The roll-out of the Corporate Sustainability Reporting Directive (CSRD) marks a major milestone towards improving the quality of corporate sustainability information across Europe.
It also puts more than 50,000 companies into unfamiliar territory with its complex reporting requirements.
If your business is one of them, getting your head around the European Sustainability Reporting Standards (ESRS) – especially ESRS E1 on climate change – should be a top priority. Besides regulatory compliance, it's a powerful tool to shape a more sustainable future for your business and the planet.
But what exactly is ESRS E1 and why is it so important? What are its core requirements? And how can you implement ESRS E1 effectively? Read on for everything you need to know to manage this standard with confidence.
Before we dive into the specifics of ESRS E1, it’s important to understand how it came about.
In July 2023, the European Commission adopted the ESRS to standardize ESG reporting across Europe. These are the go-to standards for companies subject to the CSRD. They define how to structure a CSRD report and exactly what to disclose in terms of environmental, social, and governance (ESG) matters.
The first set of ESRS comprise of 10 primary topics and two cross-cutting standards. As you can see in the below table, E1: Climate change is the first of five environmental standards.
As the name suggests, ESRS E1 requires organizations to disclose their impacts on climate change. This includes the positive and negative consequences of their business activities – from energy consumption to sourcing materials.
It also demands transparency around actual and potential impacts as well as past, present, and future efforts to tackle climate change.
The CSRD was introduced as part of the European Green Deal: a framework to transition Europe to the first climate-neutral continent by 2050, and to keep global warming to 1.5°C in line with the Paris Agreement.
This ambitious goal reflects the urgency of the current climate crisis, with the earth warming at a rate not seen in the past 10,000 years.
In this context, it’s clear that the climate change component is a top priority for Europe. That’s why ESRS E1 stands out as the most detailed reporting standard. Its ultimate goal is to ensure business practices align with Europe’s ambitious climate objectives.
While more and more countries are committing to net zero emissions by 2050, research shows that half of the necessary emissions must be cut by 2030 to keep warming below 1.5°C.
This makes compliance with ESRS E1 not just a regulatory obligation but a crucial part of global efforts to effectively manage and mitigate climate change.
The CSRD allows companies to omit reporting on certain themes if they are not material – but ESRS E1 holds a special requirement.
Unlike other ESRS standards, if a company deems ESRS E1 as non-material, it must provide detailed justification as well as a forward-looking analysis on what could make the topic material in the future.
In practice, this makes it extremely challenging for companies to exclude this standard given the near-universal impact of GHG emissions across business activities.
And it shouldn’t be avoided anyway.
Consumers, employees, investors, and governments are demanding more transparency around corporate sustainability. Failing to report under ESRS E1 could negatively impact your company’s reputation and stakeholder trust.
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Composed of nine disclosure requirements, the ESRS E1 is one of the most comprehensive ESRSs, and the most exhaustive when it comes to environmental aspects. Let’s take a look at its highly structured requirements in more detail:
Businesses must disclose their plans to ensure their business model and strategy align with achieving climate neutrality by 2050 and limiting global warming to 1.5°C as per the Paris Agreement.
Businesses must disclose their policies for climate change mitigation and adaptation. This includes sharing any legal requirements, third-party standards, or initiatives adopted for managing sustainability matters.
Businesses must disclose the key actions planned and resources allocated to achieve their climate-related policy objectives and targets.
Businesses must disclose the greenhouse gas (GHG) emission reduction targets or other targets they’ve adopted. This should include targets for at least the year 2030, and 2050 if available. Businesses should also state whether their targets are science-based, and the frameworks used.
Businesses must disclose information about their energy consumption and mix. This includes sharing any energy efficiency improvements, exposure to coal, oil, and gas, and renewable energy usage.
Businesses must disclose their gross Scope 1, 2, and 3 GHG emissions, as well as their total GHG emissions.
This involves sharing direct emissions from their operations (Scope 1), indirect emissions from energy consumption (Scope 2), and other indirect emissions across their value chain (Scope 3). Additionally, businesses should provide information on emissions intensity based on net revenue.
Businesses must disclose GHG removals and storage from their operations and value chains in metric tonnes of CO2eq, detailing removal activities and calculation methods.
They should also report on the amount of carbon credits purchased outside their value chain and canceled during the reporting period in metric tonnes of CO2eq.
Businesses must disclose their internal carbon pricing schemes and how these support decision-making and climate goals.
This includes specifying the type and scope of the pricing scheme, applied carbon prices, and the calculation methodology behind setting these prices. They should also report on the approximate gross GHG emissions volumes for each scope covered by these schemes.
Businesses must disclose the potential financial impacts from material physical and transition risks. They should detail how these risks could affect cash flows, performance, and access to finance over the short-, medium- and long term.
They must also report on how they financially benefit from climate-related opportunities, from cost savings to market size or revenue growth.
Implementing the ESRS E1 is a vital part of CSRD compliance. Here are some straightforward steps to help your team implement these requirements effectively:
Businesses are not required to report on all 94 topics described in the topical ESRS, only on those that are material, i.e. significant to their business.
Performing a Double Materiality Assessment helps you determine which topics are material and which are not. It’s the process of identifying and prioritizing the most significant ESG matters to report on.
It should be based on the principle of ‘double materiality’ meaning considering both impact materiality and financial materiality when identifying the material matters.
When conducting a materiality assessment for ESRS E1, there are three subtopics to consider:
Evaluates how a company identifies risks and opportunities presented by climate change and adjusts its operations, strategies, and investments to mitigate those risks and capitalize on opportunities.
Focuses on the actions a company takes to reduce its greenhouse gas emissions and its carbon footprint, aiming to contribute to the global effort to limit the effects of climate change.
Assesses a company's energy use, including the efficiency of its energy consumption and the extent to which it incorporates renewable energy sources into its operations, to reduce its environmental impact and improve sustainability.
Unsure where to begin? Download our free double materiality assessment guide that covers everything from the basics of double materiality to the specifics of how to document and report on your findings.
The ESRS E1 requires businesses to provide a detailed account of their climate transition plan. In a nutshell, this is a corporate action plan to achieve net zero emissions by 2050.
The key elements of a climate transition plan include:
This action plan should detail the specific steps your business will take to combat climate change, including:
Your action plan should include specific, measurable goals for reducing GHG emissions in line with the Paris Agreement and the EU’s goal of climate neutrality by 2050. Consider setting science-based targets to ensure they are ambitious yet achievable.
Monitor and report on your total energy consumption (both renewable and non-renewable sources) for transparency and to identify areas for improvement.
Under ESRS E1, businesses must follow the Greenhouse Gas (GHG) Protocol methodology and report on Scope 1, 2, and 3 emissions. These include:
If your business is affected by the CSRD, tackling the climate change topics under ESRS E1 can feel daunting and time-consuming.
This is where the right tools can make all the difference.
Climate change reporting software like Coolset is specifically designed to simplify the process for you. It streamlines data collection and analysis, provides actionable reduction recommendations, and generates reports automatically to accelerate your compliance journey.
Discover how Coolset can fast-track your CSRD compliance by requesting a free demo today.
Streamline data collection and reporting across the Double Materiality Assessment and ESRS topic disclosures.
Streamline data collection and reporting across the Double Materiality Assessment and ESRS topic disclosures.
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