From compliance to carbon reduction planning: mastering the CSRD’s climate reporting requirements

The Corporate Sustainability Reporting Directive (CSRD) is here, and with it comes more comprehensive climate change reporting requirements in the EU. 

The first of the European Sustainability Reporting Standards, ESRS E1: climate change, requires in-scope companies to disclose information relating to their climate transition plans, carbon accounting, and other climate topics.

It’s understandable that many sustainability teams might feel overwhelmed by these standards. According to the CDP, only 37% of disclosing companies reported on emissions across scopes 1, 2, and 3 as of 2023. And yet, comprehensive corporate footprint reporting is crucial for CSRD reporting and decarbonization planning. 

Complex supply chains, diverse data sources, and low-quality data make CSRD compliance more difficult, particularly for logistics and transport companies.

What’s more, companies have a hard time moving beyond compliance and actually implementing data-based decarbonization plans. In 2022, Accenture found that 93% of companies with net zero goals will miss them, unless they accelerate their decarbonization efforts. 

In Cozero’s recent webinar with PwC, sustainability experts Laura Harron and Oskar Achten discussed how companies can navigate CSRD ESRS E1 reporting and operationalize climate and decarbonization planning. In this article, we will explore some of the key takeaways.

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The climate change standard: what does CSRD ESRS E1 require?

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What exactly do the ESRS cover? In a nutshell, the European Sustainability Reporting Standards (ESRS) provide the detailed reporting framework for companies to comply with the CSRD. 

The ESRS lay out requirements for reporting on environmental, social, and governance (ESG) topics. They include twelve standards in total: two “cross-cutting,” or broad standards, and 10 standards across specific environmental, social, and governance topics. 

Companies determine which ESG topics they will include in their sustainability reporting through a materiality assessment, which identifies and prioritizes the most significant issues impacting their stakeholders and business operations.

With its nine detailed disclosure requirements, ESRS E1 on climate change is one of the more demanding standards. 

Even though the ESRS E1 climate related disclosures are subject to a materiality assessment, most companies will likely determine that climate change is a material topic.

This means that most in-scope companies will be reporting on the three key aspects of climate change in ESRS E1:

• Climate mitigation: the company’s past, present and future climate protection efforts to limit global warming to 1.5°C in line with the Paris Agreement
• Energy: energy consumption and generation of the company
• Adaptation to climate: adaptations of the company to actual and expected climate change.

One key requirement of climate-related reporting is that companies must disclose whether they have or are preparing a climate transition plan. 

This plan should include short and long-term targets for greenhouse gas emissions, identifying levers for decarbonization, and a net-zero strategy for decarbonization efforts across the company.

While climate change mitigation is a crucial aspect of this standard, ESRS E1 also requires companies to disclose information on their management of energy-related topics and climate adaptation. 

This includes, for example, data points like how much fuel is consumed from fossil fuel sources, and how companies are preparing for potential climate-related impacts to their supply chain.

‍Tip: When preparing your climate change transition plan, Cozero recommends going beyond just box-ticking. This is an opportunity to develop a clear decarbonization roadmap and spending plan to anticipate financials. This level of detail will not only result in a more credible transition plan but will also allow you to more easily put your plan into action.

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Addressing climate risks in reporting

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One key aspect of ESRS E1 reporting is identifying and disclosing climate risks. During our joint webinar, PwC’s sustainability expert Oskar Achten recommended handling this process in four main steps:

1. Identifying relevant climate risks and opportunities: ie, physical risks related to your suppliers, or transitional risks related to commodity price
2. Assessing the possible material financial impact: translating these risks into a number
3. Reflecting on policies and measures for climate adaptation and emission reduction: assessing how the company is currently addressing these risks 
4. Assessing the resilience of the business model: determining whether the business model is sound or whether it needs to be adjusted in light of these risks

To identify climate risks, it’s necessary to run a scenario analysis, where you consider possible impacts and risks in different possible climate situations: for example, risks in a more than 4°C scenario with strong global warming, versus risks in a 1.5°C scenario with limited global warming. From there, you can determine what you need to focus on in these various scenarios, interviewing stakeholders throughout the company to assist with the process.

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The role of carbon accounting in decarbonization

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To support ESRS E1 reporting and the broader project of decarbonization planning, it’s important to embrace credible carbon accounting, which is the process of measuring, recording, and reporting greenhouse gas emissions related to a company’s business activities.

Beyond supporting compliance with ESRS E1, carbon accounting provides a basis for building net-zero targets and reduction strategies and is a benchmarking tool to establish a base year for your emissions and measuring progress.

The CSRD recommends the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard (GHG Protocol) as the basis for carbon accounting standards, with a few additions.   

To set up your carbon accounting processes, you’ll first need to identify the organizational and operational boundaries of reporting, or the parts of the company and types of emissions that need to be included in the emissions inventory. This requires identifying clear business goals of reporting for your organization.

The next step is to evaluate the materiality of each business activity based on its expected share of expected emissions and your company’s ability to influence those emissions. Then, you can take stock of the current status of their carbon footprint, including gaps in your data and emissions hotspots throughout your company’s supply chain.

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As pointed out by PwC in their recent survey, the CSRD poses additional challenges due to its coverage of the whole value chain. Since companies must collect and assess data from suppliers, customers, and third-party data providers, in-scope companies with complex supply chains may face extra challenges. 

The good news is that once you get started, the accuracy of your data and reporting often improve with each year of reporting. It’s also normal to have more visibility in some parts of the supply chain than others. Prioritizing the categories that are most relevant and have the best data availability will help you more quickly identify the decarbonization levers you can pull for the most meaningful emissions reductions. 

Tip: A carbon management tool like Cozero’s Climate Action Platform (CAP) will help you streamline the reporting process and solve the biggest challenges associated with reporting, such as inconsistent reporting, data and knowledge gaps, and prioritization. Streamlining your reporting will help you avoid the “reporting pit” and spend more of your time actually implementing reduction initiatives.

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Setting and implementing science-based targets

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Including science-based targets (SBTs) in your climate transition plan is another recommended practice. EFRAG, the institution behind the CSRD framework, references SBTs as a suggested benchmark for ESRS reporting

Science-based targets ensure your company follows the global recommendations set by the scientific community to keep emissions in line with the Paris Agreement. Adopting these targets (rather than trying to set your own) will also help ensure that you are operating within the target carbon budget for the global economy. 

The Science-Based Targets initiative provides targets for different industries, including the land transport and maritime sectors. Since these targets align well with CSRD requirements, they are reliable targets you can use in your climate reporting. 

Once short- and long-term targets are set, the next phases involve aligning KPIs with climate-related performance, incorporating carbon metrics into business planning, and regularly reporting on progress to internal and external stakeholders. 

Tip: Breaking climate targets down into specific actions will allow you to assign key reduction responsibilities to different departments. Aligning KPIs with climate-related performance will allow you to incentivize commitment across all your influential stakeholder groups, speeding up your progress.

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Getting started on your reporting and decarbonization journey

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Making progress on decarbonization while simultaneously preparing for new reporting standards like ESRS E1 may feel daunting. But you don’t have to take this journey alone.

Cozero’s decarbonization software Cozero and Act module can help you streamline data management and reporting so you can spend less time collecting data and more time executing your decarbonization strategies. The Cozero Act module supports many of the climate planning and reporting areas we’ve discussed, including science-based target setting, emissions forecasting, scenario analysis, and more. 

In addition to Cozero Act, sustainability consultants like our co-hosts from PwC can support you with strategy and roadmapping for your climate transition plan, taking you through baselining, strategy, implementation, and reporting. 

However you decide to move forward, know that the hardest part is often building your initial momentum. At Cozero, we are here to help you navigate the challenges of ESRS E1 compliance and reporting so you can begin to experience the benefits that come with decarbonization.  

Eager to learn more about CSRD and decarbonization planning? View the recording of our webinar “Navigating decarbonization planning and CSRD reporting” with PwC and our experts at Cozero. 

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Ready to get started on decarbonization? Set up a demo of Cozero Act with our team.

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Resources

• CDP. 2023. “CDP 2023 Disclosure Data Factsheet.” www.cdp.net. https://www.cdp.net/en/companies/cdp-2023-disclosure-data-factsheet
• Ollagnier, Jean-Marc, Peter Lacy, and Mauricio Bermúdez Neubauer. 2022. “Accelerating Global Companies toward Net Zero by 2050.” https://www.accenture.com/content/dam/accenture/final/capabilities/strategy-and-consulting/strategy/document/Accenture-Net-Zero-By-2050-Global-Report-2022.pdf 
• EFRAG. 2023. “Delegated Regulation - EU - 2023/2772 - EN - EUR-Lex.” Europa.eu. 2023. https://eur-lex.europa.eu/legal-content/en/TXT/?uri=CELEX:32023R2772
• DHL. 2023. “ESG Reporting.” DHL. 2023. https://group.dhl.com/en/sustainability/sustainability-roadmap/sustainability-reports.html 
• ‌Greenhouse Gas Protocol. 2015. “Corporate Standard | Greenhouse Gas Protocol.” Ghgprotocol.org. 2015. https://ghgprotocol.org/corporate-standard 
• Lange, Renata de, Nadja Picard, and Kevin O’Connell. 2024. “PwC’s Global CSRD Survey 2024.” PwC. June 13, 2024. https://www.pwc.com/gx/en/issues/esg/global-csrd-survey.html 
• ‌Science Based Targets. 2015. “Science Based Targets.” Sciencebasedtargets.org. 2015. https://sciencebasedtargets.org 

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