The Corporate Sustainability Reporting Directive (CSRD), effective from 1 January 2024, strengthens and harmonises the disclosure of Environmental, Social, and Governance (ESG) information by European companies.
Under this new directive, affected companies must annually produce a sustainability report that complies with European standards, known as the “ESRS” (European Sustainability Reporting Standards). The objective is to provide investors with relevant, reliable, and harmonised sustainability information, thereby promoting investment in a sustainable economy.
The first set of ESRS standards, applicable to all industries, was published on July 31, 2023. It includes five thematic standards (biodiversity, water, pollution, etc.), one of which is specifically dedicated to climate change: the ESRS E1 standard.
Specifically, the data required under the ESRS E1 standard is intended to provide report users with a clear understanding of how the company addresses climate change within its business model and how it plans to mitigate its impacts, particularly through a reduction in greenhouse gas emissions.
In practice, the ESRS E1 standard requires the publication of several key data points, including:
👉 Find in this article the complete publication deadlines for different companies subject to the directive.
👉 Find a detailed description of the publication requirements under the ESRS E1 standard in our dedicated article!
Conducting a Carbon Footprint assessment, including defining an action plan and a decarbonization trajectory, is a key step in meeting the various publication requirements of the ESRS E1 standard.
The publication requirements (Disclosure Requirements) DR6 and DR5 (related to energy) under the ESRS E1 standard mandate that companies disclose data on their total gross greenhouse gas emissions, categorised by emission categories (Scopes).
In practice, this corresponds to conducting a Carbon Footprint assessment (understood as the strict accounting of greenhouse gas emissions) for Scopes 1, 2, and 3 by the affected companies.
It is important to note, however, that the ESRS E1 standard requires the inclusion of "significant" Scope 3 emissions. In practice, the expected format aligns with the requirements of the GHG Protocol rather than ADEME's Carbon Footprint® methodology, which mandates the inclusion of the company’s entire Scope 3 emissions.
Significant Scope 3 emissions must be calculated on an annual basis, while for "non-significant" categories, updates are required at least every three years. To determine which categories are significant, each company must assess its total emissions, ensuring that non-significant categories do not exceed 20% of the total balance.
Conducting a Carbon Footprint assessment following ADEME’s methodology across all scopes, including the extensive Scope 3, is essential for a realistic representation of a company’s emissions. This comprehensive approach not only ensures accuracy but also facilitates the development of a tailored and effective global carbon strategy.
The ESRS E1 standard also requires affected companies to publish data on their climate strategy, specifically regarding actions taken to mitigate and adapt to climate change. This pertains to the publication requirements (Disclosure Requirements) DR-1, DR-3, and DR-4.
It is therefore essential to define an emission reduction plan to ensure compliance with the new sustainability reporting framework. In this regard, conducting a Carbon Footprint assessment in accordance with ADEME’s methodology allows companies to anticipate these requirements. Indeed, defining an ambitious reduction action plan is an integral part of this method.
The ESRS E1 standard's major innovation is the requirement for companies to set targets for reducing their greenhouse gas emissions, and to define a carbon trajectory aligned with a +1.5°C scenario (DR4).
These targets must be published separately for Scope 1, 2, and 3 emissions and include at least target values for 2030, and when available, for 2050. The company must specify the framework and methodology used (e.g., the Science-Based Target Initiative - SBTi).
It is important to note that defining an ambitious and relevant carbon trajectory cannot be done without first conducting a Carbon Footprint assessment, so the two exercises are closely linked.
It is also expected that there will be consistency between the formalised emission reduction plan and the established decarbonization trajectory. In other words, the company must indicate the quantitative contribution of the various decarbonization levers to achieving the trajectory.
🔎 For more details on establishing a company’s carbon trajectory and the SBTi, see our article!
In order to comply with DR-7, it is essential to conduct a Carbon Footprint assessment, which is critical for greenhouse gas absorption projects. This standard requires the declaration of the total quantity of greenhouse gases absorbed and stored (in tCO2e), as well as the assumptions and methods used for calculations. Conducting this assessment helps measure current emissions and determine the amount to be sequestered to meet climate objectives.
For DR-8 requirements, these relate to internal carbon pricing. The data to be provided includes the type of internal carbon pricing mechanism, the carbon price applied depending on the mechanism, and for the current year, the volumes of gross greenhouse gas emissions for Scopes 1, 2, and, where applicable, Scope 3, expressed in tons of CO2 equivalent covered by these mechanisms.
The ESRS E1 standard requires a total of 220 data points, making it the ESRS standard with the highest volume of required data. Most of these data points are quantitative (e.g., energy consumption in kWh, CO2 emissions in kg). Others are narrative or semi-narrative, where the expected response is predominantly or partially a written text.
Depending on the size and complexity of the company, the time required to collect the data necessary for CSRD reporting is estimated to range from 4 to 6 months. It is therefore strongly recommended that companies start collecting this data now, particularly by consulting their stakeholders.
A growing number of companies are opting to transition from Excel-based methods to technological solutions for conducting their Carbon Footprint assessments.This shift presents numerous benefits, including:
To ensure auditable calculations, each data point must include:
Digital carbon accounting tools and SaaS platforms like Aktio are among the leading technological solutions. Some companies even choose to develop their own carbon accounting software.
In addition to tools dedicated to carbon data calculation and analysis, ESG platforms are increasingly being developed to assist companies in meeting their ESG reporting obligations, specifically ensuring compliance with the CSRD directive.
Given the wide range of available options, selecting the most appropriate solution requires a clear definition of the company’s needs. This involves a thorough reflection on objectives and key issues, considering specific data to be collected and the purpose (e.g., compliance reporting, implementing and tracking a climate strategy, product footprint measurement, communication with investors or customers).
Additional criteria to assess the performance of a solution include:
For CSRD reporting, many companies opt for a “global” software solution that addresses all issues simultaneously within a single platform. While this may suit some companies, it is not always the best approach, especially for those with particularly numerous and complex ESG challenges.
In such cases, it may be beneficial to combine several tools to select the best solution for each issue (e.g., carbon footprint and trajectory, lifecycle assessments, climate risks, biodiversity, supply chain traceability). This “best of breed” approach ensures the company uses the most effective solution for each problem, guaranteeing a high level of expertise and tool adaptability.
By selecting a dedicated solution for reducing its carbon footprint, a company can gain deeper insights into its data and develop actionable plans. This tool becomes an integral part of implementing and tracking a carbon strategy, rather than merely ensuring CSRD compliance.
This approach is particularly relevant as emission reductions are the cornerstone of climate action for all companies. Addressing this issue with a dedicated solution highlights its importance and ensures the effectiveness of the approach.
In addition to selecting a suitable technological solution, it is also crucial to seek expert guidance to ensure compliance with regulatory requirements and conduct the most accurate Carbon Footprint assessment possible.
The CSRD directive is a complex and extensive regulatory framework comprising numerous texts (regulations, ESRS standards, guidance documents, etc.). Partnering with experts who thoroughly understand this framework ensures that companies adopt the right methodology for comprehensive and compliant reporting.
As the CSRD is still a relatively new regulatory framework, its evolving nature is likely to quickly reshape corporate expectations and practices. In this constantly changing context, Aktio is committed to closely monitoring the emerging needs of market players.
Aktio can assist in achieving CSRD compliance by ensuring adherence to all requirements of the ESRS E1 standard:
👉 Contact our experts today to begin your compliance journey!
