IFRS S2 Scope 2 Disclosure: Location-Based Emissions and Contractual Instruments

Scope 2 sits at the intersection of physical electricity consumption, grid emission factors, energy procurement contracts and environmental claims. A company can consume electricity from the same grid as its neighbours while also buying a supplier product, entering a power purchase agreement or retiring energy-attribute certificates. Those facts answer different questions and must not be collapsed into one unexplained “renewable” number.

IFRS S2 resolves the minimum investor-facing presentation point: disclose the location-based Scope 2 result and add contractual-instrument information when it is relevant to understanding the emissions. The GHG Protocol Scope 2 Guidance adds the detailed accounting architecture for market-based information. Strong reporting connects the two without implying that contractual claims change the physical grid average or that procurement automatically causes avoided emissions.

Figure 1. IFRS S2 Scope 2 disclosure architecture: required location-based measure and contractual-instrument context. London Reporting Academy learning visual.

The location-based method reflects the average emissions intensity of grids or defined geographic areas where energy consumption occurs. It begins with the entity’s purchased or acquired electricity, steam, heating and cooling activity data, then applies emission factors that best represent the location and period. The result is an absolute gross Scope 2 amount in tonnes of CO2 equivalent.

IFRS S2 defines contractual instruments broadly. They include contracts for energy bundled with generation attributes and unbundled energy-attribute claims that are purchased separately from the physical energy. Examples can include power purchase agreements, supplier-specific products, guarantees of origin, renewable energy certificates and similar instruments in different markets.

The existence of a contract is not enough. The reporting team should decide whether information about the instrument helps users understand the Scope 2 emissions, procurement exposure, the difference between location-based and market-based results, or the reliability and limitations of the entity’s claims. Immaterial or non-informative detail should not obscure the required metric.

For a market-based calculation prepared under the GHG Protocol Scope 2 Guidance, contractual instruments must satisfy the Scope 2 Quality Criteria. These criteria are accounting-integrity tests, not a judgement that the instrument is “green”, additional or socially beneficial. An instrument can support accurate allocation without proving that the purchase caused new renewable capacity.

A market-based result allocates emissions according to qualifying contractual information. It can help users understand procurement choices and the relationship between the entity’s contracts and its inventory. It does not describe the physical average emissions of the grid, which is why the location-based figure remains important.

Nor does a lower market-based figure automatically prove additionality, causal emissions reduction, resilience or achievement of a transition plan. Those claims may require information about project timing, financing, policy context, counterfactuals, targets and contractual dependency. Avoided emissions, where disclosed, are calculated separately and not netted against Scope 2.

Context. Meridian Services consumes electricity in the United Kingdom, Poland and South Africa. It has a UK supplier tariff with guarantees of origin, a Polish virtual PPA whose certificates are transferred to the company, and unbundled certificates purchased for part of South African consumption. The South African market does not provide an adjusted residual mix that the company considers available for its calculation.

Method. Meridian calculates location-based Scope 2 for all countries using current geographic factors. It separately tests every contractual instrument. The UK supplier provides a factor methodology and evidence of certificate retirement. The Polish PPA certificates reconcile to generation, market, vintage and retirement. The South African certificates satisfy ownership and retirement checks, but the team discloses the absence of an adjusted residual mix and uses the best eligible fallback data in its GHG Protocol market-based calculation.

Disclosure result. IFRS S2 presents the location-based total as the required Scope 2 metric. The accompanying note explains the instrument types, the market-based total, the percentage of consumption covered by qualifying instruments, the residual-mix limitation and the fact that avoided emissions have not been deducted from either Scope 2 measure.

Context. Illustrative multi-market entity with qualifying and non-qualifying contractual evidence.

Why the wording is useful

Evidence needed

Site-energy register, invoices, meters and estimation files.

Location-based factor register and calculation workbook.

Contracts, supplier products, certificate serial numbers and registry ownership.

Retirement or cancellation evidence and consumption allocation.

Quality-criteria assessment, market-boundary memo and residual-mix source.

Location-based and market-based reconciliation, including coverage percentage.

Claim review by energy procurement, GHG methodology and reporting owners.

Practical consequence. The report should present the two methods transparently and avoid replacing the physical grid-average information with a procurement claim.

Prerequisite: GHG Protocol and IFRS S2: Organisational Boundaries, Methods and Required Disclosures

Next step: IFRS S2 Scope 3: How to Assess All 15 Categories and Improve Data Quality

Transition: IFRS S2 GHG Amendments 2025: What Changed and How to Prepare for 2027

Advanced note: IFRS S2 Climate Targets and Carbon Credits: Gross, Net and Credible Claims