How to interpret ESRS E1: Climate change (Updated Feb 2025)

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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 71,000 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.

What is ESRS E1 exactly?

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 importance of ESRS E1 for 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.

Climate change reporting within the CSRD framework

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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The 9 ESRS E1 Disclosure Requirements 

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:

General disclosures

E1-1 Transition plan for climate change mitigation 

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. 

The disclosure should provide stakeholders with a clear understanding of the company's past, present, and future mitigation efforts, and how these efforts are integrated into its overall strategy and business model.

Companies must therefore disclose the following information:

Transition plan:

• The company must disclose its transition plan for climate change mitigation if it has one. This plan should be detailed and reflect how the company intends to transition towards a sustainable economy.

Absence of a transition plan:

• If the company does not yet have a transition plan, it must disclose this and indicate when it plans to adopt one.

GHG emission reduction targets:

• The disclosure should explain how the company's greenhouse gas (GHG) emission reduction targets align with the goal of limiting global warming to 1.5°C. This should reference the targets outlined in Disclosure Requirement E1-4.

Decarbonisation levers and actions:

• The company must explain the decarbonisation strategies (levers) it plans to use, along with key actions for mitigating climate change. This includes changes in the company’s product and service offerings, adoption of new technologies, and impacts on the upstream and downstream value chains. These explanations should reference the GHG reduction targets (E1-4) and mitigation actions (E1-3).

Investments and funding:

• The company should quantify and explain its investments and funding directed towards implementing the transition plan. This includes references to key performance indicators like taxonomy-aligned CapEx and other relevant CapEx plans as disclosed under Commission Delegated Regulation (EU) 2021/2178.

Assessment of locked-in emissions:

• A qualitative assessment should be provided for potential locked-in GHG emissions from key assets and products. The disclosure must include how these emissions may affect the achievement of GHG reduction targets and the management of GHG-intensive assets and products.

Alignment with taxonomy regulations:

• For companies involved in economic activities under the EU Taxonomy Regulation, there should be an explanation of plans to align these activities (revenue, CapEx, OpEx) with the technical screening criteria established in Commission Delegated Regulation 2021/2139.

CapEx related to fossil fuels:

• The disclosure should detail any significant CapEx investments during the reporting period that are related to coal, oil, and gas activities, particularly those outlined by specific NACE codes (e.g., mining of coal, extraction of crude petroleum, etc.).

EU Paris-aligned benchmarks:

• A statement on whether the company is excluded from the EU Paris-aligned Benchmarks must be included.

Integration with business strategy:

• The disclosure should explain how the transition plan is embedded within the company’s overall business strategy and financial planning.

Approval and implementation progress:

• The company must disclose whether its transition plan is approved by the administrative, management, and supervisory bodies. Additionally, it should provide an explanation of the progress made in implementing the transition plan.

Impact, Risk, and Opportunity Management:

• The company must explain whether each identified material climate-related risk is considered a physical or transition risk. Additionally, the resilience of its strategy and business model in relation to climate change should be described, including the use of scenario analysis.
• The process used to identify and assess climate-related impacts, risks, and opportunities should also be detailed, covering both physical risks (like climate hazards) and transition risks (like policy changes).
• The disclosure should explain how climate-related scenario analysis has been used to inform these assessments, including the time horizons considered (short-, medium-, long-term).

E1-2 Policies related to climate change mitigation and adaptation

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.

Companies must, at least, disclose: 

General Disclosure:

• The company must describe its policies designed to manage its material climate change impacts, risks, and opportunities. These policies should address the identification, assessment, management, and/or remediation of these material issues.

Policies:

• The disclosure should include detailed information on the policies in place that focus on managing material climate change impacts, risks, and opportunities, in line with the principles outlined in ESRS 2 MDR-P ("Policies adopted to manage material sustainability matters").

• The company must indicate whether and how its policies cover the following areas:some text
  • Climate change mitigation: Policies focused on reducing the company’s contribution to climate change, typically through lowering greenhouse gas emissions.
  • Climate change adaptation: Policies aimed at adjusting the company’s operations to mitigate the effects of climate change.
  • Energy efficiency: Policies that enhance the efficiency of energy use within the company’s operations.
  • Renewable energy deployment: Policies supporting the transition to renewable energy sources within the company’s energy mix.

Other relevant areas: Any additional policies related to climate change not covered by the above categories.

E1-3 Actions and resources in relation to climate change policies

Businesses must disclose the key actions planned and resources allocated to achieve their climate-related policy objectives and targets.

Companies should therefore disclose: 

General Disclosure:

• The company must disclose its climate change mitigation and adaptation actions, along with the resources allocated to implement these actions.

Actions and resources overview:

• The disclosure should include both the actions taken during the reporting year and those planned for the future. This should specifically highlight climate change mitigation actions using decarbonisation levers, including nature-based solutions.

Outcome and impact of actions:

• When describing the outcomes of these actions, the company should include the achieved and expected greenhouse gas (GHG) emission reductions.

Financial implications:

• Companies must relate significant monetary amounts of capital expenditures (CapEx) and operational expenditures (OpEx) required to implement these actions to:some text
  • The relevant line items or notes in the financial statements.
  • The key performance indicators required under Commission Delegated Regulation (EU) 2021/2178.
  • If applicable, the CapEx plan required by Commission Delegated Regulation (EU) 2021/2178.

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Metrics and targets

E1-4 Targets related to climate change mitigation and adaptation

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.

Specifically, companies must disclose: 

General Disclosure:

• The company must disclose the climate-related targets it has set, providing details on how these targets align with its mitigation and adaptation strategies.
• The disclosure should include targets related to greenhouse gas (GHG) emissions reduction as well as any other relevant targets to manage material climate-related impacts, risks, and opportunities. Examples of such targets include renewable energy deployment, energy efficiency, climate change adaptation, and managing physical or transition risks.

GHG Emission reduction targets (If applicable):

• Absolute and intensity targets: GHG emission reduction targets should be disclosed in absolute terms (e.g., in tonnes of CO2 equivalent) or as a percentage relative to a base year’s emissions.
• Scope 1, 2, and 3 emissions: Targets should cover Scope 1, 2, and 3 GHG emissions, specifying the scope, the share related to each scope, and which GHGs are covered by these targets. The company must also explain how the consistency of these targets with its GHG inventory boundaries is ensured.
• Base year disclosure: The current base year and baseline value must be disclosed, with updates every five years starting from 2030. The company may also disclose past progress against these targets before the current base year.
• Exclusions: Targets should be gross, meaning they should not include GHG removals, carbon credits, or avoided emissions as means of achieving them.

Target timeframes:

• Targets must include at least values for the years 2030 and, if available, for 2050. After 2030, targets should be set for every subsequent five-year period.

Science-based targets:

• The company should state whether the targets are science-based and aligned with the goal of limiting global warming to 1.5°C. This includes describing the framework, methodology, and underlying climate and policy scenarios used to set the targets. Companies should also explain whether these targets have been externally assured.

Decarbonisation Levers:

• The company must describe the expected decarbonisation levers and their contributions to achieving the targets. Examples include energy efficiency, consumption reduction, fuel switching, increased use of renewable energy, and process optimization.

E1-5 Energy consumption and mix

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.

Specifically, companies must disclose:

Total energy consumption and disaggregation:

• Companies must report their total energy consumption in megawatt hours (MWh), breaking it down by energy sources such as fossil fuels (coal, oil, gas), nuclear energy, and renewable sources like solar, wind, hydro, geothermal, and biomass.

Energy mix and sector-specific details:

• They should also disclose the percentage share of each energy source within their overall energy mix. For those in high climate impact sectors, a further breakdown of the energy derived from specific fossil fuels (e.g., coal, oil, gas) is required to highlight the degree of reliance on high-carbon sources.

Energy efficiency and exposure to fossil fuels:

• The undertaking should describe any energy efficiency improvements achieved during the reporting period, quantifying these improvements where possible. Alongside this, they need to provide context on their exposure to fossil fuels, detailing the reliance on these high-carbon energy sources within their energy mix.

Renewable energy usage:

• Companies must report the proportion of their energy consumption that comes from renewable sources, detailing any initiatives or steps taken to increase this share over time, in alignment with climate-related goals.

Energy intensity based on net revenue

E1-6 Gross Scopes 1, 2, 3 and Total GHG emissions

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.

Specifically, companies must disclose:

Scope 3 categories and exclusions: 

• Companies are required to disclose a list of Scope 3 GHG emissions categories that are included in their inventory. Additionally, they must justify any categories that are excluded from this inventory​.

Biogenic emissions: 

• Companies should separately disclose biogenic emissions of CO2 from biomass combustion or biodegradation that occurs in their upstream and downstream value chain. This includes other GHG emissions (such as CH4 and N2O) that occur during the biomass lifecycle, except those from combustion or biodegradation​.

Exclusion of carbon credits: 

• The calculation of Scope 3 GHG emissions must not include any removals, purchased, sold, or transferred carbon credits or GHG allowances​.

Calculation methodology: 

• The total GHG emissions are to be calculated using a specified formula that aggregates Gross Scope 1, Gross Scope 2, and Gross Scope 3 emissions. The reporting should distinguish between emissions derived from the location-based and market-based methods applied while measuring underlying Scope 2 emissions​.

Disaggregation: 

• Companies should disaggregate their total GHG emissions by Scopes 1, 2, and significant Scope 3 categories. The disaggregation could be by country, operating segments, or other relevant criteria.

GHG intensity based on net revenue

E1-7 GHG removals and GHG mitigation projects financed through carbon credits

The objective of this disclosure requirement is twofold: Businesses must disclose GHG removals and storage from their operations and value chains in metric tonnes of CO2eq, detailing removal activities and calculation methods.

On the other hand, 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.

More specifically, companies should report on the following data points:

GHG removals and storage:

• The reporting company must disclose the total amount of GHG removals and storage in metric tons of CO2 equivalent (CO2eq) from projects it has developed in its own operations or contributed to within its upstream and downstream value chains.
• The disclosure should break down the total GHG removals into those directly related to the entity’s own operations and those occurring in its value chain, categorized by the specific removal activity involved.
• Additionally, the entity must describe the calculation methods, assumptions, and frameworks it used.

GHG mitigation projects financed through carbon credits:

• Entities are required to disclose the total amount of GHG emission reductions or removals, in metric tonnes of CO2eq, achieved through financing climate change mitigation projects outside their value chain via carbon credits.
• This disclosure should differentiate between carbon credits already verified and canceled in the reporting period, and those that are planned to be canceled in the future, whether based on existing contracts or not.

Carbon credits classification:

• Entities should disaggregate carbon credits based on several factors including the type of project (reduction or removal), the nature of the removal (biogenic or technological), quality standards, and geographical origin within the EU.

Avoidance of double counting:

• The entity must ensure that carbon credits used to finance GHG reductions are not double-counted. This means credits from projects within the value chain should not be included in GHG emissions disclosures under other requirements (e.g., Scope 2 or Scope 3 emissions).

Reversals:

• Any reversal of GHG removals must be accounted for as an offset against the removals reported during the relevant period.

E1-8 Internal carbon pricing

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.

The required information includes:

Type of internal carbon pricing scheme:

• This could include shadow prices applied for capital expenditures (CapEx) or research and development (R&D) investment decision-making, internal carbon fees, or internal carbon funds.

Scope of application:

• The specific activities, geographies, entities, etc., where the carbon pricing schemes are applied.

Carbon prices applied:

• Details about the carbon prices used according to the type of scheme, along with the critical assumptions made to determine these prices. This includes the source of the applied carbon prices and the rationale behind their relevance for the chosen application.
• The calculation methodology of the carbon prices may be disclosed, including the extent to which they are based on scientific guidance and how their future development aligns with science-based carbon pricing trajectories.

Emission volumes covered:

• The approximate gross GHG emission volumes covered by these schemes for the current year, disaggregated by Scopes 1, 2, and where applicable, Scope 3, expressed in metric tons of CO2eq.
• The share of these emissions relative to the undertaking's overall GHG emissions for each respective Scope.

Additionally, the undertaking must explain whether and how the carbon prices used in these internal pricing schemes are consistent with those used in financial statements, especially concerning asset valuation and impairment assessments

E1-9 Potential financial effects from material physical and transition risks and potential climate-related opportunities

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.

Specifically, companies must disclose: 

‍Anticipated financial effects from material physical risks:

• Companies must disclose the monetary amount and proportion of assets at material physical risk over short-, medium-, and long-term periods, before and after taking adaptation measures.
• This includes a breakdown of risks into acute and chronic physical risks.
• The location of significant assets and the monetary amount of net revenue from activities at risk are also required.

Anticipated financial effects from material transition risks:

• Disclosure should include the monetary amount and proportion of assets at risk due to transition factors before mitigation actions.
• Companies must also report the proportion of these assets that are addressed by climate change mitigation efforts.

Climate-related opportunities:

• Disclosures should explain how companies might financially benefit from climate-related opportunities.

Practical steps for implementing ESRS E1 Disclosure Requirements

Implementing the ESRS E1 is a vital part of CSRD compliance. Here are some straightforward steps to help your team implement these requirements effectively:

1. Conduct a materiality assessment

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:

Sub-topic 1: Climate change adaptation

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.

Sub-topic 2: Climate change mitigation

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.

Sub-topic 3: Energy

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.

2. Tackle key elements in the transition plan

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:

• Establishing science-based climate targets.
• Identifying and implementing decarbonization measures with quantifiable reduction goals.
• Securing financing for decarbonization initiatives.
• Embedding the transition plan in your overall business strategy and financial planning.
• Obtaining approval from the board.
• Aligning the plan with climate risk management and integrating into the governance framework.

3. Create an action plan guiding climate change

This action plan should detail the specific steps your business will take to combat climate change, including:

• Implementing sustainable practices: Whether it's reducing waste, improving energy efficiency, or sourcing sustainable materials, outline the practical actions you plan to take.
• Stakeholder engagement: Describe how you will involve employees, customers, suppliers, and the wider community in your sustainability efforts.

4. Set clear goals for GHG reduction or removal

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.

5. Track and disclose total energy usage

Monitor and report on your total energy consumption (both renewable and non-renewable sources) for transparency and to identify areas for improvement.

6. Report GHG emissions across all three scopes

Under ESRS E1, businesses must follow the Greenhouse Gas (GHG) Protocol methodology and report on Scope 1, 2, and 3 emissions. These include:

• Scope 1: Direct emissions from owned or controlled sources.
• Scope 2: Indirect emissions from the generation of purchased energy.
• Scope 3: All other indirect emissions that occur in the value chain including both upstream and downstream business activities.

Select the right software for climate change reporting

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.