back up their environmental claims. In Canada, the Competition Act requires businesses to substantiate such claims using an 'internationally recognized methodology,' and the GHG Protocol fits the bill. However, proposed amendments to the Act aim to replace this requirement with a more flexible 'adequate and proper substantiation' standard. And this is the part most people miss: while this change might seem minor, it could open the door to more subjective interpretations of what constitutes valid environmental reporting.
Alberta’s Power Market: A Renewable Energy Hotspot
Alberta’s power market has seen a surge in 'out of market' interest, with companies financing renewable energy projects through Power Purchase Agreements (PPAs). These agreements allow businesses to claim the environmental benefits of renewable energy, even if they’re not directly consuming it. But under the proposed Scope 2 revisions, this practice may become more challenging.
The Proposed Revisions: Location-Based and Market-Based Methods
Currently, companies can report Scope 2 emissions using two methods:
- Location-Based Method: Uses average emissions from the grid where the company operates.
- Market-Based Method: Allows companies to contract for renewable energy, often from distant sources.
The proposed changes aim to make both methods stricter and more precise.
(i) Location-Based Method: Getting Granular
The revised location-based method moves away from broad geographic averages. Instead, it requires companies to report emissions based on the exact time and location of electricity consumption. It also mandates the inclusion of imported electricity in emission factor calculations.
Previously, stakeholders found the rules for selecting emission factors ambiguous. The new amendments introduce a clear hierarchy: prioritize location precision, then time precision, and finally factor type. For example, a local emission factor with annual data would take precedence over a national factor with hourly data. This approach ensures a more accurate representation of the electricity mix delivered to consumers.
To balance accuracy with feasibility, the proposal allows organizations without hourly data to approximate emissions using monthly or annual data. This ensures that smaller companies aren’t left behind in the transition to more rigorous reporting standards.
(ii) Market-Based Method: Stricter Boundaries
The market-based method currently relies on contractual instruments to allocate emissions. The proposed update maintains this approach but introduces stricter requirements for temporal alignment and physical deliverability. In other words, if a company claims renewable energy from a specific generator, that claim must match the time the electricity was used, ideally on an hourly basis.
The revised framework also redefines the market boundary based on deliverability. Electricity claimed through a contract must come from a generator that could realistically supply power through an interconnected grid. For Canada, this means provincial power markets will be the relevant boundaries. If a generator is outside this boundary, companies must provide evidence, such as transmission capacity pricing or contracts proving physical delivery.
Transitioning to the New Rules
To ease the transition, the proposal includes a mechanism for existing clean energy contracts that don’t meet the new requirements. Two options are on the table: a legacy clause allowing continued use of qualifying contracts for a defined period with disclosure, or a single effective date after which all contracts must comply.
Implications: A New Era of Accountability
If adopted, these changes will require organizations to rethink how they calculate and report Scope 2 emissions. This is particularly important for public companies, which must navigate the Canadian Securities Administrators’ guidance on greenwashing. Even with the proposed amendments to the Competition Act, the GHG Protocol will remain a critical tool for substantiating environmental claims.
For companies involved in Alberta’s renewable energy market, the revisions could complicate their ability to include financed power generation in their Scope 2 calculations. Parties entering into PPAs or holding existing agreements will need to carefully assess their compliance under the new rules, including any transition provisions.
A Call for Discussion
These proposed changes raise important questions: Will the stricter reporting standards stifle innovation in renewable energy financing? Or will they foster greater transparency and accountability? How will smaller companies adapt to the new requirements? We invite you to share your thoughts in the comments below. Let’s spark a conversation about the future of corporate sustainability reporting.
For more information, reach out to Bill Gilliland. Special thanks to Nada Farag, articling student, for her contributions to this article.
