CSRD and climate: tips on reporting in accordance with ESRS E1

ESRS E1 – the standard to which (almost) everyone must report

The work on each CSRD report starts with a double materiality analysis. This determines which of the more than 1000 data points of the CSRD your company actually has to report on. The first environmental standard ESRS E1 is an exception. Regardless of the result of the double materiality analysis, every company must basically report on the 230 or so data points required by this standard. Why? Because every company causes emissions and therefore has an impact on climate change. Conversely, every company is likely to be affected by climate change. In short: no company can avoid ESRS E1. At the same time, reporting according to this standard is complex. So let’s go through step by step how to master ESRS E1.

What is ESRS E1 about?

Data collection and reporting are easier if you know the “why” behind it. ESRS E1 is designed to show you why,

• … how your company affects climate change (positively and negatively, real and potential).
• … what risks and opportunities climate change holds for your company and how your company deals with them.
• … how your company is working to protect the climate – this includes previous and current measures, but also future ones.
• … the financial consequences of the climate crisis for your company.

The requirements of ESRS E1 can be divided into two subject areas:

• Mitigation of climate change (“Climate Change Mitigation”): Strategies and measures to limit global warming
• Adaptation to climate change (“Climate Change Adaptation”): Approaches to strengthen resilience to current and expected consequences of climate change

The data points at a glance

As already mentioned, ESRS E1 is relevant for almost all companies. In total, E1 comprises nine disclosure requirements – but not all of them are immediately relevant or important for every company. Here is a brief overview:

• E1-1 – Transition plan for climate protection
• E1-2 – Concepts related to climate change mitigation and adaptation
• E1-3 – Measures and resources in connection with the climate strategies
• E1-4 – Goals related to climate change mitigation and adaptation
• E1-5 – Energy consumption and energy mix
• E1-6 – Gross GHG emissions in Scope 1, 2 and 3 categories and total emissions
• E1-7 – Greenhouse gas abatement and greenhouse gas reduction projects financed through_{carbon credits}
• E1-8 – Internal_{CO2 pricing}
• E1-9 – Expected financial impact of significant physical and transition risks and potential climate-related opportunities

There are also three requirements from the overarching ESRS 2 standard:

• ESRS 2 GOV-3 – Inclusion of sustainability-related performance in incentive systems
• ESRS 2 IRO-1 – Description of procedures for the identification and assessment of significant climate-related impacts, risks and opportunities
• ESRS 2 SBM-3 – Significant impacts, risks and opportunities and their interaction with strategy and business model

Good to know: There are some exceptions to ESRS E1 reporting. In principle, any company can use internal_{carbon pricing}(ESRS E1-8), but in practice it only makes sense for large companies. ESRS E1-8 is therefore not a mandatory part of every CSRD report. You only have to report on E1-9 from the second reporting year onwards. And Scope 3 data is only mandatory in the first reporting year for companies with more than 750 employees. Nevertheless, a lot of information is requested here. To make matters worse, most of the required data points are not simply available, but must first be determined. This raises the question: What is the best way to approach ESRS E1? Here is your guide to ESRS E1.

Step by step through ESRS E1

The ESRS E1 disclosure requirements make sense in the order just mentioned when reading and reporting/writing. However, if you stick to this order when collecting data, you will be missing important data at the beginning. We therefore recommend the following procedure for data collection instead. During the actual reporting, you then present your results in the actual order: E1-1, E1-2, …

Step 1: ESRS E1-6 and ESRS E1-5

ESRS 1 stands and falls with the GHG balance for Scopes 1 to 3, which serves as a baseline for all further disclosure requirements. Determine your energy balance directly here so that you have all the data to hand in the next steps.

Step 2: ESRS E1-4

Based on your balance sheet baseline, develop or name your short and medium-term climate targets as well as your long-term net zero target. Make sure that your targets are science-based and in line with the goals of the Paris Climate Agreement. Don’t have any targets yet? Then you can also indicate when you will set your targets.

Step 3: ESRS E1-3

Now identify your decarbonization levers. Describe which measures you want to use to achieve the stated targets and which measures have already been implemented. Alternatively, you can specify here by when you want to have developed your measures – similar to the targets.

Step 4: ESRS E1-7

Does your company offset unavoidable residual emissions via_{CO2 credits} or compensation projects? Then of course you must also report on this. Caution: Be careful here to avoid falling into the greenwashing trap.

Step 5: ESRS E1-1

Now comes your transition plan. Here you describe in detail how your company is working to protect the climate, how you are preparing your company for the climate crisis and its consequences and how your company is making a concrete contribution to limiting global warming. There is a transition period for ESRS E1-1 in the first reporting years.

Step 6: ESRS E1-2

You then name concepts in connection with climate protection and adaptation to climate change – and how you implement these strategies. This includes, for example, internal control elements such as the internal_{CO2 price} according to ESRS E1-8, but also IT and software strategies. Here, too, you can alternatively specify by when you will develop your concept.

Step 7: Reporting

Once the data has been collected, targets set and measures defined to achieve these targets, the next step is reporting.

Practical tips for implementation

Not all companies manage to report on all disclosure requirements in their first report. Nevertheless, we would like to conclude by giving you a few basic tips on what you should pay particular attention to when reporting on ESRS E1.

Never underestimate the carbon footprint

The carbon footprint must be based on a stable foundation of data. You should therefore carefully consider all of your company’s sources of emissions. From employees’ commute to work to logistics. Even if this means a lot of work, don’t take any shortcuts in the wrong places. The results run like a red thread through the entire standard. All further measures are derived from the carbon footprint. At the same time, you can only achieve your climate targets if they are reflected in the carbon footprint. Thirdly, inaccuracies and errors lead to false claims in climate statements – something that is now sanctioned under the Green Claims Directive. So approach ESRS E1-6 with a keen eye and the necessary level of detail to ensure that the next steps are also successful.

Customize your processes

The enormous amounts of data that need to be collected from a wide variety of sources for ESRS E1 require a high level of transparency about what is going on in your company and your supply chains. Depending on how your company is already set up, new processes and structures may be needed to effectively map the requirements.

Allow sufficient time

CSRD reporting is already very extensive. ESRS E1 in particular takes a lot of time. The carbon footprint alone can take six months – and the climate strategy based on it is also time-consuming. So plan enough time and a buffer!

From carbon footprint to reporting: VERSO supports you!

Probably the most important tip: don’t waste any time. And don’t hesitate to seek support. VERSO helps you with software and advice to meet the requirements of ESRS E1 – from the_{carbon footprint} and transparent, truthful climate communication to the finished sustainability report.