The Corporate Sustainability Reporting Directive (CSRD) marks a major turning point in extra-financial communication in Europe. For the first time, it mandates a rigorous standardization of the information to be published. At the heart of this regulation are the European Sustainability Reporting Standards (ESRS), which are thematic standards that guide companies in their disclosures. ESRS E1, specifically dedicated to climate change, is undoubtedly one of the most crucial and demanding of these standards. It requires a holistic approach to climate impact, extending far beyond a simple carbon footprint to encompass transition strategies, risk management, and energy performance. Understanding and complying with the ESRS E1 standard is a complex challenge, but it's also a strategic opportunity for companies to strengthen their resilience and align with the goals of the Paris Agreement.
To learn more about the implications of the CSRD, you can read our dedicated article: CSRD 2025 Definition: Understanding Non-Financial Reporting for EU Companies.
Context and Objectives of ESRS E1 - Climate Change
The ESRS are the new European reporting standards contained in the delegated act adopted by the European Commission in July 2023. They are part of the CSRD framework to ensure that companies report reliable, comparable, and relevant sustainability information. ESRS E1, as a thematic standard, specifically covers the issue of climate change, focusing on three essential sub-topics: climate change adaptation, mitigation (through emissions reduction), and energy.
The primary objective of the ESRS E1 standard is to allow users of sustainability reports (investors, regulators, the general public) to understand several key aspects :
- How the company affects the climate, in terms of positive and negative, actual, and potential impacts.
- The company's past, present, and future efforts to limit global warming to 1.5°C, in line with the Paris Agreement.
- The company's plans and ability to adapt its strategy and business models to the transition to a sustainable economy.
- The nature and extent of material risks and opportunities arising from the company's impacts and dependencies related to climate change.
A central concept of this approach is double materiality, which is the foundation of the CSRD. Under this principle, a company must report on topics that are significant from two perspectives:
- Impact materiality: The company's impacts on the environment and society, whether positive or negative.
- Financial materiality: How sustainability issues, such as climate change, create risks and opportunities that affect the company's financial value .
ESRS E1 specifies that all information in this standard is considered "material by default". If a company concludes that climate change is not a material issue, it must provide a detailed and well-supported explanation for this conclusion, including a forward-looking analysis of the conditions that could make it material in the future.
Structure and Content of the ESRS E1 Standard
The ESRS E1 standard is broken down into nine specific Disclosure Requirements (DR), which structure the reporting and ensure the granularity and completeness of the information.These requirements cover the entire lifecycle of corporate climate management:
- E1-1: Transition plan for climate change mitigation. The company must disclose its transition plan, which must be compatible with the goal of limiting warming to 1.5°C and achieving climate neutrality by 2050.
- E1-2: Policies related to climate change mitigation and adaptation. This requires describing the policies put in place to manage climate-related impacts, risks, and opportunities.
- E1-3: Actions and resources related to climate policies. The company must detail the concrete actions and financial resources (OpEx, CapEx) allocated to implementing its climate policies.
- E1-4: Targets related to climate change mitigation and adaptation. The company must set quantifiable targets for GHG emissions reduction, energy efficiency, use of renewable energy, etc.
- E1-5: Energy consumption and energy mix. This requirement mandates the disclosure of total energy consumption, the share of renewable energy, and exposure to activities related to coal, oil, and gas.
- E1-6: Gross Scope 1, 2, 3 emissions and total GHG emissions. This is the core of climate reporting, where the company must quantify its total carbon footprint.
- E1-7: GHG removal projects and mitigation financed by carbon credits. Companies must detail their GHG removal actions and the quality of the carbon credits they purchase or plan to purchase on the voluntary market.
- E1-8: Internal carbon pricing. This requirement focuses on the potential application of an internal carbon pricing mechanism to guide decisions and incentivize the implementation of climate policies.
- E1-9: Anticipated financial effects of material risks and opportunities. The company must anticipate the financial impacts of physical risks (e.g., floods) and transition risks (e.g., new regulations) related to the climate.
Scope 1, 2, and 3 Greenhouse Gas Emissions
One of the most substantial requirements of the ESRS E1 standard is the disclosure of greenhouse gas (GHG) emissions according to the three scopes defined by the GHG Protocol. The protocol is an internationally recognized accounting standard, which ESRS E1 directly adopts and integrates GHG Protocol.
- Scope 1: Direct emissions. These come from sources that are owned or controlled by the company. This includes stationary combustion (boilers), mobile combustion (company vehicles), industrial process emissions, and fugitive emissions.
- Scope 2: Indirect energy emissions. These emissions are associated with purchased electricity, steam, heat, or cooling consumed by the company . ESRS E1 requires the disclosure of these emissions using both the "location-based" method (based on the grid's energy mix) and the "market-based" method (based on energy purchase contracts).
- Scope 3: Other indirect emissions. These cover all emissions in the company's value chain, both upstream and downstream. For many companies, Scope 3 emissions represent the largest part of their GHG inventory and are a significant driver of transition risks. The CSRD is the first European regulation to make Scope 3 reporting mandatory, which is a major challenge in data collection.
Operational Implementation Process for ESRS E1
Implementing the ESRS E1 standard is a process that requires a structured approach and the mobilization of internal resources. To succeed in CSRD reporting, companies must follow several key steps:
- Double materiality assessment and gap analysis. The first step is to conduct a double materiality analysis to identify relevant climate topics for the company. It is crucial to evaluate the company's impacts on the climate (impact materiality) as well as the impacts of climate change on its business (financial materiality) . Then, a gap analysis will compare existing data and processes with the requirements of ESRS E1 to identify shortcomings.
- Establish a robust data collection process. It is necessary to identify data sources (suppliers, accounting, operational data) and define roles and responsibilities to ensure continuous and reliable collection.
- Conduct a carbon footprint assessment and define a decarbonization trajectory. The carbon footprint allows for the calculation of GHG emissions and the establishment of a baseline year . This assessment will serve as the basis for defining a decarbonization strategy and an action plan aligned with a 1.5°C scenario.
- Establish an action plan and financial estimates. The action plan must detail emissions reduction measures, key performance indicators (KPIs), expected results, and the implementation timeline.
Recommended Tools and Methodologies
For the implementation of the ESRS E1 standard, companies can rely on proven methodologies and tools that simplify the process and ensure data quality.
- Carbon accounting methodologies: The GHG Protocol is the essential reference for quantifying GHG emissions across all three scopes. ESRS E1 refers directly to it for the calculation method GHG Protocol. The use of specialized software tools and platforms for carbon accounting can greatly facilitate the collection, calculation, and reporting of GHG data, ensuring traceability, auditability, and compliance.
- Transition plan and scenarios: The Science Based Targets initiative (SBTi) is a key methodology for setting emissions reduction targets aligned with scientific data and the Paris Agreement . ESRS E1 requires companies to justify the alignment of their targets with the 1.5°C trajectory, and validation by SBTi is proof of credibility.
Given these challenges in collecting and managing complex data, technological solutions are essential. This is where tools like ClimateSeed's GEMS software suite come in, offering a centralized platform to automate data collection, calculate the carbon footprint (scopes 1, 2, and 3), and track action plans. In addition to technology, ClimateSeed's specialized consulting services can guide companies in their double materiality approach, support them in defining a decarbonization strategy aligned with the goals of the Paris Agreement, and help them identify high-quality carbon offsetting projects for the "removals" part required by ESRS E1-7.
Challenges, Issues, and Best Practices
The implementation of the ESRS E1 standard presents both challenges and strategic opportunities for companies.
Challenges
- Data collection: The main challenge lies in data collection, especially for Scope 3, which covers the entire value chain. Companies must establish robust systems to collect reliable information from their suppliers, partners, and customers.
- Internal skills: Climate reporting requires specific skills in carbon accounting, risk analysis, and strategic planning.
- Limited assurance: The CSRD mandates limited assurance of the published information, which means the data must be accurate, auditable, and based on solid internal controls.
Best practices
- Anticipate: It's crucial to start preparing well in advance of deadlines to set up the necessary data collection systems and processes.
- Adopt strong governance: Involving the board of directors and senior management is essential to ensure that the climate transition plan is integrated into the company's overall strategy.
- Use the right tools: Equipping yourself with a dedicated technology platform facilitates the automation of calculations and data consolidation, thereby reducing errors and working time.
- Engage the value chain: Working with suppliers to help them calculate their own emissions not only provides more accurate data but also strengthens the resilience of the entire chain.
Outlook and Future Developments
The ESRS standards and the CSRD framework are designed to evolve. The European Commission has announced several initiatives, including the "Omnibus packages," to simplify and streamline reporting requirements. Although the first Omnibus package postponed certain deadlines for SMEs, the ambition for climate reporting remains strong. ESRS E1, in particular, is not expected to change much in substance, as it contains most of the quantitative indicators deemed essential.
Companies must therefore prepare for increasingly demanding sustainability reporting. Alignment with ESRS E1 is not just a matter of regulatory compliance; it is also a lever for long-term value creation. By equipping themselves with the right tools and adopting a proactive approach, companies can transform what is perceived as a constraint into a competitive advantage, improving transparency, risk management, and their attractiveness to investors and talent.
At ClimateSeed, we are aware of the challenges posed by the ESRS E1 standard. That's why we have developed a suite of solutions to help companies comply with these new requirements. Our GEMS software centralizes and automates the collection of GHG data for Scopes 1, 2, and 3, simplifying the calculation and reporting process. Furthermore, our team of expert consultants assists companies in defining their decarbonization strategy and identifying high-quality carbon credit projects for the mitigation portion. Contact us to find out how we can become your partner in this climate transition.
