ESRS E1 Climate change – requirements explained

01

What ESRS E1 is about

ESRS E1 is guided by the 1.5 °C goal of the Paris Agreement and by the European Climate Law, which provides for climate neutrality by 2050 and, as an intermediate target, a 90% cut in net emissions by 2040 compared with 1990. It complements ESRS 2: strategy, governance and the materiality process are covered there, the climate-specific disclosures here. From this, users of the sustainability statement should see where the company stands against the 1.5 °C goal and how it intends to get there: with metrics on energy consumption and emissions, reduction targets, the transition plan and the actions to reduce emissions, as well as the climate-related risks and the resilience of the strategy.

02

The 11 disclosure requirements at a glance

The disclosure requirements answer three questions: How is the company’s strategy aligned with climate change (E1-1 to E1-3)? How does it manage mitigation and adaptation (E1-4 and E1-5)? And how can progress and financial consequences be measured (E1-6 to E1-11)?

• E1-1 Transition plan: how the company intends to align its strategy and business model with the 1.5 °C goal: with which targets, levers, actions and investments, who approved the plan, which assumptions it rests on, which existing assets and products may put it at risk, and how far implementation has progressed. If the key features such as targets, levers, actions, investments and approval are missing, the plan counts as not in place. If there is no plan, the company must disclose this and state whether and, if so, when it expects to adopt one
• E1-2 Identification of climate-related risks: how the company identifies and assesses climate-related risks and whether they are physical risks or transition risks. Scenario analysis is not mandatory for this; if it is used, it must be described
• E1-3 Climate resilience: how well strategy and business model are prepared for the identified risks, how the company can respond to them, and where the assessment is uncertain
• E1-4 Policies: the policies on climate change mitigation and adaptation, for example on energy, procurement or the vehicle fleet. They show how the company manages the topic, even if it does not yet have a complete transition plan. If it has one, the plan refers to the policies
• E1-5 Actions and resources: which actions the company takes and plans, which resources it allocates to them, and how much emission reduction each decarbonisation lever delivers
• E1-6 Climate targets: which reduction targets the company has set and whether they are science-based and compatible with 1.5 °C
• E1-7 Energy consumption and mix: how much energy the company consumes and how much of it comes from fossil, nuclear and renewable sources. A company that generates energy itself also shows how much of it is renewable
• E1-8 Greenhouse gas emissions: the greenhouse gas inventory with scope 1, 2 and 3, the core of the standard
• E1-9 Removals and carbon credits: whether the company removes greenhouse gases from the atmosphere, itself or in its value chain, or finances climate projects through carbon credits, and how it ensures their quality
• E1-10 Internal carbon pricing: whether and how an internal carbon price influences decisions, for example on investments, and at what level
• E1-11 Financial effects: which assets and revenues are exposed to climate-related risks, which liabilities may arise and which opportunities emerge, each valued in money where possible

03

Greenhouse gas inventory: what differs under the ESRS from the GHG Protocol

The greenhouse gas inventory under E1-8 builds on the GHG Protocol. Where the two differ, the ESRS prevail. The main differences:

• Reporting boundary: the ESRS link to the consolidated financial statements and name financial control as the default; the equity share or operational control approach is allowed as an alternative. Important: the control approach determines where emissions are recorded, not whether. What does not fall into scope 1 and 2 belongs in the screening of the scope 3 categories, for example category 15 investments. Take care with associates and joint ventures: under the ESRS, investments, including holdings in associates and joint ventures, are treated as business relationships. For joint ventures under joint financial control the assignment is not clear-cut, however; it depends on the disclosed approach. Here the two standards can differ. The share in joint operations, by contrast, counts as own operations. Emissions from leased assets are reported by the lessee in its own operations and by the lessor in its downstream value chain
• Additional disclosures: the share of scope 1 emissions from the EU Emissions Trading System, the split of scope 1 and 2 into the consolidated accounting group and other emissions, and, where relevant, cloud and data centres as a subset of scope 3 category 1
• Required by the GHG Protocol, not named in the ESRS: from 2027, the GHG Protocol requires the Land Sector and Removals Standard (LSRS) from companies that report in conformance with the GHG Protocol and have significant land-sector activities or report CO2 removals. The ESRS do not refer to the LSRS
• Open: the ESRS refer to specific editions of the GHG Protocol (Corporate Standard 2004, Scope 3 Standard 2011, Scope 2 Guidance 2015). The GHG Protocol is currently revising its standards, for example on scope 2. How the ESRS will respond is open

04

Targets, credits and removals

The ESRS clearly separate reduction from offsetting:

• Reduction targets are gross targets: removals, carbon credits and avoided emissions do not count towards them. They are calculated with the same reporting boundary as the greenhouse gas inventory and are also stated in absolute values, even if there is only an intensity target. If a target covers only part of the boundary, the share covered per scope must be disclosed
• Removals and credits are reported separately: removal projects in own operations and in the value chain with amount and permanence, purchased credits with amount, share from removal projects and quality
• Net-zero targets and neutrality claims: for a net-zero target of its own, the company must explain how residual emissions will be permanently neutralised. A company that publicly claims GHG neutrality using carbon credits explains whether and how this claim does not hinder the achievement of its reduction targets, and shows the credibility of the credits by reference to recognised quality standards

05

Phase-ins

E1 has its own phase-in: for the anticipated financial effects of climate-related risks and opportunities. A special rule also applies to financial year 2026: wave-one undertakings that, at the balance sheet date, do not exceed at least one of the two thresholds (EUR 450 million net turnover or an average of 1,000 employees) may omit all topical standards if they already apply the new set. They must, however, state whether climate change is material. If it is, they must name the topic or the material sub-topics, briefly describe how their business model and strategy take account of the impacts, their targets and progress, policies and actions, and disclose relevant metrics. E1’s own phase-in works as follows; an undertaking that uses it says so:

• Wave one: disclosures from financial year 2028, quantitative ones from 2030
• Other undertakings: exemption in the first 2 reporting years, for quantitative information in the first 4

From the first year, however, the company reports the carrying amounts of assets with material physical risks and transition risks, the range of potentially stranded assets based on a 1.5 °C scenario, and the share covered by actions in each case. For amounts, a range is sufficient. Figures may be omitted if the effects cannot be identified separately, if the estimate is too uncertain to be useful, or, for anticipated effects, if the skills, capabilities or resources are lacking. In that case the company must explain why and describe the affected line items of the financial statements qualitatively.

06

Typical data sources inside the company

Most of the data already exists, but in different places:

• Existing greenhouse gas inventories provide the basis for scope 1, 2 and 3 as well as for the base year and targets
• Energy management, for example under ISO 50001 or from energy audits, provides consumption, energy mix and efficiency measures
• Environmental management systems such as ISO 14001 or EMAS provide environmental aspects, policies, targets and actions
• Risk management provides climate-related risks and opportunities, scenarios and the basis for the financial effects

07

How it relates to the VS standard

The VS standard already contains key climate disclosures: energy consumption, scope 1 and location-based scope 2 emissions in the basic module, and voluntary scope 3 as well as reduction targets and climate risks in the comprehensive module.

08

Typical mistakes

These points often come up in practice:

• Counting carbon credits, removals or avoided emissions towards the reduction target. Guarantees of origin affect only market-based scope 2 emissions; the company must state which scope 2 method the target is based on
• Counting associates and joint ventures twice or not at all, for example pro rata in scope 1 and 2 and again in category 15, or in neither, because the assignment does not follow one disclosed approach. Likewise treating joint operations like investments
• Leaving out scope 3 across the board instead of screening all categories and reporting the significant ones
• Claiming a transition plan that lacks targets, levers or approval
• Calculating targets and inventory with different reporting boundaries