Climate Change

ESRS E1 contains disclosure requirements that help the users of a company’s sustainability report understand:

1. how the company affects climate change, including both positive and negative, actual and potential impacts;

2. the company’s past, current, and future mitigation efforts inline with the Paris Agreement and the goal of limiting global warming to 1.5°C;

3. the company’s plans and ability to adapt its strategy and business model in alignment with the transition to a sustainable economy, contributing to the global effort to limit warming to 1.5°C;

4. actions taken by the company to prevent, mitigate or remediate¹ actual or potential negative impacts and address associated risks and opportunities, along with the outcomes of these actions;

5. the nature, type, and extent of material risks and opportunities arising from the company’s impacts and dependencies on climate change, and the methods used to manage them;

6. the company’s short-, medium-, and long-term financial effects of climate-related risks and opportunities.

This standard includes disclosure requirements for ‘climate change mitigation’, ‘climate change adaptation’ and energy-related matters relevant to climate change.

Climate change mitigation refers to efforts made to limit global temperature rise to 1.5°C above pre-industrial levels, in line with the Paris Agreement. This standard includes disclosure requirements for addressing the seven green house gases (i.e. CO₂, CH₄, N₂O, HFCs, PFCs, SF₆ and NF₃) and managing GHG emissions and related transition risks.

Climate change adaptation refers to efforts made to adjust to both current and anticipated effects of climate change.

This standard includes disclosure requirements about climate-related hazards that pose physical risks to the company and its strategies to mitigate these risks. It also addresses transition risks linked to the necessary adaptations to these climate-related hazards.

Disclosure requirements related to ‘Energy’ cover all types of energy production and consumption.

This standard contains four chapters, each related to disclosure requirements and minimum disclosure requirements described in ESRS 2.

(Expand each chapter to view more details)

CH 1. Governance

DR related to GOV-3 : Integration of sustainability-related performance in incentive schemes

The company should disclose whether and how climate-related considerations are included in the remuneration of its administrative, management, and supervisory bodies. This includes indicating whether the performance has been evaluated based on GHG emission reduction targets reported under DR E1-4 (see chapter 4 below).

Additionally, this disclosure should specify the percentage of the remuneration for the current period linked to climate-related considerations, along with an explanation of what those climate considerations entail.

CH 2. Strategy

DR E1-1 : Transition plan for climate change mitigation

The goal of this disclosure requirement is for the company to disclose its transition plan for climate change mitigation.

A transition plan is part of an organisation’s overall approach that outlines its target, actions, and resources for moving towards a lower-carbon economy. This includes actions such as reducing emissions to align with the goal of limiting global warming to 1.5°C and achieving climate neutrality. A transition plan provides insights into a company’s past, current and future efforts to mitigate climate change.

This disclosure requirement aims to demonstrate how the company’s strategy and business model align with the transition to a sustainable economy, the goal of limiting global warming to 1.5°C in line with the Paris Agreement, and achieving climate neutrality by 2050. It should also address, where relevant, the company’s exposure to activities related to coal, oil, and gas.

This disclosure requirement requires companies to disclose the following information:

1. An explanation of how the company’s GHG emission reduction targets align with the goal of limiting global warming to 1.5°C, as outlined by the Paris Agreement (referencing DR E1-4).

2. An explanation of the decarbonization measures identified and key planned actions, including changes to the product and service portfolio, adoption to new technologies, and changes in operations, both upstream and downstream (referencing DR E1-4 and DR E1-3).

3. A description and quantification of investments and funding supporting the implementation of the transition plan, referencing key performance indicators, taxonomy-aligned capital expenditure (CapEx), and relevant CapEx plans.

4. A qualitative assessment of potential locked-in GHG emissions² from key assets and products, including an explanation of how these emissions might affect the achievement of emission reduction targets and create transition risks. This should include any plans for managing GHG-intensive and energy-intensive assets.

5. If applicable, an explanation of plans or objectives for aligning economic activities with the criteria set under the Taxonomy Regulation.

6. A disclosure of any significant CapEx investments made during the reporting period related to coal, oil and gas-related activities.

7. A statement on whether the company is excluded from EU Paris-aligned benchmarks.

8. An explanation of how the transition plans aligns with overall business strategy and financial planning.

9. Confirmation on whether the transition plan has been approved by the administrative, management, and supervisory bodies.

10. A report on the progress the company has made in implementing the transition plan.

When disclosing information about potential locked-in GHG emissions from key assets (point #4 above), the company may consider:

1. The cumulative locked-in GHG emissions from key assets, assessed from the reporting year until 2030 and 2050 in terms of tCO₂eq. This is calculated as the total of estimated scope 1 and scope 2 GHG emissions over the operational lifetime of key assets, which include both existing and planned assets e.g., facilities, equipment, or installations. Firmly planned assets are those that the company is likely to deploy in the next 5 years.

2. The cumulative locked-in GHG emissions from the direct use-phase GHG emissions of sold products, assessed in tCO₂eq. This is determined by multiplying the sales volume of products by the estimated direct use-phase GHG emissions over the products’ expected lifetime. This requirement applies only if the ‘use of sold products’ is identified as significant under DR E1-6.

3. An explanation of the plans to manage the GHG-intensive and energy-intensive assets and products, including how the company plans to transform, decommission, or phase them out.

When disclosing information on its plans or objectives for aligning economic activities with the criteria set under the EU Taxonomy regulation (point #5 above), the company should explain how the alignment of its economic activities with the regulation is expected to evolve over time to support its transition to a sustainable economy.

If the company does not have a transition plan in place, it should state whether it plans to adopt one, and if so, provide a timeline for when it will do so.

DR related to ESRS 2 SBM-3 : Material impacts, risks and opportunities and their interaction with strategy and business model

For each material climate-related risk identified, the company should explain whether it considers the risk as a physical risk³ or transition risk⁴.

Additionally, the company should describe the resilience of its strategy and business model concerning climate change. The description should include:

1. the scope of the resilience analysis⁵;

2. how and when the resilience analysis was conducted, including the use of climate scenario analysis⁶ (see ESRS 2 IRO-1);

3. the results of the resilience analysis, including the outcomes of the scenario analysis.

When explaining the scope of the resilience analysis, the company should explain which part of its own operations and upstream and downstream value chain, as well as which material physical risks and transition risks may have been excluded from the analysis.

When disclosing how the resilience analysis was conducted, the company should explain:

1. the critical assumptions about how the transition to a lower-carbon and resilient economy will impact macroeconomic trends, energy consumption and mix, and technology deployment;

2. the time horizons used and their alignment with the climate and business scenarios for identifying material physical and transition risks, as well as for setting GHG emission reduction targets (as reported under DR E1-4);

3. how the anticipated financial effects of material physical and transition risks (as required by DR E1-9), as well as mitigation actions and resources (disclosed under DR E1-3), were considered.

When disclosing the results of the resilience analysis, the company should explain the following:

1. the areas of uncertainty within the resilience analysis and how the assets and business activities at risk are factored into the company’s strategy, investment decisions, and current and planned mitigation actions;

2. the company’s ability to adapt its strategy and business model to climate change in the short-, medium-, and long-term, including securing access to finance at affordable costs, redeploying, upgrading or decommissioning existing assets, shifting its products and services portfolio, or re-skilling its workforce.

CH 3. Impact, risk and opportunity management

DR related to ESRS 2 IRO-1 : Description of the processes to identify and assess material climate related impacts, risks and opportunities

The company should describe the process it uses to identify and assess climate-related IROs. This description should include the following:

1. Impacts on climate change, in particular its GHG emissions, as required by DR E1-6.

2. Climate-related physical risks in its own operations and along the upstream and downstream value chain, in particular:

   1. the identification of climate-related harzards, considering at least high emission climate scenarios; and
   2. the assessment of how its assets and business activities may be exposed to these climate-related hazards, creating gross physical risks for the company.

3. Climate-related transition risks and opportunities in its own operations and along the upstream and downstream value chain, in particular:

   1. the identification of climate-related transition events, considering at least a climate scenario aligned with limiting global warming to 1.5°C with limited to no overshoot; and
   2. the assessment of how its assets and business activities may be exposed to these climate-related transition events, creating gross transition risks or opportunities for the company.

When disclosing information on the processes to identify and assess climate impacts as required in point #1, the company should explain how it has:

1. screened its activities and plans to identify both actual and potential future sources of GHG emissions, and if applicable, other climate-related impacts such as emissions of black carbon or tropospheric ozone or land-use changes, in its own operations and across its value chain,

2. assessed its actual and potential impacts on climate change, specifically its total GHG emissions, to understand the scope and scale of its contribution to climate change. This includes evaluating direct and indirect emissions across all relevant operational and value chain activities.

When disclosing information about climate-related physical risks and transition risks (points #2 and #3 above), the company should explain how it used climate-related scenario analysis to identify and assess physical risks and transition risks and opportunities. This explanation should include:

1. the range of climate scenarios considered, including scenarios aligned with limiting global warming to 1.5°C, as well as other high-emission scenarios;

2. how these scenarios were applied over different time horizons (short-, medium-, and long-term) to assess the potential physical and transition risks and opportunities;

3. the role of scenario analysis in shaping the understanding of potential impacts on assets, business activities, and operations, and how these insights inform the company’s risk management and strategic decisions.

Specifically, when disclosing information on the process to identify and assess physical risks as required under point #2, the company should explain whether and how it has:

1. identified climate related hazards over the short-, medium-, and long-term, and screened its assets and activities for exposure to these hazards;

2. defined short-, medium-, and long-term time horizons, linking them to the lifetime of its assets, strategic planning, and capital allocation plans;

3. assessed the extent to which its assets and activities may be sensitive and exposed to the identified hazards, considering the likelihood, magnitude, and duration of the hazards and the geographical coordinates of its locations and supply chains; and

4. used high emission climate scenarios to inform the identification of hazards and the assessment of exposure, such as IPCC SSP5-8.5⁷ or NGFS (Network for Greening the Financial System) scenarios⁸ with high physical risks.

On the other hand, when disclosing information on the processes to identify transition risks and opportunities as required under point #3, the company should explain whether and how it has:

1. identified transition events over the short-, medium-, or long term, and screened its assets and activities for exposure to these events. The long-term may extend beyond 10 years and align with climate-related public policy goals.

2. assessed the extent to which its assets and activities may be exposed and sensitive to the identified transition events, considering the likelihood, magnitude, and duration of these events.

3. used climate-related scenario analysis to inform the identification of transition events and the assessment of exposure, considering at least a scenario consistent with the Paris Agreement and limiting global warming to 1.5°C, such as those from International Energy Agency or NGFS scenarios.

4. identified assets and business activities that are incompatible with, or require significant effort to align with a transition to a climate-neutral economy, such as those with significant locked-in GHG emissions or those that are incompatible with Taxonomy-alignment.

The company should explain how it has used climate-related scenario analysis to inform the identification and assessment of physical and transition risks and opportunities over the short-, medium-, and long-term, including:

1. which scenarios were used, their sources, and alignment with state-of-the-art science;

2. the key forces and drivers considered in each scenario and their relevance to the company, such as policy assumptions, macroeconomic trends, energy usage, and technological assumptions;

3. the key inputs and constraints of the scenarios, including their level of detail e.g. whether the analysis of physical risks uses geospatial data specific to the company’s locations or broader national/regional data.

The organisation should also briefly explain how the climate scenarios used are compatible with the critical climate related assumptions made in the financial statements.

Guidance on conducting scenario analysis can be obtained from:

1. TCFD technical supplement on “The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities” (2017)

2. TCFD “Guidance on Scenario Analysis for Non-Financial Companies” (2020)

3. ISO 14091:2021 “Adaptation to climate change — Guidelines on vulnerability, impacts, and risk assessment”

4. Network for Greening the Financial System (NGFS)

5. Any other recognized EU, national, regional or local industry standards.

DR E1-2 : Policies related to climate change mitigation and adaptation

This disclosure requirement aims to help users of a company’s sustainability report understand if the company has policies in place to identify, assess, manage, and fix any climate change-related IROs that are most important to them.

The company should describe the policies it has adopted to manage material IROs related to climate change mitigation and adaptation. These policies are in accordance with “ESRS 2 MDR-P - Policies adopted to manage material sustainability matters”.

The company should indicate whether and how its policies address the following areas:

1. climate change mitigation
2. climate change adaptation
3. energy efficiency
4. renewable energy deployment

Climate change mitigation policies focus on managing a company’s GHG emissions, GHG removals, and risks related to the transition to a low-carbon economy. These policies apply both to the company’s operations and its upstream and downstream value chain. Their requirement may cover specific climate change mitigation policies as well as other policies that indirectly support it, such as training, procurement, supply chain, investment, or product development policies.

Climate change adaptation policies focus on managing the company’s physical climate risks and transition risks related to adapting to climate change. These policies can be standalone or include other policies that indirectly support adaptation, such as training, emergency, or health and safety policies.

Policies related to climate change mitigation or adaptation may be disclosed separately as their objectives, people involved, actions and resources needed to implement them are different.

DR E1-3 : Actions and resources in relation to climate change policies

The objective of this disclosure requirement is to provide an understanding of the key actions taken and planned to achieve climate-related policy objectives and targets.

The information disclosed here should follow the principles stated in “ESRS 2 MDR-A Actions and resources in relation to sustainability matters”. Additionally, companies should disclose the following:

1. when listing key actions taken in the reporting year and planned for the future, present the climate change mitigation actions by decarbonisation lever including nature-based solutions;

2. when describing the outcome of the actions for climate change mitigation, include the achieved and expected GHG emission reduction; and

3. relate significant monetary amounts of CapEx and OpEx required to implement the actions taken or planned to:

   1. the relevant line items or notes in the financial statements;

   2. the KPIs required under Commission Delegated Regulation (EU) 2021/2178;

   3. if applicable, the CapEx plan required by Commission Delegated Regulation (EU) 2021/2178.

When disclosing actions in point #1 and #2 above, the company may:

1. list its main actions and plans for implementing climate change mitigation and adaptation policies, either individually or together,

2. group different mitigation actions (like energy efficiency, electrification, switching fuels, using renewable energy, changing products, or decarbonizing the supply chain) based on the company’s specific approach;

3. share key mitigation actions along with measurable targets, broken down by the different decarbonization methods;

4. disclose adaptation actions, categorizing them by the type of solution (such as nature-based, engineering, or technological solutions).

When sharing information on resources, the company should only disclose the significant OpEx and CapEx amounts needed to carry out its climate-related actions. The goal is to show that the actions are credible, not to match these amounts with financial statements. The disclosed amounts should include new investments in both physical and intangible assets made during the current year, as well as planned investments for the future. These amounts should only reflect the additional financial investments directly contributing to meeting the company’s targets.

Additionally, these amounts should match the KPIs for OpEx and CapEx, and if relevant, the CapEx plan required by Commission Delegated Regulation (EU) 2021/2178. If there are any differences between the significant OpEx and CapEx disclosed and the KPIs in this regulation, the company should explain the reasons, such as including activities that are not eligible under the regulation. The company may also organize its actions by economic activity to compare it’s OpEx and CapEx, and if applicable, compare its plans to its Taxonomy-aligned KPIs.

According to ESRS 2 MDR-A, the company should explain whether and how its ability to carry out its actions depends on the availability and allocation of resources. Access to financing at a reasonable cost is crucial for implementing the company’s actions, which may include adapting to changes in supply and demand, making acquisitions, or investing in significant research and development (R&D).

CH 4. Metrics and targets

DR E1-4 : Targets related to climate change mitigation and adaptation

Companies should disclose whether and how they have set GHG emission reduction targets and/or any other targets to manage material climate-related IROs, for example renewable energy deployment, energy efficiency, climate change adaptation, and physical or transition risk mitigation. This disclosure should contain the information required in “ESRS 2 MDR-T : Tracking effectiveness of policies and actions through targets”.

If the company has set these targets, the following requirements should apply, in addition to those specified in ESRS 2 MDR-T.

1. The company should disclose its GHG reduction targets in absolute terms (e.g., tonnes of CO₂ equivalent) or as a percentage based on a base year. Targets can also be shown as intensity values if relevant.

   Intensity targets are expressed as ratios of GHG emissions compared to a unit of physical activity or economic output. If a company has only set a GHG intensity reduction target, it may disclose the related absolute GHG emission values for the target year and any interim target years. This could mean that the company may need to report an increase in absolute GHG emissions for those years if it expects organic business growth.

2. These targets should cover scope 1, scope 2 and scope 3 emissions, either separately or combined. If combined, the company should clarify:

   1. which scope 1, scope 2, or scope 3 emissions are covered by the target,
   2. the share of each scope in the target,
   3. the specific GHGs included, and
   4. how it ensures the consistency of these targets with its GHG inventory boundaries(as required by DR E1-6).

   GHG emission reduction targets should be gross targets, meaning they should not include GHG removals, carbon credits or avoided emissions as a means of achieving the targets.

   The company should also state the method used to calculate scope 2 emissions in the target (either the location-based method or market-based method). If the boundary of the GHG emission reduction target is different from the boundary used in reporting emissions under DR E1-6, the company should disclose which gases are included and the percentage of emissions covered for scope 1, scope 2, scope 3 and total emissions.

   The company should apply the same rules when setting GHG emission reduction targets for its subsidiaries.

3. The company should disclose the base year and baseline values for its targets. Starting in 2030, the base year should be updated every five years. The company may provide progress data from before the current base year, as long as it follows the standards.

   The company should briefly explain how it ensured that the baseline value is representative of the activities covered and external factors e.g., unusual weather affecting energy use and emissions. This can be done by normalizing the baseline value or using a 3-year average to make it more accurate.

   The baseline value and base year should not be changed unless there are significant changes to the target or reporting boundary. If changes are made, the company should explain how the new baseline affects the target, progress tracking, and reporting. To ensure comparability, new targets should use a base year that is no more than 3 years before the start of the new target period. For example, if 2030 is the target year, and the target period is 2025-2030, the base year should be between 2022 and 2025.

4. GHG emission reduction targets should include target values for the year 2030 at the very least, and if available, for the year 2050.

5. The company should state whether the targets are aligned with limiting global warming to 1.5°C and if they are based on scientific methods. If so, it should identify the framework and methods used, including;

   1. whether the targets follow a sector-specific decarbonization path;
   2. the climate and policy scenarios considered;
   3. if the targets have been externally verified;
   4. how future changes e.g., sales volumes, customer demand, regulation, or technology may affect its emissions and reductions.

6. The company should describe the methods it plans on using to reduce emissions e.g improving energy or material efficiency, reducing consumption, switching to renewable energy or other fuels, and phasing out or replacing products and processes. It should also give an estimate of the contribution of each method to achieve the target. Specifically, it should disclose:

   1. the decarbonization actions it is taking, including the specific levers and their estimated contributions to reaching its GHG reduction targets, broken down by each scope 1, 2 and 3,

   2. whether it plans to adopt new technologies and how these will help achieve its GHG reduction targets,

   3. whether and how it has considered a variety of climate scenarios, including one that supports limiting global warming to 1.5°C, to identify important environmental, social, technological, market, and policy changes to shape its decarbonization actions.

When providing information for point #4 and point #5, the company should present data for the target period based on either a sector-specific emissions pathway or a general pathway aligned with limiting global warming to 1.5°C. To do this, the company should calculate a 1.5°C-aligned reference target value for scope 1 and scope2 emissions, and if applicable, a separate value for scope 3 emissions. The reference target is used to compare the company’s own GHG reduction targets or interim targets for the respective scopes.

The reference target value depends on the base year and baseline emissions of the company’s GHG reduction target. Therefore, companies with a recent base year or higher baseline emissions might find their target easier to achieve than companies that have already made significant efforts to reduce emissions. Companies that have already reduced emissions inline with a 1.5°C-aligned pathway (either cross-sector or sector-specific) can adjust their emissions to determine the reference target value. If a company adjusts its baseline emissions, it should not include GHG reductions before 2020 and should provide evidence of the emissions reductions it has already achieved.

DR E1-5 : Energy consumption and mix

This disclosure requires a company to disclose its energy consumption and mix. This includes the total energy consumption in absolute values, improvement in energy efficiency, exposure to coal, oil and gas related activities, and the share of renewable energy in its overall energy mix.

Total energy consumption should be disaggregated as follows:

1. total energy consumption from fossil fuels;

2. total energy consumption from nuclear sources;

3. total energy consumption from renewable sources, disaggregated by:

   1. fuel consumption for renewable sources including biomass, biofuels, biogas, hydrogen, etc;
   2. consumption of purchased or acquired electricity, heat, steam, and cooling from renewable sources; and
   3. consumption of self-generated non-fuel renewable energy.

When reporting information on energy consumption, the company should:

1. report energy only from processes it owns or controls, using the same reporting boundaries as those used while reporting scope 1 and scope 2 GHG emissions,

2. exclude feedstock and fuels not burned for energy purposes. If the company uses fuel as feedstock, it can report this separately,

3. report all energy information in Mega-Watt-hours (MWh) using Lower Heating Value or net calorific value.

4. report all energy data as final energy consumption, showing how much energy the company actually uses,

5. avoid double counting fuel consumption when reporting self-generated energy. If the company generates electricity and uses it, it should only count the energy used once, under fuel consumption.

6. not offset energy consumption, even if self-generated energy is sold and used by a third party,

7. not include energy sourced within the company’s boundaries as “purchased or acquired” energy,

8. report steam, heat or cooling received from a third party’s industrial process as “purchased or acquired” energy,

9. count renewable hydrogen as a renewable fuel. Hydrogen not fully derived from renewable sources should be reported under “fuel consumption from other non-renewable sources”,

10. take a conservative approach when separating electricity, steam, heat, or cooling from renewable and non-renewable sources, based on the method used to calculate market-based scope 2 GHG emissions. The company should only count energy as renewable if the contract clearly defines the energy’s origin e.g. through renewable power purchase agreements, green electricity tariffs, Guarantees of Origin in Europe, or Renewable Energy Certificates in the US and Canada.

Companies in high climate impact sectors should further disaggregate their total energy consumption from fossil fuels by type of fossil fuel i.e. coal and coal products, oil and petroleum products, natural gas, other types of fossil fuels, and consumption of purchased or acquired electricity, heat, steam, or cooling from fossil sources.

Where applicable, the company should also disaggregate and disclose separately its non-renewable energy production and renewable energy production in MWh.

Companies in high climate impact sectors should also disclose information on the energy intensity associated with their activities. Energy intensity is the total energy consumption per net revenue. The company should specify the high climate sectors used to determine the energy intensity. It should disclose the reconciliation to the relevant line item or notes in the financial statements of the net revenue amount from activities in high climate sectors. This may be presented either:

1. by a cross-reference to the related line item or disclosure in the financial statements; or if this is not possible
2. by a quantitative reconciliation using a tabular format as shown on page 97.

When preparing information on energy intensity, the company should:

1. calculate the energy intensity ratio using the formula below;

\[\frac{Total~energy~consumption~from~activities~in~high~climate~impact~sectors~(MWh)}{Net~revenue~from~activities~in~high~climate~impact~sectors~(Monetaary~unit)}\]

2. express the total energy consumption in MWh and the net revenue in monetart units e.g. Euros;

3. the numerator and denominator should only consist of the proportion of the total final energy consumption (numerator) and net revenue (denominator) that are attributable to activities in high climate sectors, ensuring the consistency in the scope of both the numerator and denominator;

4. calculate the total energy consumption disaggregated by fuel source;

5. calculate the net revenue in line with the accounting standards requirement applicable for the financial statements i.e., IFRS 15 Revenue from Contracts with Customers or GAAP requirements.

DR E1-6 : Gross Scopes 1, 2, 3 and Total GHG emissions

This disclosure requirement requires companies to disclose their scope 1, scope 2, scope 3 and total GHG emissions in tonnes of CO₂ equivalent.

Scope 1 GHG emissions help users understand a company’s direct impact on climate change and how much of its emissions are regulated by emission trading schemes. Scope 2 emissions (indirect emissions from consumed energy) provide an understanding of the company’s impact from the energy it purchases or acquires. Scope 3 emissions provide insights into emissions from the company’s upstream and downstream value chains. For many companies, scope 3 emissions may be the largest part of their total emissions. Reporting on total GHG emissions gives a full picture of the company’s emissions, including those from both its own operations and its value chain. This information is essential for measuring progress in meeting GHG reduction targets and EU goals. It also provides an understanding of the company’s climate-related transition risks.

The disclosure of scope 1 emissions should include:

1. the gross scope 1 emissions in metric tonnes of CO₂eq; and
2. the percentage of scope 1 emissions from regulated emission trading schemes.

When preparing information on gross scope 1 emissions, the company should:

1. measure GHG emissions from stationary combustion, mobile combustion, process emissions, and fugitive emissions, using appropriate data that includes non-renewable fuel consumption;

2. use consistent and suitable emission factors;

3. report biogenic CO₂ emissions from the combustion or degradation of biomass separately from scope 1 emissions, but include other GHG emissions like CH₄ and N₂O;

4. exclude removals or any purchased, sold, or transferred carbon credits or GHG allowances from scope 1 emission calculations; and

5. for activities under the EU ETS, report scope 1 emissions following the EU ETS rules. This methodology can also be used for activities in regions or sectors not covered by the EU ETS.

When preparing the information on the percentage of scope 1 GHG emissions from regulated emission trading schemes (ETS), the company should:

1. include GHG emissions from the installation it operates that are part of regulated ETS’, like the EU-ETS,

2. only include emissions of the 7 main gases ie CO₂, CH₄, N₂O, HFCs, PFCs, SF₆ and NF₃,

3. use the same accounting period for both gross scope 1 emissions and the emissions regulated under the ETS,

4. calculate the share of scope 1 emissions from regulated ETS as:

\[\frac{GHG~Emissions~ in ~(t CO2eq)~ from~ EU~ ETS~ installations + national~ ETS~ installations + nonEU~ ETS~ installations}{Scope~ 1~ GHG~ emissions~ (t CO2eq)}\]

The disclosure of scope 2 emissions should include:

1. the gross location-based⁹ scope 2 emissions in metric tonnes of CO₂eq; and
2. the gross market-based¹⁰ scope 2 emissions in metric tonnes of CO₂eq.

When preparing information on gross scope 2 GHG emissions, the company should:

1. consider the principles and requirements of the GHG Protocol Scope 2 Guidance (version 2015) in particular the scope 2 quality criteria relating to contractual instruments; it may also consider Commission Recommendation (EU) 2021/2279 or the relevant requirements for the quantification of indirect GHG emissions from imported energy in EN ISO 14064-1:2018;

2. include purchased or acquired electricity, steam, heat, and cooling consumed by the company;

3. avoid double counting of GHG emissions reported under scope 1 or scope 3;

4. apply the location-based and market-based methods to calculate scope 2 emissions and provide information on the share and types of contractual instruments. The company should provide information about the share and types of contractual instruments used for the sale and purchase of energy bundled with attributes about the energy generation or for unbundled energy attribute claims;

5. disclose biogenic emissions of CO₂ carbon from the combustion or biodegradation of biomass separately from the scope 2 emissions but include emissions of other types, in particular CH₄ and N₂O. In case the emission factors applied do not separate the percentage of biomass or biogenic CO₂, the company should disclose this. In case GHG emissions other than CO2 (particularly CH₄ and N₂O) are not available for, or excluded from, location-based grid average emissions factors or with the market-based method information, the company should disclose this;

6. not include removals, or any purchased, sold or transferred carbon credits or GHG allowances in the calculation of scope 2 GHG emissions.

Scope 1 and scope 2 disclosures should be separated into two categories:

1. emissions from the consolidated accounting group i.e. the parent company and its subsidiaries;
2. emissions from investees like associates, joint ventures, unconsolidated subsidiaries, and joint arrangements not structured through an entity e.g. jointly controlled operations and assets, where the company has operational control.

Scope 3 disclosures should include emissions from each scope 3 category that is within the organisational boundary.

When preparing information on scope 3 emissions, the company should;

1. follow the principles of the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (2011), and may also consider EU Commission Recommendation (EU) 2021/2279 or EN ISO 14064-1:2018 for quantifying indirect GHG emissions,

2. if it’s a financial institution, refer to the PCAF GHG Accounting and Reporting Standard (2022), specifically for financed emissions,

3. screen scope 3 GHG emissions based on the 15 categories identified by the GHG Protocol or EN ISO 14064-1:2018, excluding energy imports,

4. identify and disclose significant scope 3 categories based on the magnitude of emissions and other criteria e.g., financial spend, transition risks, stakeholder views,

5. calculate or estimate GHG emissions for significant scope 3 categories using suitable emission factors,

6. update scope 3 GHG emissions annually for significant categories, and update the full scope 3 inventory every 3 years or after a significant change,

7. disclose the extent to which the emissions are measured using specific activity data from upstream and downstream value chains,

8. for each significant scope 3 category, disclose the reporting boundaries, calculation methods, and any tools used. The company should ensure consistency with the GHG Protocol. Categories include:

   1. indirect scope 3 emissions from the parent and its subsidiaries,
   2. indirect scope 3 emissions from associates, joint ventures, and unconsolidated subsidiaries controlled by the company,
   3. scope 1, 2, and 3 emissions from entities in the value chain where the company doesn’t have operational control.

9. disclose a list of included and excluded scope 3 categories, with justification for exclusions,

10. disclose biogenic CO₂ emissions from biomass combustion or biodegradation separately from scope 3 emissions, and include other GHGs (such as CH₄ and N₂O) and CO₂ emissions from biomass life cycles (e.g., processing, transport),

11. not include any carbon credits, removals, or GHG allowances in the calculation of scope 3 emissions.

The company should also disclose the GHG emissions from purchased cloud computing and data center services as a subset of the scope 3 category “upstream purchased goods and services”, only if it finds these emissions material.

The disclosure of total GHG emissions should be the sum of scope 1, scope 2 and scope 3 emissions. These emissions should be disclosed with a disaggregation that makes a distinction of:

1. the total GHG emissions derived from underlying scope 2 emissions measured using the location-based method; and
2. the total GHG emissions derived from the underlying scope 2 emissions measured using the market-based method.

Total GHG emissions should be calculated as follows:

\[ Total~GHG~emissions_{location\_based}~(tCO_{2}eq) = Gross~Scope~ 1 + Gross~ Scope~ 2_{location\_based} + Gross~ Scope ~3 \]

\[Total~GHG~emissions_{market\_based}~(tCO_{2}eq) = Gross~Scope~ 1 + Gross~ Scope~ 2_{market\_based} + Gross~ Scope ~3\]

The company may disclose its total GHG emissions disaggregated by major countries and, if applicable, by operating segments, applying the same segments used in the financial statements (e.g., IFRS 8 or local GAAP). A breakdown of emissions by country may be excluded if this data is not available.

The total GHG emissions disaggregated by scope may be graphically presented in the sustainability statement (e.g., as a bar or pie chart) showing the split of GHG emissions across the value chain (Upstream, Own operations, Transport, Downstream).

If there are significant changes in the definition of the reporting company or its upstream or downstream value chain, the company should disclose these changes and explain how they affect the ability to compare GHG emissions from one year to the next.

When preparing the information on GHG emissions, the company should:

1. Follow the principles, requirements, and guidance from the GHG Protocol Corporate Standard (2004 version). The company may also consider EU Commission Recommendation (EU) 2021/2279 or the EN ISO 14064-1:2018 standards. If the company uses ISO 14064-1:2018 for GHG accounting, it should still comply with the requirements of this standard, such as reporting boundaries and market-based scope 2 GHG emissions.

2. Disclose the methodologies, significant assumptions, and emission factors used to calculate or measure GHG emissions, and explain why they were chosen. The company should also provide a reference or link to any calculation tools used.

3. Include emissions of all the major GHGs ie CO₂, CH₄, N₂O, HFCs, PFCs, SF₆ and NF₃. Additional GHGs may be included if they are significant.

4. Use the most recent Glomal Warming Potential (GWP) values published by the IPCC based on a 100-year time horizon when calculating CO₂eq emissions for non-CO₂ gases.

Additionally, the company should disaggregate its emissions as needed. For example, the company can break down its scope 1, scope 2, scope 3 and total emissions by factors such as country, operating segments, economic activity, subsidiary, specific gases, or source e.g stationary combustion, mobile combustion, process emissions, and fugitive emissions.

The company should consolidate 100% of the GHG emissions from the entities it operationally controls. This occurs when the company has the license or permit to operate the assets of these entities. If the company has part-time operational control defined by a contract, it should still consolidate 100% of the GHG emissions for the time it has operational control.

If a company has a different reporting period than some or all entities in its value chain, it can still measure and report its GHG emissions using information from those entities, as long as:

1. the company uses the most recent data available from those entities;
2. the reporting periods for the company and the entities are the same;
3. the company discloses any significant events or changes that affect its GHG emissions, which occur between the reporting periods of the entities and the company’s financial statement date.

The company should also disclose its GHG emissions intensity. This is the total GHG emissions per net revenue. This information should be presented in metric tonnes of CO₂ equivalent per net revenue. The company should disclose the reconciliation to the relevant line item or notes in the financial statements of the net revenue amounts.

When disclosing the information on GHG intensity based on net revenue, the company should:

1. calculate the GHG intensity ratio using the formula below,

\[ \frac{Total ~GHG ~emissions ~(tCO_{2}eq)}{Net ~revenue ~(Monetary~ Unit)}\]

2. express the total GHG emissions in metric tonnes of CO₂eq and the net revenue in monetary units (e.g., Euros), presenting results for both the market-based and location-based methods,

3. include the total GHG emissions in the numerator and overall net revenue in the denominator,

4. calculate the total GHG emissions as detailed in this section,

5. calculate the net revenue in accordance with accounting standards applied for financial statements, such as IFRS 15 or local GAAP.

DR E1-7 : GHG removals and GHG mitigation projects financed through carbon credits

This disclosure requirement enables users to understand the company’s efforts to permanently remove or actively support the removal of GHG from the atmosphere, in order to support and achieve its net-zero claims.

The company should disclose the following information:

1. GHG removals and storage in metric tonnes of CO₂ equivalent resulting from projects it has developed in its own operation or contributed to in its upstream and downstream value chain.

2. The amount of GHG emission reductions or removals from climate change mitigation projects outside its value chain that it has financed or intends to finance through any purchase of carbon credits.

The disclosure on GHG removal and storage should include:

1. the total amount of GHG removals and storage in metric tonnes of CO₂eq disaggregated and separately disclosed for the amount related to the company’s own operations and its upstream and downstream value chain, and broken down by removal activity.

2. the calculation assumptions, methodologies, and frameworks applied by the company.

For each removal and storage activity, the company should disclose:

1. the GHGs concerned,

2. whether the removal and storage are biogenic or from:

   1. land-use change (e.g., afforestation, reforestation, forest restoration, urban tree planting, agroforestry, building soil carbon, etc),
   2. technological (e.g direct air capture), or
   3. hybrid (e.g., bioenergy with CO₂ capture and storage),

   including technological details about the removal, the type of storage, and, if applicable, the transport of removed GHGs,

3. if applicable, a brief explanation of whether the activity qualifies as a nature-based solution, and

4. how the risk of non-permanence is anaged, including determining and monitoring leakage and reversal events, as appropriate.

The company should also:

1. consider the GHG Protocol Corporate Standard (version 2004), Product Standard (version 2011), Agriculture Guidance (version 2014), Land use, land-use change, and forestry Guidance for GHG project accounting (version 2006).

2. apply consensus methods on accounting for GHG removals as soon as they are available, including the EU regulatory framework for the certification of CO2 removals,

3. if applicable, explain the role of removals for its climate change mitigation policy,

4. include removals from operations that it owns, controls, or contributes to and that have not been sold to another party through carbon credits,

5. if applicable, mark GHG removal activities in its own operations or the value chain that have been converted into carbon credits and sold to other parties on the voluntary market, accounting for the GHG emissions associated with the removal activity (including transport and storage) under DR E1-6 (Scopes 1, 2, or 3). To increase transparency, the company may disclose the GHG emissions associated with these activities separately from the amount of removed GHG emissions,

6. in case of a reversal, account for the respective GHG emissions as an offset for the removals in the reporting period,

7. use the most recent Global Warming Potential (GWP) values published by the IPCC based on a 100-year time horizon to calculate CO₂eq emissions of non-CO₂ gases and describe the assumptions made, methodologies, and frameworks applied for the calculation of GHG removals,

8. consider nature-based solutions.

The company should disaggregate and separately disclose the GHG removals that occur in its own operations and those that occur in its upstream and downstream value chain. GHG removal activities in the upstream and downstream value chain should include those that the company is actively supporting, for example, through a cooperation project with a supplier. The company is not expected to include any GHG removals that may occur in its upstream and downstream value chain that it is not aware of.

The disclosure on carbon credits should include:

1. the total amount of carbon credits outside the organisation’s value chain in metric tonnes of CO₂eq that are verified against recognised quality standards and cancelled in the reporting period; and

2. the total amount of carbon credits outside the organisation’s value chain in metric tonnes of CO₂eq planned to be cancelled in the future and whether they are based on existing contractual agreements or not.

If the company discloses a net-zero target in addition to the gross GHG emission reduction targets in accordance with DR E1-4, it should explain;

1. the scope, methodologies, and frameworks applied;
2. how the residual GHG emissions (after approximately 90-95% of GHG emission reduction, with the possibility of justified sectoral variation in line with a recognised sectoral decarbonisation pathway) are intended to be neutralised. This can include GHG removals in its own operations and upstream and downstream value chain.

In a case where the organisation has made public claims of GHG neutrality that involve the use of carbon credits, it should explain;

1. whether and how these claims are accompanied by GHG emission reduction targets, as required by DR E1-4,

2. whether and how these claims and the resilience on carbon credits neither impede nor reduce the achievement of its GHG emission reduction or its net-zero target,

3. the credibility and integrity of the carbon credits used, including by reference to recognised quality standards.

In addition to their GHG emission inventories, companies should provide transparency on how and to what extent they either enhance natural sinks or apply technical solutions to remove GHGs from the atmosphere in their own operations and upstream and downstream value chain. While there are no generally accepted concepts and methodologies for accounting for GHG removals, this standard aims to increase the transparency on the company’s efforts to remove GHGs from the atmosphere. The GHG removals outside the value chain that the company supports through the purchase of carbon credits should be disclosed separately.

This standard requires the company to:

1. disclose whether it uses carbon credits separately from its GHG emissions and GHG emission reduction targets,
2. show the extent of its use of carbon credits and the quality criteria it applies for selecting those carbon credits,
3. ensure carbon credits purchased fulfill high-quality standards, particularly for financing GHG emission reduction projects outside the company’s value chain.

When disclosing information on carbon credits, the company should disclose the following disaggregation as applicable:

1. the share (percentage of volume) of reduction projects and removal projects,

2. for carbon credits from removal projects, whether they are from biogenic or technological sinks,

3. the share (percentage of volume) for each recognized quality standard,

4. the share (percentage of volume) issued from projects in the EU,

5. the share (percentage of volume) that qualifies as a corresponding adjustment under Article 6 of the Paris Agreement.

When preparing information on carbon credits obtained from projects outside its value chain that it has financed or intends to finance, the company should:

1. consider recognized quality standards,

2. if applicable, explain the role of carbon credits in its climate change mitigation policy,

3. not include carbon credits issued from GHG emission reduction projects within its value chain, as the respective GHG emission reductions should be disclosed under DR E1-6 (scope 2 or scope 3) to avoid double counting,

4. not include carbon credits from GHG removal projects within its value chain, as the respective GHG removals may already be accounted for in this standard, avoiding double counting,

5. not disclose carbon credits as an offset for its GHG emissions under DR E1-6 on GHG emissions,

6. not disclose carbon credits as a means to reach the GHG emission reduction targets disclosed under DR E1-4, and

7. calculate the amount of carbon credits to be cancelled in the future, as the sum of carbon credits in metric tonnes of CO₂eq over the duration of existing contractual agreements.

DR E1-8 : Internal carbon pricing

The company should disclose whether it applies internal carbon pricing schemes and if so, explain how these schemes support its decision-making and incentivize the implementation of climate-related policies and targets.

The information to be disclosed here includes the following details:

1. the type of internal carbon pricing scheme, which may include shadow prices for capital expenditure or researcn and development (R&D) decisions, internal arbon fees, or internal carbon funds;

2. the scope of application, including assumptions made in determining these prices, the source of applied prices, and their relevance,

3. the calculation methodology, how scientific guidance was used in setting the prices, and how these prices align with science-based carbon pricing trajectories for future development;

4. approximate gross GHG emission volumes for the current year, categorised by scope 1, scope 2, and if applicable, scope 3, in metric tonnes of CO₂eq covered by these schemes. The share of overall GHG emissions for each scope covered by the carbon pricing schemes should also be disclosed.

The company should also briefly explain whether and how the carbon prices used in internal carbon pricing schemes are consistent with those used in financial statements. This explanation should cover the internal carbon prices used for:

1. the assessment of the useful life and residual value of its assets, including intangibles, property, plant and equipment;

2. the impairment of assets;

3. the fair value of measurement of assets acquired through business acquisitions.

DR E1-9 : Anticipated financial effects from material physical and transition risks and potential climate-related opportunities

The goal of this disclosure is:

1. to understand how material physical and transition risks influence the company’s financial position, performance, and cash flows over the short-, medium-, and long-term.

2. to provide insights into how the company may financially benefit from the material climate-related opportunities.

This information should be provided in addition to the information required in ESRS 2 SBM-3, point #4.

The disclosure of anticipated financial effects from material transition risks should include:

1. the monetary amount and proportion of assets at material transition risk over the short-, medium-, and long-term before considering climate mitigation actions;

2. the proportion of assets at material transition risk addressed by climate change mitigation actions;

3. a breakdown of the carrying value of the company’s real estate assets by energy-efficiency classes;

4. liabilities that may need to be recognised in financial statements over the short-, medium-, and long-term.

5. the monetary amount and proportion of net revenue from business activities at material transition risk over the short-, medium-, and long-term, including where relevant, net revenue from customers operating in coal, oil, and gas-related activities.

The company should disclose reconciliations to the relevant line items or notes in the financial statement of the following:

1. significant amounts of the assets and net revenue at material physical risk;
2. significant amounts of the assets, liabilities, and net revenue at material transition risk.

Material climate-related physical risks and transition risks may affect the company’s financial position (e.g owned assets, financially controlled leased assets, and liabilities), performance (e.g., potential future increase/decrease in net revenue and costs due to business interruptions, increased supply prices resulting in potential margin erosions), and cash flows.

The low probability, high severity, and long-term time horizons of some climate-related physical risk exposures and the uncertainty arising from the transition to a sustainable economy mean that there will be associated material anticipated financial effect that are outside the scope of the requirements of applicable accounting standards.

Since there is no widely accepted method to assess or measure how material physical risks and transition risks may impact the company’s future financial position, performance, and cash flows, the disclosure of financial effects will depend on the company’s internal methodology and require significant judgement in determining the inputs and assumptions needed to estimate their anticipated financial effects.

When disclosing information on material physical risks, the company should explain whether and how:

1. it assessed the anticipated financial effects for assets and business activities at material physical risk. This includes explaining the scope, time horizons, calculation methods, key assumptions, parameters, and any limitations of assessment;

2. the assessment of assets and business activities at material physical risk is part of the process to identify physical risks. Specifically, the company should explain how medium- and long-term time horizons were defined and how these relate to the expected lifespan of the company’s assets, strategic planning, and capital allocation plans.

Additionally, the company should:

1. Calculate the assets at material physical risk in terms of monetary amount and as a percentage of total assets at the reporting date. This means estimating the carrying value of assets at physical risk divided by the total carrying value listed in the financial statements. The estimate can be presented as a single value or a range.

2. Consider all types of assets, including finance lease and right-of-use assets, when determining assets at material physical risk.

3. To provide context, the company should:

   1. Disclose the location of significant assets at material physical risk. For assets in the EU, they should be grouped by NUTS codes at the 3-digit level. For assets outside the EU, breakdowns by NUTS codes are required only where applicable.
   2. Separate the monetary amounts of assets at risk into acute and chronic physical risks.

4. Calculate the share of assets at material physical risk that is covered by climate change adaptation actions, based on the information disclosed under DR E1-3. This is to estimate the net risks.

The company may assess and disclose the share of net revenue from business activities at physical risk. This disclosure:

1. must be based on net revenue in line with accounting standards used for financial statements, such as IFRS 15 or local GAAP;

2. may include a breakdown of the company’s business activities with the associated percentage of total net revenue, risk factors (such as hazards, exposure, and sensitivity), and, if possible, the expected financial impact in terms of margin loss over short-, medium-, and long-term time horizons.

The nature of business activities can also be broken down by operating segments if the company has disclosed margin contributions by operational segments in its financial statements.

When disclosing the information on material transition risks, the company should explain whether and how:

1. It assessed the potential effects on future financial performance and position for assets and business activities at material transition risk. This includes details on the scope, calculation method, key assumptions, parameters, and any limitations of the assessment.

2. The assessment of assets and business activities at material transition risk is part of the process to identify transition risks. The company should also explain how scenarios are defined as required, including how medium- and long-term time frames are defined and linked to the expected lifespan of the company’s assets, strategic planning, and capital allocation plans.

Additionally,

1. Companies should estimate the value of assets at risk of becoming stranded due to climate change. Stranded assets are those that could lose value because of their high greenhouse gas emissions. This includes assets planned for use within the next 5 years. The estimate should cover the years from the reporting year until 2030 and from 2030 to 2050. Companies can provide a range of values based on different climate scenarios, including one aimed at limiting global warming to 1.5°C.

2. Companies should break down the value of their real estate assets (including leases) by their energy efficiency. This can be shown using energy consumption data (e.g., kWh/m²) or an Energy Performance Certificate (EPC) label. If this information is not available, companies can estimate the energy consumption internally and disclose the total value of such assets.

3. Companies should calculate what percentage of their total assets (including leased properties) is covered by actions to reduce climate change risks, based on the mitigation actions they’ve disclosed. The total value of assets is the amount listed on the balance sheet at the time of the report.

Other approaches and methodologies may be applied to assess how transition risks may affect the future financial position of the company. In any case, the disclosure of anticipated financial effects shall include a description of the methodologies and definitions used by the company.

The company should ensure that the data and assumptions used to assess and report the anticipated financial effects from material physical risks and transition risks in the sustainability statement are consistent with those used in the financial statements (e.g., carbon prices for assessing asset impairment, asset lifespan, estimates, and provisions). If there are any inconsistencies, the company should explain the reasons (e.g., if the full financial implications of climate-related risks are still being assessed or are not considered material in the financial statements).

For potential future effects on liabilities, the company should cross-reference the description of the emission trading schemes in the financial statements.

When disclosing information on how it assessed the anticipated financial effects for assets and business activities at material physical risk, the company should explain the nature of the cost savings (e.g., from reduced energy consumption), the time horizons, and the methodology used. This includes the scope of the assessment, key assumptions, limitations, and whether and how scenario analysis was applied.

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Footnotes

1. When a company takes action to address and rectify negative impacts that it has caused or contributed to.

2. These are greenhouse gas emissions that are expected to occur due to existing infrastructure, investments, or policies. These emissions are “locked in” because they result from long-term assets like power plants, industrial facilities, buildings, and transportation systems that rely on fossil fuels.

3. A physical risk arises from direct climate impacts, such as extreme weather events (hurricanes, floods, wildfires) and long-term shifts (rising sea levels, temperature changes). These risks can damage infrastructure, disrupt supply chains, and increase costs for businesses and communities.

4. Transition risks stem from the economic and policy shifts required to move toward a low-carbon economy. This includes stricter regulations, carbon pricing, market shifts, and technological changes that can make fossil fuel-based assets obsolete, affect company valuations, or lead to stranded assets.

5. See this article by EY.

6. See this article by the TCFD.

7. The 5 IPCC scenarios are defined on page 12 of this IPCC article.

8. See the NGFS scenarios portal

9. The location-based method quantifies scope 2 GHG emissions based on average energy generation emission factors for defined locations, including local, subnational, or national boundaries

10. The market-based method quantifies scope 2 GHG emissions based on GHG emissions emitted by the generators from which the reporting entity contractually purchases electricity bundled with instruments, or unbundled instruments on their own. These instruments include Guarantee of Origins (GOs) or Renewable Energy Certificates (RECs).