Responding to ESRS-E1: The Impact of Climate Change

Zara Plummer

Principal Consultant

GHG Lead

Charlotte Challis

Associate Director

Climate Risk

Utopia Blackwood

Analyst

Ellie Fensome

Junior Analyst

Contents

• What is ESRS E1?
• What does the standard cover?
• When will ESRS E1 apply?
• What does it mean for your business?
• How to respond to the ESRS E1?
• The benefits of getting ahead
• How can Anthesis support?
• Contact us

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Anthesis’ Zara Plummer, Principal Consultant and GHG Lead, and Charlotte Challis, Associate Director for Climate Risk, share insights on the European Sustainability Reporting Standards E1 (ESRS E1), what it encompasses, its connection to the broader sustainability reporting landscape, and how organisations can prepare.

Overview of the ESRS standards

Two cross-cutting ESRSs and ten topic-specific ESRSs (5 environmental, 4 social and 1 on governance) will require disclosure on governance, strategy, and impact, risk and opportunity management.

Number	Subject
ESRS 1	General Requirements
ESRS 2	General Disclosures
ESRS E1	Climate
ESRS E2	Pollution
ESRS E3	Water and marine resources
ESRS E4	Biodiversity and ecosystems
ESRS E5	Resource use and circular economy
ESRS S1	Own workforce
ESRS S2	Workers in the value chain
ESRS S3	Affected communities
ESRS S4	Consumers and end users
ESRS G1	Business conduct

What is ESRS E1?

The ESRS E1 is one of ten topical standards that underpin the Corporate Sustainability Reporting Directive and a crucial European framework for addressing climate change.

Companies subject to CSRD regulations must report information in line with ESRS E1 unless they can demonstrate that their activities have no significant impact on climate change. An organisation that does not identify climate change as material, through its double materiality assessment (a key requirement of CSRD), must still provide a detailed explanation of why it has drawn that conclusion.

Given the wide-ranging and systematic impacts resulting from climate change, we anticipate that most CSRD-obligated businesses will need to report in line with ESRS E1. It is therefore critical that businesses get ahead of the legislation phase-in timeline to maximise the opportunities from aligning with reporting requirements.

What does the ESRS E1 standard cover?

ESRS E1 includes around 100 data points, to which companies must disclose or justify why the data point does not apply to their organisations. Many of these data points may already be available within the organisation, particularly if already reporting to frameworks such as CDP.

ESRS E1 covers 3 key elements:

1. Climate Impacts on Business (E1-2,9): As well as collecting consistent and comparable data to evaluate a company’s impact on climate change, the ESRS E1 standard requires companies to evaluate how climate change affects their operations and value chain. This includes identifying and disclosing material risks related to climate impacts on business activities and assessing the financial implications of those risks over different time horizons and scenarios.
2. Business Impacts on Climate Change (E1-5,6): ESRS E1 requires businesses to report their GHG emissions and energy consumption, detailing how their activities contribute to climate change. This transparency supports stakeholders in understanding the company’s environmental footprint.
3. Actions and Strategies to Reduce Risks and Impacts (E1-1,3,4,7,8): ESRS E1 requires companies to develop and report on strategies and action plans aimed at reducing GHG emissions (mitigation) and avoiding climate risks (adaptation). Companies must also indicate when they will implement actions. This includes setting reduction targets aligned with the 1.5°C warming limit set in the Paris Agreement and developing a climate transition plan.

In summary, ESRS E1 focuses on providing a comprehensive view of a company’s role in climate change, understanding how climate change affects the business, and implementing strategies to mitigate these risks and impacts. This ensures greater transparency, accountability, and proactive management of climate-related challenges.

When will ESRS E1 apply?

ESRS E1 will be phased in between 2025 and 2029, in line with the implementation of the CSRD. Companies are required to publish ESRS E1-compliant reports annually, and reports must go through external auditing prior to publication.

The requirements extend to a much broader range of organisations than previous legislative reporting requirements, therefore a number of companies will be required to start from scratch in their reporting journey. Organisations that haven’t started to collect this data will need to start now to ensure that data is available to a verifiable quality in time for deadlines. For those with some data in place, the focus should be on improving data quality, systems and governance to ensure a smooth reporting process ahead of 2025.

What will ESRS E1 mean for your business?

CSRD raises the bar for expected disclosure details and quality for companies operating in the EU. Some of these key implications are listed below:

• Limited Assurance: CSRD requires limited assurance, so accurate and reliable data is crucial. You will need to implement robust systems and strong internal controls for measuring and tracking your climate impact, including emissions data and climate risk assessments, to ensure the accuracy of your climate-related reporting to meet the standards’ rigorous requirements. This includes setting up dedicated teams or roles responsible for sustainability reporting and compliance.
• Value chains: CSRD is the first disclosure regulation in the EU to mandate Scope 3 reporting, meaning that reporting obligations cover not just operations but also value chains. Value chain impacts must also be assessed in terms of climate risk for both physical and transition risks, expanding reporting requirements for many companies. All value chain emissions categories must be screened at least every five years, and material categories must be calculated and reported annually.
• Forward-looking approach: CSRD implements a forward-looking approach rather than simply focussing on current risks and impacts. This includes requiring companies to complete an assessment of locked-in emissions (i.e. a future trajectory of emissions under business-as-usual) as well as conducting scenario analysis on climate risks.
• Financial quantification: The CSRD will gradually introduce the requirement to financially quantify risks, impacts, and mitigation actions. This encourages companies to integrate climate considerations into their financial accounting and business strategy, aligning sustainability goals with corporate objectives. As a result, finance, sustainability, and risk teams will need to collaborate more closely to develop quantitative assessments of financial risks from climate change.
• Aligning definitions: CSRD aligns the definition of Net Zero and temperature pathway targets (e.g. 1.5 degrees) with the trajectory developed by SBTi. Companies with targets not validated by SBTi will be required to justify alignment with a 1.5-degree trajectory.

How to respond to the ESRS E1?

To respond effectively to ESRS E1 and the implications listed above, businesses should first grasp its importance in enhancing sustainability reporting and stakeholder transparency. It is essential to evaluate the impact on current operations and compliance and create a solid implementation plan with internal audits and clear reporting frameworks. Engaging stakeholders and maintaining transparent communication are both key to building trust and accountability.

It will be important to consider these challenges and review gaps when responding to the ESRS E1 requirements:

• Resource allocation: Address the need for adequate resources and expertise to comply with the standards and plan far enough in advance to be able to deliver the quality disclosures required by the standard.
• Data management: Discuss and understand potential challenges in data collection, management, and reporting, and implement data management systems and tools to ensure traceability, accountability, and auditability.
• Technological requirements: Consider necessary technological tools or platforms for compliance. Software tools can be valuable for streamlining data collection and reporting, saving time within the organisation and ensuring consistency in the documentation of processes.
• Governance: Review the current structures and processes needed to review compliance and continuous monitoring and improvement of ESG performance in line with ESRS E1. There should be senior/board level review and accountability for multiple aspects (e.g. review of climate risks, progress against targets, investment, evolving company strategy).

By proactively tackling these challenges, businesses can not only ensure compliance but also leverage ESRS E1 as an opportunity to enhance their sustainability practices and strengthen their market position.

The key message to emphasise is the importance of engaging with the challenges of ESRS E1 early and thoroughly. This recommendation is based on the complexity of the CSRD challenge and the benefit of being able to work out your approach ahead of the pressure of compliance. It is also important to understand that benefits can be realised from being a leader or early adopter as all businesses and sectors are mandated to comply.

What are the benefits of getting ahead on ESRS E1?

Complying with the ESRS E1 standard offers several advantages beyond compliance for your organisation. We have seen from previous reporting standards, such as TCFD, that

 organisations that will gain the most benefit will be those who act early and who use the ESRS E1 structure as prompts to review business strategy and activities in depth including:

• Enhanced transparency and accountability: Build trust with stakeholders by demonstrating a commitment to sustainability and responsible business practices.
• Improved risk management: Identify and mitigate climate-related risks, enhancing the company’s resilience and adaptability.
• Competitive advantage: Differentiate the company from competitors and enhances brand reputation by showcasing proactive sustainability efforts.
• Investor attraction: Align with investor expectations for sustainable practices, potentially attracting more investment and improving financial performance.
• Reduction in greenhouse gas emissions: Aligning with global climate goals and leveraging cost savings and value generation from action.
• Enhanced environmental stewardship: Implement sustainable business practices and comprehensive climate plans.
• Improved resource efficiency: Benefit from efficient resource use and support circular economy practices.

How can Anthesis support?

ESRS E1 encompasses recognisable elements of climate risk analysis, greenhouse gas accounting, roadmap development, and target setting. However, this standard requires an additional level of detail and rigour compared with previous versions of EU reporting requirements. The assumptions and methods used when reporting against ESRS E1 should be based on the best available data, specific context of sites, and understanding of existing and planned mitigation and adaptation actions which can only come from a close working relationship with your delivery partner. This is where Anthesis can support.

Anthesis takes an expert-led approach to delivering work for our clients that is bespoke to each organisation we work with. While we efficiently use the best available data and modelling tools/techniques, we recognise there is no substitute for working closely with key stakeholders across the organisation such as your sustainability team, finance function, operations, and purchasing to understand your business, value chain, and commercial context. We are focused on applying your context to the analysis and modelling and providing tailored recommendations on greenhouse gas accounting, target setting, decarbonisation activities, and Climate Risk management.