Corporate transparency is now a must-have, driven by regulatory pressures and stakeholder demands underscored by the European Green Deal and the Corporate Sustainability Reporting Directive (CSRD).
ESRS E1 is crucial in this push, holding corporations accountable for their climate actions. It aligns with the European Union's (EU) net-zero target by 2050, requiring companies to disclose their climate impacts and contribute to the EU's sustainability goals.
The objective of ESRS E1 is clear: to set standards for reporting on climate-related impacts, risks, and opportunities. This standard guides companies in communicating their efforts, from greenhouse gas (GHG) emissions accounting to climate risk management, ultimately contributing to the EU's climate neutrality goals and fulfilling the requirements set by the CSRD.
What is the ESRS E1?
The ESRS E1 specifically focuses on climate change and outlines the disclosure requirements for companies to report on their climate-related impacts, risks, and opportunities. Its goal is to ensure that businesses provide transparent, consistent, and comparable information on their climate-related performance to stakeholders, such as investors, regulators, and the public.
The standard addresses both the impact of climate change on businesses and businesses' impact on climate change, focusing on two key aspects:
- Mitigation of greenhouse gas (GHG) emissions (Scope 1, Scope 2, and Scope 3).
- Adaptation to the physical and transition risks of climate change.
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Credit: Plan A
The ESRS is a comprehensive set of reporting requirements designed to help companies disclose their sustainability impacts and strategies in alignment with the EU's CSRD.
Disclosure areas
ESRS E1 demands transparent disclosure on several critical aspects of corporate climate strategy:
- Policies, actions, and targets: Companies must disclose their climate policies, targets, and specific actions to mitigate and adapt to climate change. This includes initiatives around energy efficiency, renewable energy adoption, and decarbonisation levers.
- Climate risk management: Businesses are expected to assess their climate-related risks—physical or transitional—and describe how they manage them through adaptation and resilience strategies.
- GHG emissions (Scope 1, 2, 3): Transparent accounting for greenhouse gas emissions across all scopes is required, aligned with the GHG Protocol. Companies need to detail their gross emissions, carbon removals, and the financial impacts of these emissions.
Double materiality concept
ESRS E1 integrates the idea of double materiality, which considers both the financial impacts of climate on the company and the company’s impact on the environment. This dual perspective ensures businesses provide a holistic account of their climate footprint, making sustainability reporting more comprehensive and aligned with CSRD expectations.
Linkage with other reporting frameworks
The ESRS E1 closely aligns with established frameworks for emissions calculations, such as the GHG Protocol, and encourages alignment with the Science-Based Targets initiative (SBTi). This harmonisation ensures consistency across various reporting standards, making disclosures more comparable and reliable.
Recurring challenges businesses face with CSRD reporting
Successfully navigating these challenges requires focused efforts on data quality, collaboration, and methodological rigour.
Data collection and reporting: Collecting reliable data for Scope 3 emissions is particularly challenging due to the need for extensive collaboration with value chain partners. The complexity often leads companies to rely on models or proxies, which can impact data quality. Plan A's carbon management platform helps address this challenge by streamlining data collection and providing accurate emissions measurements, making it easier for companies to gather high-quality data.
Materiality assessments: Conducting a thorough materiality assessment is another challenge, as it involves identifying relevant climate-related risks and opportunities throughout diverse and complex value chains. The double materiality principle demands rigorous methodologies, which can be resource-intensive.
Alignment with EU taxonomy: Ensuring climate disclosures align with the EU Taxonomy's definition of sustainable activities is also complex. Companies must integrate their financial and environmental disclosures seamlessly to meet taxonomy requirements, which involves significant organisational coordination.
Business opportunities provided by ESRS E1
These opportunities highlight how ESRS E1 supports compliance and drives strategic value for companies.
Improved risk management: By requiring companies to assess physical and transitional climate risks, ESRS E1 enables better integration of climate considerations into overall risk management. This resilience planning supports companies in anticipating and mitigating climate-related disruptions.
Strategic advantages: ESRS E1 also offers companies a competitive edge by showcasing their commitment to sustainability. Organisations that align with ESRS E1 are positioned as leaders in transitioning to a low-carbon economy, which can enhance their brand value and attract sustainability-conscious investors.
Investor confidence: Transparency and standardised disclosures under ESRS E1 foster greater investor confidence. By providing a clear account of climate-related risks, targets, and policies, companies can attract investors who prioritise sustainability, thus ensuring a robust investment base for the future.
Let’s dive into the concrete steps to go through.
Best practices for companies to implement ESRS E1
Adopting these best practices ensures companies can effectively meet ESRS E1 requirements while maximising sustainability performance.
These practices are essential for aligning with ESRS E1 requirements, building resilience, and maintaining stakeholder trust.
CSRD reporting software is being leveraged to simplify compliance. CSRD reporting software is being leveraged. Plan A’s CSRD Manager provides a structured approach to CSRD and ESRS E1 reporting, guiding companies through all the steps, including streamlined data collection, accurate emissions calculations, and timely disclosures.
Future implications of the ESRS E1
The evolving nature of ESRS E1 presents challenges and opportunities for companies to stay ahead of sustainability requirements.
Evolving standards
ESRS standards are expected to evolve in line with advancing climate science. This will lead to more detailed disclosure requirements and potentially sector-specific standards, ensuring the relevance and rigour of climate disclosures as new insights emerge.
Impact on stakeholders
Corporate entities must significantly bolster their climate strategies and data collection capabilities. Investors will benefit from enhanced visibility into companies’ climate risks, while policymakers will gain better insights for regulatory oversight. For communities and consumers, transparency under ESRS E1 will foster greater accountability and trust in corporate actions.
The future development of ESRS E1 is poised to transform corporate sustainability reporting, creating a transparent, accountable, and resilient path towards the EU’s net-zero vision by 2050.
As businesses look to adapt, leveraging the right tools can make all the difference. Plan A provides a certified carbon management platform to navigate these evolving requirements.
Ready to see how Plan A can help your company meet these challenges? Schedule a call today.
