Deep dive into the disclosure requirements for EU CSRD – E1 – Environmental Disclosures for Climate Change
ESRS – E1 – Climate Change
This topic standard specifies disclosure requirements that allow users of the sustainability statement to learn about the positive and negative effects of climate change on the company and the company’s efforts to mitigate its impact on the environment in line with the Paris Agreement.
In accordance with the underlying double materiality principles of the CSRD, the disclosure requirements capture both the financial effects of climate change on the company and the impacts of the company on climate change.
This topic is further divided into 3 sub-topics:
- Climate Change Adaptation – Disclosure requirements in this sub-topic include physical climate risks and solutions to reduce these risks and transition risks that arise from the adaption
- Climate Change Mitigation– Disclosure requirements for this sub-topic are related to actions taken at the company to be in agreement with the Paris Agreement in limiting emissions on all seven Greenhouse gas emissions as well as associated transition risks.
- Energy – The Disclosure Requirements related to “Energy” cover all types of energy production and consumption.
Climate Change Disclosure Requirements
There are 9 topic-based disclosure requirements in addition to several disclosure requirements related to governance, strategy, impact, risks, and opportunities from ESRS 2, general requirements.
E1-1: Strategy – Transition plan for climate change mitigation
The transition plan for climate change mitigation discloses how a company’s strategy and business model address transitioning to a sustainable economy, in line with the Paris Agreement to limit global warming to 1.5 °C. The transition plan needs to disclose information on the GHG emission reduction targets, mitigation actions, and decarbonization levers identified to achieve the targets. The action plans need to include changes in the products and services, the adoption of new technologies in its own operations, and the upstream and downstream value chain. The disclosure requirements also include approval of the plan and its integration into the over business strategy and financial planning and the progress of the implementation of the transition plan. If a transition plan is not adopted, then the company needs to indicate the timeline for the adoption of a transition plan.
Check out our article on climate transition plans for details on this topic.
ESRS 2 SBM-3: Description of material impacts, risks, and opportunities and their interaction with strategy and business model
Information needs to include an explanation of each material climate risk classified as a physical risk or a transition risk. Companies need to include a description of the resilience of their strategy and business model to climate change risks and the results of the resiliency analysis, including the results from the use of scenario analysis.
ESRS 2 IRO-1: Description of the processes to identify and assess material climate-related impacts, risks, and opportunities.
The description needs to include:
impacts on climate change, specifically, GHG emissions. It also needs to include climate-related physical and transition risks in own operations and along the upstream and downstream value chain. The information needs to include an explanation of how the company used climate-related scenario analysis, including a range of climate scenarios, to inform the identification and assessment of physical risks and transition risks and opportunities over the short-, medium- and long-term.
E1-2: Policies related to climate change mitigation and adaptation
This disclosure requirement needs companies to provide information on the policies in place to manage its material impacts, risks, and opportunities related to climate change mitigation and adaptation. Information about the policies needs to address mitigation, adaptation, energy efficiency, and renewable energy deployment.
E1-3: Actions and resources in relation to climate change policies
This disclosure requirement needs companies to provide information about the actions and resources related to climate change mitigation and adaptation. The information needs to include actions taken in the reporting year and future actions planned. Additionally, the capital and operation expenditures required to implement the actions need to be presented. Actions need to be presented by decarbonization levers, including any nature-based solutions. Outcomes in terms of achieved or expected GHG emission reductions need to also be included.
E1-4: Targets related to climate change mitigation and adaptation
This disclosure requirement needs companies to provide information on the targets the company has set to support its climate change mitigation and adaptation policies and address its material climate-related impacts, risks, and opportunities. The target information includes GHG emission targets and targets set for renewable energy deployment, energy efficiency, climate change adaptation, and physical or transition risk mitigation. GHG emission targets can be absolute targets and intensity targets. Targets need to be set for each emission scope, Scope 1, 2, and 3. Information should include baseline year, and target values for 2030 and 2050.
E1-5: Energy consumption and mix
This disclosure requirement needs companies to provide information on the company’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. The information needs to include total energy consumption in MWh related to own operations disaggregated by total energy consumption from fossil sources, nuclear sources, and renewable sources. Renewable sources need to be further detailed to include consumption, including biomass, consumption of purchased or acquired electricity, heat, steam, and cooling from renewable sources, and consumption of self-generated non-fuel renewable energy. Additional information needs to be provided for high climate impact sectors.
E1-6: Gross Scopes 1, 2, 3 and Total GHG emissions
Companies shall disclose their gross Scope 1, 2, and 3 GHG emissions and total GHG emissions in metric tonnes of CO2eq. Scope 2 emission information will include location and market-based emissions. Companies shall also disclose GHG emissions intensity (total GHG emissions per net revenue).
For details on how to compute GHG emissions check out our resources on GHG emissions accounting.
E1-7: GHG removals and GHG mitigation projects financed through carbon credits
Companies need to disclose GHG removals and GHG mitigation projects financed through carbon credits. Information needs to include: GHG removals and storage in metric tonnes 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.
E1-8: Internal carbon pricing
Companies are required to disclose if they use internal carbon pricing and, if so, how the pricing supports decisions and incentivizes the implementation of climate-related policies and targets.
Additionally, if a carbon pricing scheme is used the following data need to be disclosed:
- The type of internal carbon pricing scheme,
- The specific scope of application of the carbon pricing schemes (activities, geographies, entities, etc.);
- Description of source of the carbon price and assumptions to set the price, may disclose the calculation methodology of the carbon prices
- The current year’s approximate gross GHG emission volumes by Scopes 1, 2, and 3 and the share of each scope covered by the carbon price.
E1-9: Anticipated financial effects from material physical and transition risks and potential climate-related opportunity
Companies shall disclose anticipated financial effects from material physical and transition risks and how they will affect the company’s financial position, performance, and cash flows in the short, medium, and long term. The financial effects information should include details on the location of the assets and the monetary amount and proportion of the assets at material physical risk in the short, medium, and long term. Information regarding the amount, proportion, and time frame of net revenues at risk also needs to be included. In addition, for the financial effects of transition risks, information should also include a breakdown of real estate assets by energy efficiency classes and liabilities that may have to be recognized in the financial statements.
Companies shall also disclose the potential to benefit from material climate-related opportunities. Companies should consider the expected cost savings from mitigation and low-cost carbon products and the potential market size or expected changes to net revenues from low-carbon products and services, or adaptation solutions.
Conclusions
While the requirements of EU CSRD are the most comprehensive and detailed, companies required to comply with the directives should be able to use prior work from reporting to CDP, GRI, SASB and emission accounting based on the GHG Protocol.
Abbreviations
- CSRD – Corporate Sustainability Reporting Directive
- GHG – Greenhouse Gas
- IRO – Impacts, Risks and Opportunities
- SBM – Strategy and Business Model
