ESRS Environment: Climate Change, Biodiversity, Resource use & Co.



published on 16 august 2023 | reading time appox. 3 minutes


The environmental standards aim to raise awareness among companies about their own interactions with the environment and nature, and to inform stakeholders about material environmental topics. The goal of these standards is for companies, in line with the principle of double materiality, to both depict their environmental impacts and to deeply engage with the potential impacts, risks and opportunities related to environmental aspects concerning their own business activities. You can learn about the disclosure requirements within the environmental standards and the challenges that might arise during their implementation in the following article. 

Structure of the environmental standards 

The environmental standards, as a part of the ESRS, consist of five individual standards. In total, there are 40 disclosure requirements, with the majority (12) of these disclosure requirements falling under the Climate Change Standard ESRS E1. The following graphic provides an overview of the distinct environmental standards and the respective topics they encompass: 


The most important content at a glance 

In contrast to the European Financial Reporting Advisory Group (EFRAG) draft from November 2022, which proposed mandatory reporting on Climate Change Standard E1 regardless of the outcomes of materiality assessment, this standard is also subject to materiality assessment according to the final ESRS. However, it should be noted that a company must provide a detailed explanation if it concludes based on the materiality assessment that climate change is not a material topic. This includes a forward-looking analysis of conditions that could lead the company to consider climate change as material in the future. In practice, it should hardly be possible to exclude the topic of climate change from reporting. 

In each environmental standard, a description of the process for identifying and assessing topic-specific impacts, risks, and opportunities is initially required. The European Commission explicitly emphasizes in the final version of the ESRS that this disclosure requirement (ESRS 2 IRO-1) must be fulfilled for each of the five environmental standards, regardless of the results of the materiality assessment. The extent of this description varies significantly among the different standards. For instance, the Biodiversity Standard E4 calls for disclosing a list of locations within or near areas with endangered biodiversity, as well as details on how systemic risks were considered when identifying material impacts, risks, dependencies, and opportunities, or whether the company has concluded that remedial actions need to be taken concerning biodiversity. In contrast, the explanation of the materiality assessment process is required to be less detailed within E3 (Water and Marine Resources), which only demands information on whether and how the company has reviewed its assets and activities for actual and potential impacts, risks, and opportunities related to water and marine resources, and whether affected communities were consulted. 

In addition, just like for all other material topical standards, the respective policies, action plans, and targets must be disclosed for the material environmental standards as well. While a company can alternatively report according to ESRS 1 that no policies have been adopted, action plans taken, or targets set, this alone, for the sake of reputation and long-term competitiveness, is not a recommended option. The same applies, for example, to the transition plan for climate change mitigation, where, according to E1-1, it must be explained how the company's goals align with limiting global warming to 1.5°C in accordance with the Paris Agreement. Supplementary to the general information that must be disclosed for policies, action plans, and targets according to the Minimum Disclosure Requirements (MDRs) defined in ESRS 2, specific topical information must be provided for each environmental standard. For instance, there are additional data points to be reported if the company has set targets for reducing greenhouse gas emissions (E1-4) or if the targets pertain to specific aspects related to resource use and circular economy (E5-3). 

With over 100 quantitative data points, the environmental standards go well beyond the other topical standards in terms of metrics. The collection of greenhouse gas emissions, particularly emissions from upstream and downstream supply chains (Scope 3 emissions), poses perhaps the most significant challenge for many companies. However, it is not just the Climate Change Standard E1 that includes numerous quantitative data points, the other environmental standards also require the disclosure of material environmentally related metrics: For instance, concerning Pollution (E2), information must be provided about generated or used microplastics and the total amount of hazardous substances exiting the company as emissions, products, or part of products or services.  

Regarding Water and Marine Resources (E3), not only water consumption needs to be disclosed, but also indicators such as the total amount of recycled and reused water. The Resource Use and Circular Economy Standard (E5) also demands comprehensive information from companies about resource inflows (e.g., total weight of products used during the reporting period in tons or kilograms) and resource outflows (e.g., total amount of waste generated in tons or kilograms within the organization, categorized by type of disposal). 


A key challenge in fulfilling the reporting obligations arising from the environmental standards undoubtedly lies in the collection and consolidation of quantitative data points. Unlike HR metrics, which can often be easily extracted from systems, environmental data is currently not collected by many companies or is only gathered at specific locations. Particularly for companies with decentralized structures, they are confronted with numerous issues related to data availability and quality. Furthermore, the substantial complexity of certain indicators, especially greenhouse gas emissions, along with the lack of processes and responsibilities, compounds the challenge. Therefore, it is recommended to initially build comprehensive technical and thematic expertise and to filter out the relevant indicators through a robust materiality assessment. Based on this foundation, efficient and targeted processes and structures can be established. Especially regarding the collection of greenhouse gas emissions and all other environmental data, the implementation of a software solution should be considered. Such a solution can not only help companies consolidate data in one central place but also facilitate tasks like generating year-on-year comparisons. It may even enable the fully automated collection of specific data points if suitable interfaces are available. 

Considering the high requirements of the environmental standards, the European Commission has granted companies some simplifications for the initial years of implementation. For instance, in the first year of reporting, no information about anticipated financial effects needs to be reported, and qualitative information is sufficient for the first three years. Companies with fewer than 750 employees can also omit reporting Scope 3 emissions and all disclosure requirements from the Biodiversity Standard (E4) in the first year of reporting.  

Nevertheless, it is advisable to begin the preparation of the first sustainability report based on the ESRS early on. This will help identify potential weaknesses in existing or newly established data collection processes and familiarize all relevant responsible persons with the chosen software solution or the templates being used. After all, only when robust and reliable processes underlie environmental data can they effectively be used to manage sustainability performance and serve as indicators for achieving environmental goals. 

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