[Textile brief] ESRS E1 Climate Reporting for the CSRD

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This article was originally published on the Carbonfact blog, find the full version here.

The Corporate Sustainability Reporting Directive (CSRD) will soon become a key regulatory reporting requirement, impacting fashion and textile brands of nearly all sizes. The CSRD mandates that textile companies disclose non-financial information in compliance with the European Sustainability Reporting Standards (ESRS). While there are numerous standards, we’re going to take a closer look at E1, which focuses on climate change.

In this deep dive, we’ll not only demystify the “climate change standard,” but also demonstrate how your company can proactively track, measure, and report your environmental impact in compliance with the ESRS E1.

But first, what is the CSRD?

The CSRD, part of the European Green Deal, aims to standardize ESG reporting across the EU. It requires annual disclosures on environmental and social matters, climate targets, and transition plans, all of which must be audited. Reporting deadlines vary by company size:

These are the timelines for the reporting deadlines per company size:

·  Phase 1, 2025: Companies currently subject to the NFRD report on 2024

·  Phase 2, 2026: Large companies (both EU and non-EU) report on 2025

·  Phase 3, 2027: Listed SMEs report on 2026

·  Phase 4, 2028: Non-EU companies with branches in the EU report on 2027

As you can see, the CSRD applies to all listed companies operating in the EU, except micro-enterprises.

Learn more about the CSRD reporting requirements for fashion and footwear brands in our deep dive here.

The European Sustainability Reporting Standards (ESRS) 

In 2023, the European Commission introduced the ESRS to standardize sustainability reporting across the EU, aligning with the CSRD. Previously, sustainability reporting varied widely, often lacking crucial information for investors and stakeholders. The ESRS ensures companies provide comparable and reliable data.

The ESRS outlines the information and ESG metrics fashion brands must report to comply with the CSRD. There are 12 ESRS standards, grouped into four categories: Cross-cutting, Environment, Social, and Governance.

Cross-cutting, ESRS 1 & ESRS 2:

These standards encompass General Requirements and General Disclosures, which “cross-cut” different sectors and industries. ESRS 1 establishes general requirements, such as important concepts and principles, that must be followed when reporting under the CSRD, while ESRS 2 outlines reporting requirements that must be followed under the three topical standards (Environment, Social, and Governance).

ESRS 1 also introduces the double materiality assessment, which requires companies to report on two fronts: 1) how their business activities impact people and the environment; and 2) how environmental and social issues, such as climate change, affect the company financially. This requirement extends beyond immediate operations to the entire value chain.

 Environment (ESRS E1-E5):

These five standards require textile brands to disclose information on GHG emissions, air and water pollution, impacts on biodiversity, resource usage, and circularity. Remember, this is across the entire supply chain, so you’ll need to report about everything from where materials are sourced to end-of-life for each product. 

Social (ESRS S1-S4):

ESRS S1 to S4 represent the social indicators, offering a structured approach for apparel and footwear companies to report on their social and human rights performance. These provide information on social matters, including employee-related aspects, human rights, and diversity policies. This includes company employees as well as workers across the supply chain.

Governance (ESRS G1):

This standard focuses on corporate governance, including structures, processes, and policies influencing decision-making. It promotes transparency in disclosing governance structures, board composition, and measures for ethical business practices. Companies must integrate sustainability into their business model, report on sustainability-related risks, and align their strategies accordingly.

The European Commission will also develop specific standards for the most impacting industries, including apparel and footwear. However, the textile sector-specific ESRS standards will be delayed by two years. This means that they will be published in 2026 instead of 2024. This has no implications on the CSRD reporting timelines for apparel and footwear brands.

ESRS E1 Guide for Textile Brands: Climate Change

Let's begin with ESRS E1 reporting preparation, starting with a double materiality assessment. This narrative evaluates and identifies significant impacts, risks, and opportunities to be reported under the CSRD. For fashion and textile brands, this assessment must encompass all environmental standards.

Include your company’s climate change impacts, such as Scope 1, 2, and 3 emissions, in the assessment. Furthermore, you should analyze how climate change could affect your organization, including material sourcing capabilities, manufacturing locations, and product sales potential.

Tip: This narrative, while primarily produced in a written format, should also include detailed graphs and charts to illustrate your findings. That’s why it’s essential to have a clear understanding of your data across the entire value chain.

ESRS E1: Overview

E-1: Transition plan 

From here, you will be able to develop a transition plan, in which you create a clear strategy for tackling these issues. Here are three key elements to include:

• Your baseline emission data
• Specific decarbonization initiatives that you have identified
• Concrete goals for limiting the global increase in temperature to 1.5 C, in line with the Paris Climate Agreemen

The transition plan is essentially a transparency exercise. The targets you lay out in your plan won’t necessarily be judged upon their ambition or whether or not you are currently on track to achieve them, but rather the detail of the information you provide and your strategy.

This level of reporting and data insight requires both a bird and worm’s eye view. 

Once you have a good understanding of the source of the impact, our company modeling tool can create simulations for reducing emissions. By using real data from your catalog, this process provides meaningful targets to include in your transition plan. This information can be directly plugged into your report, making the process both transparent and easy.

 E-2: Climate change policies

Once you’ve identified a strategy, you will need to broadcast the policies that your business will put into place to achieve it. This involves identifying specific actions your team will take and the resources required to achieve these goals, addressing both mitigation practices and climate adaptation procedures.

To start, it’s essential to develop and clearly communicate the policies that will guide your ESRS E1 reporting efforts. These policies should cover the entire scope of your business's environmental impact, as well as that of your value chain. For example, you could identify a set of preferred materials that your designs will use in order to reduce emissions or convert a percentage of your energy sources to renewables.   

E-3: Actions and Resources 

Once policies are in place, you can outline the specific actions your team will take to implement them. This includes detailed steps for reducing GHG emissions, improving energy efficiency, and deploying renewable energy sources. You should also consider the necessary resources—both financial and organizational—to support these actions. 

Again, you’ll need to include detailed graphs to support your written narrative. 

E-4: Targets

Under the CSRD, companies must establish climate-related targets. This involves disclosing GHG emissions across Scope 1, Scope 2, and Scope 3, and setting clear goals for emission reduction. Targets should cover at least the 2030 timeframe and subsequent five-year periods. To ensure comparability, choose a base year within three years preceding the target period—for instance, for 2025-2030 targets, select a base year from 2022-2025.

When setting GHG emission targets, present absolute values in tons of CO2 equivalent or as a percentage relative to a base year. Ensure targets are not arbitrary; clarify if they are science-based and aligned with the 1.5°C threshold.

Lastly, your report should detail the guidance or framework applied to set these targets, incorporating climate and policy scenarios. Be sure to explain key assumptions, such as future sales volumes, customer preferences, regulatory changes, and technological advancements, and their influence on GHG emissions. Describe your strategies for decarbonization, such as enhancing energy efficiency, optimizing material use, reducing consumption, and adopting alternative fuels. Quantify how these strategies contribute to achieving your targets.

E-5: Energy consumption and mix

The Disclosure Requirement covers the amount and types of energy used by your business. To fully report on energy consumption, track fuel use from renewable and non-renewable sources, categorizing them by type such as coal, oil, natural gas, biomass, or self-generated renewables. Additionally, disclose energy intensity based on net revenue, especially in sectors with significant climate impact.

This is where Carbonfact can help make sense of and present information about energy consumption throughout your value chain. Our fashion-specific platform enables companies to track energy consumption at a granular level, defining the source type, origin, level of output, and percentage of your overall usage.

E-6: – Gross Scopes 1, 2, 3 and Total GHG emissions

ESRS E1-6 is essentially a GHG inventory and needs to be performed in alignment with the GHG Protocol methodology for Carbon Accounting. As we’ve mentioned, companies will be required to report on Scopes 1, 2, and 3. Here’s a quick review of what that means:

• Scope 1: Direct emissions from owned or controlled sources, such as emissions from company vehicles and on-site fuel combustion.
• Scope 2: Indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the reporting company.
• Scope 3: All other indirect emissions that occur in the value chain of the reporting company, including both upstream and downstream emissions such as those from purchased goods and services, business travel, waste disposal, and product use.  Read more about Carbon Accounting here. 

That’s a lot of data that needs to be aggregated and presented in a comprehensive manner. Because Carbonfact sources data directly from your company and value chain, we can clearly display percentages of GHG emissions for each scope. For example, if we look at Scope 3—which comprises 95% of a company’s carbon emissions—we can visualize each emission source in granular detail, such as employee commutes or waste generated. 

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

If your company is directly participating in GHG removals or purchasing carbon credits to finance removals and mitigation projects, you will be able to disclose this information in your report. This can be presented as: 

• GHG removals and storage from your company’s operations or your value chain, presented in metric tonnes of CO2eq. This data will need to be broken and viewed by removal activity. 
• The amount of GHG emission reductions or removals from outside your value chain that have been purchased as carbon credits. This involves providing the total amount of carbon credits verified against recognized standards, the amount canceled during the reporting period, and any planned cancellations based on existing agreements.

E-8: Internal carbon pricing

If your company employs carbon pricing schemes, disclose how they impact climate-related policies and targets. Specify the type of internal carbon pricing scheme used, such as shadow prices for capital expenditures or R&D investments.

 Detail the scope of application, including the carbon prices applied, critical assumptions used in determining these prices, and their sources. Explain the calculation methodology and alignment with science-based carbon pricing trajectories. Additionally, report approximate GHG emissions covered by these schemes across Scopes 1, 2, and 3, and their share of the company’s total emissions.

E-9: Potential financial effects from material physical and transition risks and potential climate-related opportunities

This final disclosure looks at the financial risk—including cash flows, performance, and cost of capital—that both climate change and your stated transition plan present. In addition to identifying risks, companies must disclose potential climate-related opportunities that could have positive financial impacts. For example, cost savings through energy efficiency, revenue generation from sustainable products, and access to new markets driven by the transition to low-carbon solutions. Disclosures should provide a detailed analysis of these opportunities, including quantitative and qualitative information, scenario analysis, and management strategies to capitalize on them.

Demystifying ESRS E1: Climate Change

There’s no way around it: CSRD reporting is a substantial, detail-oriented process for any company. The scope of data required to not only provide meaningful metrics, but also analyze and produce comprehensive reports is huge.  

The structure of the ESRS E1 might seem complex at first. However, the illustration below clarifies how the ESRS E1 addresses climate change and how you can interpret it. The 116 data points required can be consolidated into three concrete projects. First, understand your company's impact on climate change by calculating and reporting your greenhouse gas emissions. The second step is to figure out how to reduce these emissions by setting climate targets and creating a roadmap for decarbonization to limit global warming to 1.5°C. The third step is to manage the opportunities and risks that arise with climate change, implementing policies to help achieve your targets, including managing financial risks and opportunities.

How Carbonfact supports CSRD reporting

Carbonfact was designed to tackle sustainability reporting, specifically for fashion and textile brands. Our customized CSRD tools are built to track, measure and report in accordance with ESRS. In fact, you can export your CSRD report directly from the Carbonfact platform.

Watch the demo of our CSRD and read more about our CSRD solution for fashion and footwear here.