ESRS E1

Understanding ESRS E1 and its role in corporate sustainability reporting

Corporate Sustainability Reporting Directive (CSRD) has marked a transformative step in the European Union’s approach to corporate sustainability, introducing extensive disclosure requirements to drive transparency and accountability. At its heart lies ESRS E1 Climate Change, a crucial topical standard focused on addressing climate change and energy impacts, risks and opportunities for undertakings. This (almost) mandatory standard requires organizations to disclose their climate-related impacts, risks, opportunities, and transition strategies, playing a pivotal role in supporting the EU’s ambitious goal of achieving net-zero emissions by 2050.

ESRS E1 provides a detailed framework for companies to report on their greenhouse gas (GHG) emissions, energy consumption, and strategies for climate change mitigation and adaptation. By delivering clear and reliable data, it equips stakeholders (especially investors and regulators) with insights into how organizations are managing climate risks and seizing opportunities in the energy transition, making them more agile and futureproof. However, the journey to compliance is not without challenges. Companies may face hurdles in gathering granular and high-quality data, particularly when tracking emissions across complex supply and value chains. Aligning internal processes with stringent EU requirements also demands considerable investment in technology and expertise to ensure that data is robust, verifiable, and seamlessly integrated into broader sustainability strategies. This article examines the nuances of ESRS E1, its objectives, and the practical implications for companies navigating this new reporting landscape. Beyond exploring the framework and its requirements, it also offers practical tips and insights to help organizations effectively implement ESRS E1, overcome familiar challenges, and align their reporting practices with the broader goals of the CSRD*.

All about E1 and its place in the CSRD and ESRS framework

What is ESRS E1 Climate Change?

ESRS E1  is a cornerstone of CSRD and the European Sustainability Reporting Standards (ESRS), the set of standardized reporting guidelines designed to guide companies in disclosing their ESG information in a comprehensive and comparable manner.

Cross-cutting standards, ESRS 1 and ESRS 2, provide the foundation for all sustainability reporting by outlining overarching principles such as governance structures, materiality assessments and transparency requirements. These ensure consistency and comparability across reports and are mandatory to report regardless the outcomes of the double materiality assessment, while topic-specific standards, like ESRS E1, address specialized sub-topics. In this case, environmental issues related to climate and energy. Together, they create a cohesive framework that allows companies to integrate climate-related disclosures into their overall sustainability strategy.

The cross-cutting approach enables businesses to see ESRS E1 not as an isolated requirement but as a crucial part of a comprehensive sustainability reporting process. By aligning climate and energy disclosures with broader governance and materiality principles. Organizations can provide stakeholders with transparent, reliable insights into their environmental impacts. ESRS E1’s specific focus on climate adaptation, mitigation and energy ensures that these critical areas are addressed with depth and precision, making it an indispensable tool for achieving the EU’s sustainability goals.

The three sub-topics of ESRS E1

At its core, topic-specific standard ESRS E1 is built on three main sub-topics: climate change adaptation, climate change mitigation, and energy.

Climate change adaptation

Climate change adaptation focuses on how organizations adjust their systems, processes and infrastructure to reduce vulnerability to the impacts of climate change. This involves strategies to cope with risks like rising sea levels, droughts, or extreme weather events. Companies must disclose how they are preparing for these challenges to ensure resilience in their operations.

Energy

Energy management addresses how organizations consume and manage energy sustainably. This includes reporting on energy consumption, intensity, reduction targets and the processes undertaken to achieve these goals. Given the direct link between energy use and climate change, this component ensures companies align their energy strategies with broader climate objectives.

By addressing these three components, ESRS E1 enables organizations to deliver comprehensive environmental disclosures while aligning with the CSRD’s vision for a sustainable, net-zero future.

Key disclosures of ESRS 1

To effectively comply with ESRS E1, organizations must understand how the disclosure requirements, sector agnostic (SBM-3, IRO-1, GOV-3) and topic-specific disclosures (E1-1 to E1-9) and their respective data points interconnect. Each sub-section within ESRS E1 is designed to ensure that companies comprehensively disclose their climate strategies, greenhouse gas emissions, and the financial impacts of climate initiatives, aligning with the CSRD’s overarching framework for sustainability reporting.

ID	Title	Description
ESRS 2 IRO-1	Description of the process to identify and assess material impacts, risks, and opportunities	Describe the process followed to recognize and assess the material climate-related impacts, risks (physical and transitional) and opportunities, included the climate-related scenario analysis.
ESRS 2 SBM-3	Material impacts, risks and opportunities and their interaction with strategy and business model	Gain an understanding on the material impacts, risks and opportunities, as a result of the conducted double materiality assessment, and on how these material IROs trigger adaptation of the undertaking’s strategy and business model.
ESRS 2 GOV-3	Integration of sustainability-related performance in incentive schemes	Provide an understanding on how and whether there is targeted climate-related performance in incentive schemes to the members of high governing bodies that are linked to climate matters.
ESRS E1-1	Transition plan for climate change mitigation	Enable an understanding of the undertaking’s past, current, and future mitigation efforts to ensure that its strategy and business model are compatible with the transition to a sustainable economy, and with the limiting of global warming to 1.5 °C, in line with the Paris Agreement ,and with the objective of achieving climate neutrality by 2050 and, where relevant, the undertaking’s exposure to coal, oil and gas-related activities
ESRS E1-2	Policies related to climate change mitigation and adaptation	Define all the adopted policies that aim to manage the climate change mitigation and adaptation IROs (e.g., supply chain policies, training policies, GHG management policies)
ESRS E1-3	Actions and resources in relation to climate change policies, metrics, and targets	Disclose its climate change mitigation and adaptation actions (e.g., use of renewable energy) and the resources allocated for their implementation (amount of required CapEx and OpEx).
ESRS E1-4	Targets related to climate change mitigation and adaptation	Enable an understanding of the targets the undertaking has set to support its climate change mitigation and adaptation policies and address its material climate-related IROs, including all the GHG emissions reduction targets, renewable energy deployment, energy efficiency, climate change adaptation, and physical or transition risk mitigation targets.
ESRS E1-5	Energy consumption and mix	Provide an understanding of the undertaking’s total energy consumption in absolute value, improvement in energy efficiency, exposure to coal, oil and gas-related activities, and the share of renewable energy in its overall energy mix.
ESRS E1-6	Gross Scopes 1, 2, 3 and Total GHG emissions	Recite quantitative information regarding its gross Scope 1 GHG emissions, gross Scope 2 GHG emissions, gross Scope 3 GHG emissions, and total GHG emissions in metric tons of CO2eq, as well as the GHG Intensity based on net revenue.
ESRS E1-7	GHG removals and GHG mitigation projects financed through carbon credits	Disclose among others GHG removals and storage in metric tons of CO2eq resulting from projects it may have developed in its own operations, or contributed to in its upstream and downstream value chain; and the amount of GHG emission reductions or removals from climate change mitigation projects outside its value chain it has financed or intends to finance through any purchase of carbon credits.
ESRS E1-8	Internal carbon pricing	Report on whether it applies internal carbon pricing schemes, and if so, how they support its decision making and incentivize the implementation of climate-related policies and targets including information on the type of internal carbon pricing scheme (e.g., CapEx shadow price, Research and Development (R&D) investment shadow price etc.).
ESRS E1-9	Anticipated financial effects from material physical and transition risks and potential climate-related opportunities	Uncover its anticipated financial effects from material physical risks because of the scenario analysis, anticipated financial effects from material transition risks, and potential to benefit from material climate-related opportunities.

The collection of these data points requires robust internal systems that support accurate data tracking and validation. Organizations must ensure effective cross-departmental collaboration to gather the necessary data on GHG emissions, energy usage, and climate strategies. Integrating this data with the company’s governance and strategic reporting as outlined by ESRS standards strengthens the transparency and reliability of climate disclosures.

Reporting on these components holistically solidifies an organization’s compliance with ESRS E1 and the broader CSRD. By systematically collecting and reporting essential data, companies demonstrate their commitment to sustainability, positioning themselves as responsible actors in the European market. This comprehensive approach not only meets regulatory requirements but also enhances a company’s reputation, appealing to stakeholders and investors who prioritize environmental responsibility.

Detangling ESRS E1 with Crowe Peak

ESRS E1 stands out as the most complex and demanding disclosure among all ESRS topics, a complexity clearly reflected in the detailed table above. With more than 200 data points spanning quantitative and qualitative data, as well as strategies, actions, targets, and monitoring, the framework is designed to drive organizations towards one overarching goal: climate neutrality. To navigate ESRS E1, organizations should adopt a strategic mindset, integrating climate change into their broader business strategy. The disclosures are designed to guide undertakings step-by-step towards achieving climate neutrality.

At Crowe Peak, we tackle ESRS E1 Climate Change compliance with the same rigor as any other business challenge. By applying a structured, strategy-driven approach. This process revolves around four key phases: evaluation and analysis, strategic planning, implementation, and ongoing performance monitoring. By treating sustainability goals as integral to business success, organizations can address ESRS E1 requirements effectively and with purpose.

• Evaluation and Analysis: As a first step, it is important for the undertaking to understand, on the one hand how climate change affects the company itself and, on the other hand, how the company affects its external environment. Therefore, it is crucial to identify the most material physical and transitional risks, opportunities, and impacts (ESRS-2 IRO-1) associated with the undertaking’s activities by leveraging stakeholder input at the same time. To complete this exercise, it is recommended to establish a baseline by assessing its current greenhouse gas emissions, energy use and dependencies on non-renewable resources (ESRS E1-5 and ESRS E1-6). After completing this first step, the undertaking would have a clear understanding of the climate-related factors impacting the business, laying the groundwork for setting informed targets and strategies in the following steps.

• Strategic planning: Following the current state evaluation, the undertaking should define climate-related goals that are simultaneously aligned with the overall business strategy. As a result, undertakings should adopt a structured transition plan (ESRS E1-1) with specific climate-related targets (ESRS E1-4) that include both climate mitigation and climate adaptation goals, to integrate them into the business model and strategy. At the same time, companies should establish targeted climate related policies (ESRS E1-2) to achieve the aforementioned goals and targets. All the abovementioned should take into consideration the financial effects of both physical and transition risks, as well as the financial benefits of opportunities (ESRS E1-9) to have a holistic overview of the integrated climate risks and opportunities. The outcome from this key step would be a structured climate-transition plan with measurable climate targets that would be embedded into the company’s mission, guiding both day-to-day operations and long-term growth.

• Implementation: After delineating a concrete strategic plan with actions, policies and targets, considering the financial effects and benefits, the undertakings would proceed with the implementation of the above mentioned. Those would be operationalized by launching efficient projects and investments, actions, and resources (ESRS E1-3) with targeted GHG removals and mitigation projects through carbon credits (ESRS E1-7). Among those actions, the undertakings could consider and leverage an (internal) carbon pricing scheme to drive this positive change (ESRS E1-8). The key goal of this step is to operationalize tangible actions and projects that would directly contribute to emissions reduction and resource efficiency, with climate consideration being strongly embedded into the business strategy.

• Performance monitoring: Ensuring transparency and accountability requires a continuous cycle of monitoring, evaluating, and refining climate-related performance. Organizations should regularly track their progress on climate-related KPIs, assess the effectiveness of their strategies, and incorporate feedback into their processes. By embedding sustainability-related performance into incentive schemes, as outlined in ESRS 2 GOV-3, companies can create a feedback loop that ties progress on climate goals directly to the remuneration of governing bodies. This iterative process reinforces accountability and drives ongoing alignment with sustainability objectives.  

Tips for diligent, efficient, and actionable ESRS E1 reporting

• Acknowledge the materiality of climate change: While the CSRD allows companies to omit certain topic-specific disclosures deemed non-material, ESRS E1 stands apart. Proving that climate change is non-material to your company would require extensive evidence, data, and studies subject to intense scrutiny by auditors. It is strongly advised to classify climate change as material during the double materiality assessment, as its universal relevance and cross-sectoral impact cannot be ignored. This approach aligns with the EU’s steadfast commitment to carbon neutrality and climate action.

• Transparency in absence of policies or targets: If your organization has not yet established specific actions, policies, transition plans, or measurable outcome-based targets in the initial reporting years, ESRS E1 requests from undertakings to simply acknowledge these gaps while specifying the anticipated timeline for adopting such measures. This proactive disclosure demonstrates intent and helps manage expectations from stakeholders.

• Leverage phase-in provisions for complex data points: The complexity of ESRS E1 reporting is recognized under CSRD, which provides phase-in provisions for specific data points:

1. E1-6 Scope 3 emissions: Organizations with fewer than 750 employees can opt out of reporting Scope 3 emissions and GHG emissions intensity in the first reporting year.
2. E1-9 Anticipated financial effects from material physical and transition risks and potential climate-related opportunities: All undertakings may omit the information described in this disclosure for the first year of reporting. Moreover, for the first three years of reporting, the undertaking would be able to comply with the disclosure by only providing qualitative information if the preparation of quantitative information is not feasible.

ESRS software

Complying with ESRS E1 and other sustainability reporting requirements involves significant complexity, making the use of specialized software essential. Modern ESG and compliance software solutions enable organizations to efficiently manage the extensive amount of data needed for comprehensive reporting. These platforms are designed to collect, manage, and consolidate data from various sources, seamlessly integrating it into the organization’s reporting processes to ensure consistency and accuracy.

Advanced software tools offer features that streamline data collection and validation while supporting integration across departments. This simplifies the organization and consolidation of multiple data points, significantly reducing the administrative burden of reporting processes. By automating workflows and providing visibility into the aggregated data, these tools support a reliable and structured approach to reporting. Such solutions help organizations align their reporting with ESRS guidelines and related reporting standards, enhancing transparency and reliability. Leveraging specialized software allows companies to present their sustainability efforts more clearly and meet ESRS requirements with greater efficiency.

*Disclaimer: The content of this article is based on the current version of ESRS E1 as adopted by the European Commission in 2022. However, due to the Commission’s ongoing efforts to simplify and streamline the ESRS Standard, including changes expected from EFRAG in the coming years. Readers are advised to consult the latest official guidance and delegated acts when preparing for compliance.

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