Unlocking climate goals: your blueprint to implementing ESRS E1

Find out how to tackle ESRS E1 to achieve your climate and energy objectives.

In brief

• CSRD, EU Taxonomy and ESRS E1 give companies the tools they need to set and achieve their climate and energy objectives.
• The adoption of the ESRS E1 disclosure requirements can be broken down into three main stages: SCAN, FOCUS and ACT.
• EY CCaSS experts help companies navigate the complexities of climate change and support organizations in reaching their climate and energy goals.

Climate change has emerged as a global concern that extends beyond environmental harm, influencing various aspects of social and economic life. As the urgency of addressing climate change increases, and as investors continue to build upon the importance of how companies deal with these topics, so does the need for companies to accurately report their environmental impacts and sustainability efforts.

This has led to the influence and thorough development of the Corporate Sustainability Reporting Directive (CSRD) and EU Taxonomy. More specifically, with CSRD, companies are now required to provide information on their governance, strategy, impacts, risk and opportunity management, and sustainability metrics and targets around ten topics. The first of these standards concerns ESRS E1: climate change.

With its strategic sustainability targets, the ESRS E1 and the EU Taxonomy are powerful instruments that ensure businesses convert climate risks into opportunities by incorporating sustainable operations and strategies.
 

Key characteristics of ESRS E1

ESRS E1 is composed of three sub-topics: climate change adaptation, climate change mitigation and energy.

Its disclosure requirements have in total 208 data points (93% are mandatory and 7% are voluntary) and have different characteristics:

• 3 data type categories: 57% are numerical (quantitative data points such as percentages), 30% are semi-narrative (non-numerical but comparable types such as date), and 13% are narrative types (text blocks);
• some datapoints are subject to phasing-in for all companies for the first year (ex, most of the data points under ESRS E1-9 regarding the anticipated financial effects);
• additional data points are subject to phasing-in for companies below 750 employees (ex, calculation of gross scopes 3 GHG emissions).

The blueprint to implement E1 DRs for your reporting

The SCAN phase

Initiating the journey toward a more sustainable and resilient future demands a strong beginning, and that's what the Scan Phase is all about— understanding a company's impact on climate change through a robust assessment of its carbon inventory. Key ESRS disclosure requirements guiding the Scan phase include ESRS 2 SBM-3, ESRS 2 IRO-1, E1-6, and E1-5. This initial phase focuses on systematically identifying and assessing the climate-related impacts, risks, and opportunities that are most material to the company. With a comprehensive climate scenario analysis, companies can evaluate the resilience of their strategy and business model in the face of climate change, providing them with valuable insights into the potential physical and transition risks they face, especially in relation to short-, medium-, and long-term trends.

The Scan phase also covers an in-depth carbon footprint assessment, providing companies with a tangible measure of their direct and indirect GHG emissions across Scopes 1, 2, and 3. Alongside, analyzing the total energy consumption and assessing its alignment with the 1.5° target serve as an important components of this stage. If managed effectively, the Scan phase paves the way for a strategically planned and well-informed transition towards climate-positive operations.

The ACT phase

The final step in the process, the Act phase, signifies an inflection point where robust and bespoke climate and net-zero strategies, formulated in the prior stages, are given tangible form. ESRS disclosure requirements at the heart of this stage include ESRS 2 GOV-3, E1-2, E1-3, and E1-7. This phase emphasizes translating the organization's commitment to sustainability into concrete actions, whether it is integrating sustainable practices into incentive schemes, adopting strategic climate change mitigation and adaptation policies, or outlining key actions and resources for achieving set sustainability objectives. Investment in GHG mitigation projects and procurement of carbon credits represent an important aspect of this phase. It allows companies to demonstrate not only their commitment to a more sustainable future but also efficient management of their material climate change mitigation strategies. This final phase effectively allows companies to navigate the path towards a more resilient, more sustainable future, helping them to fulfill regulatory requirements, deliver value to stakeholders, and, most importantly, play their part in global climate action.
 

Outside-in and inside-out perspectives

Two perspectives emerge from the scan and focus phases of the blueprint to implement E1 DRs in your reporting. The inside-out perspective, put forward by E1-6, E1-5, E1-1 and E1-4, focuses on the transition and decarbonization roadmap and aims to understand the sustainability-relevant impacts of the activities of the company. The outside-in perspective highlights climate related-risks management and aims to understand the impact of sustainability aspects on the company’s business performance, business results and situation. This latter perspective is represented by ESRS 2 SBM-3, ESRS 2 IRO-1, and E1-9. Ultimately, these two perspectives—outside-in and inside-out—also reflect the fundamental principle of Double Materiality Assessment under CSRD, effectively aligning the approach with the regulatory expectation of considering both how environmental factors impact your business and how your business impacts the environment.
 

A strategic business imperative

Embarking on the journey of sustainable transformation guided through the SCAN, FOCUS, and ACT phases is not just a regulatory compliance matter but a strategic business imperative. It enables companies to:

1. Have a structured approach effective for sustainable transition: these phases offer an operational map for businesses to understand, plan, and materialize their climate and energy objectives under the ESRS E1 standard.
   
   
2. Respond to the urgent need of building a low-carbon economy: in an era where climate change is a global concern and requires immediate actions, corporations have a significant role and responsibility to act.
   
   
3. Become resilient against systemic shocks: by converting risks into opportunities and formulating sound climate and net-zero strategies, businesses can ensure continuity in an evolving and uncertain global landscape characterized by environmental crises.