From 1 January 2024, the first batch of listed companies will begin to measure their mandatory climate-related indicators for a full year according to the requirements of the Corporate Sustainability Reporting Directive (CSRD) and accompanying European Sustainability Reporting Standards (ESRS). Which indicators are we talking about exactly? We’d like to take you through ESRS E1 Climate Change, also known as the Climate Standard.
To limit global temperature rise, our emissions must be drastically reduced. The final text of COP28 declares that the world must move away from fossil fuels; a historic statement. Europe, through the Green Deal, is also strongly committed to reducing greenhouse gases, and ultimately achieving climate neutrality by2050. Its climate change reporting standard, ESRS E1, is consequently one of the leading standards of the ESRS: it will prove material in the materiality analysis of just about every major company.
So what do you need to measure and report according to the ESRS E1? Here we give you the highlights, according to the disclosure requirements ‘governance’, ‘strategy and business model’, ‘IRO management’ and ‘metrics & targets’; the four major pillars of any thematic ESRS.
Good governance runs like a thread through the CSRD, as a separate chapter in your sustainability report alongside Environmental and Social aspects: together, they form the three-letter word ESG. But governance (GOV) is also a recurring pillar in the disclosure requirements of just about every thematic ESRS. When it comes to climate change, your report must be transparent about whether or not measurable climate performance is included in the calculation of bonuses for your organization’s governing bodies and senior management.
Under the pillar ‘Strategy’, you then have to report on your climate transition plan and your so-called resilience analysis:
Based on those climate scenarios, you need to identify the physical climate risks and transition risks applicable to your business. Physical risks are risks associated with the high-emissions scenario; think heat stress and flooding. Transition risks are risks associated with the scenario in line with the Paris Agreement, such as rising CO2 prices, lagging innovation and, in the long run, reputational damage.
The ‘IRO management’ section – IRO stands for impacts, risks and opportunities, and is a key concept in CSRD – describes how you have determined your IROs related to climate change, what policies you have in place to mitigate your own impacts and address the risks and opportunities, and what actions and resources you foresee as necessary to meet your targets.
Finally, in the section on metrics and targets, explain what climate-related targets you have set, and provide information on a whole range of KPIs. These indicators not only provide insight into your company’s current climate performance, but also serve as a basis for setting and evaluating your climate goals or targets.
Reporting requirements of the other thematic standards that are immaterial from your double materiality analysis can be omitted from your report without providing an explanation. In the case of ESRS E1 Climate Change, this is not the case: if you do not report on it, you must disclose in a statement why climate change is not material to your company.
Developing a climate strategy in line with the CSRD is no easy task. Overwhelmed by the many obligations? We would be happy to help you on your way. Contact us at mail@pantarein.be.
