ESRS E1 Climate Change Draft (November 2022) PDF

ESRS E1 Climate change [Draft] ESRS E1 Climate change DISCLAIMER [Draft] ESRS E1 Climate change is set out in paragraphs 1 - 67 and Appendices A: Defined terms and B: Application Requirements. Appendices A and B have the same authority as the main body of the [draft] Standard. Each Disclosure Requirement objective is stated in a bold paragraph, followed by a paragraph with a description of the objective of the respective disclosures. This [draft] Standard also uses terms defined in other [draft] ESRS and should be read in the context of its objective. [Draft] ESRS E1 Climate change November 2022 Page 2 of 45 [Draft] ESRS E1 Climate change Table of contents Objective 5 Interactions with other ESRS 5 Disclosure Requirements 6 ESRS 2 General disclosures 6 Disclosure requirement related to ESRS 2 GOV-3 Integration of sustainability-related performance in incentive schemes 6 Disclosure Requirement E1-1 – Transition plan for climate change mitigation 6 Disclosure Requirement related to ESRS 2 SBM-3 – Material impacts, risks and opportunities and their interaction with strategy and business model(s) 7 Disclosure requirement related to ESRS 2 IRO-1 – Description of the processes to identify and assess material climate-related impacts, risks and opportunities 7 Impact, risk and opportunity management 8 Disclosure Requirement E1-2 – Policies related to climate change mitigation and adaptation 8 Disclosure Requirement E1-3 – Actions and resources in relation to climate change policies 8 Metrics and targets 9 Disclosure Requirement E1-4 – Targets related to climate change mitigation and adaptation 9 Disclosure Requirement E1-5 – Energy consumption and mix 9 Energy intensity based on net revenue 10 Disclosure Requirement E1-6 – Gross Scopes 1, 2, 3 and Total GHG emissions 11 GHG Intensity based on net revenue 12 Disclosure Requirement E1-7 – GHG removals and GHG mitigation projects financed through carbon credits 13 Disclosure Requirement E1-8 – Internal carbon pricing 14 Disclosure Requirement E1-9 – Potential financial effects from material physical and transition risks and potential climate-related opportunities 14 Appendix A: Defined terms 16 Appendix B: Application Requirements 21 Disclosure Requirement E1-1 – Transition plan for climate change mitigation 21 Disclosure Requirement related to [draft] ESRS 2 SBM-3 - Material impacts, risks and opportunities and their interaction with strategy and business model(s) 22 Disclosure Requirement related to [draft] ESRS 2 IRO-1 Description of the processes to identify and assess material climate-related impacts, risks and opportunities 23 Impact, risk and opportunity management 25 Disclosure Requirement E1-2 – Policies related to climate change mitigation and adaptation 25 Disclosure Requirements E1-3 – Actions and resources in relation to climate change policies 25 Metrics and targets 26 Disclosure Requirement E1-4 – Targets related to climate change mitigation and adaptation 26 Disclosure Requirement E1-5 – Energy consumption and mix 29 Energy intensity based on net revenue 30 [Draft] ESRS E1 Climate change November 2022 Page 3 of 45 [Draft] ESRS E1 Climate change Disclosure Requirements E1-6 – Gross Scopes 1, 2, 3 and Total GHG emissions GHG intensity based on net revenue Disclosure Requirement E1-7 – GHG removals and GHG mitigation projects financed through carbon credits GHG removals and storage in own operations and the value chain GHG mitigation projects financed through carbon credits Disclosure Requirement E1-8 – Internal carbon pricing Disclosure Requirement E1-9 – Potential financial effects from material physical and transition risks and potential climate-related opportunities [Draft] ESRS E1 Climate change November 2022 31 36 37 37 38 40 40 Page 4 of 45 [Draft] ESRS E1 Climate change Objective 1. The objective of this [draft] Standard is to specify Disclosure Requirements which will enable users of sustainability statements to understand: (a) how the undertaking affects climate change, in terms of material positive and negative actual and potential impacts; (b) the undertaking’s past, current, and future mitigation efforts in line with the Paris Agreement (or an updated international agreement on climate change) and limiting global warming to 1.5°C; (c) the plans and capacity of the undertaking to adapt its strategy business model(s) and in line with the transition to a sustainable economy and to contribute to limiting global warming to 1.5°C; (d) any other actions taken by the undertaking, and the result of such actions to prevent, mitigate or remediate actual or potential negative impacts; (e) the nature, type and extent of the undertaking’s material risks and opportunities arising from the undertaking’s impacts and dependencies on climate change, and how the undertaking manages them; and (f) the financial effects on the undertaking over the short-, medium- and long-term time horizons of risks and opportunities arising from the undertaking’s impacts and dependencies on climate change. 2. The requirements of this [draft] Standard take into account the requirements of related EU legislation and regulation (i.e., EU Climate Law, Climate Benchmark Standards Regulation, Sustainable Finance Disclosure Regulation (SFDR), EU Taxonomy, and EBA Pillar 3 disclosure requirements). 3. This [draft] Standard covers Disclosure Requirements related to the following sustainability matters: “Climate change mitigation”, “Climate change adaptation” and “Energy”. 4. Climate change mitigation relates to the undertaking’s endeavours to the general process of holding the increase in the global average temperature to well below 2 °C and pursuing efforts to limit it to 1,5 °C above pre-industrial levels, as laid down in the Paris Agreement. This [draft] Standard covers disclosure requirements related but not limited to the seven Greenhouse Gases (GHG) carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PCFs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3). It also covers Disclosure Requirements on how the undertaking addresses its GHG emissions as well as the associated transition risks. 5. “Climate change adaptation” relates to the undertaking’s process of adjustment to actual and expected climate change. 6. This [draft] Standard covers Disclosure Requirements regarding climate-related hazards that can lead to physical climate risks for the undertaking and its adaptation solutions to reduce these risks. It also covers transition risks arising from the needed adaptation to climaterelated hazards. 7. The requirements related to “Energy” cover all types of energy production and consumption. Interactions with other ESRS 8. Ozone-depleting substances (ODS), nitrogen oxides (NOX) and sulphur oxides (SOX), among other air emissions, are connected to climate change but are covered under the reporting requirements in [draft] ESRS E2. 9. Impacts on people that may arise from the transition to a climate-neutral economy are covered under the [draft] ESRS S1 Own workforce, [draft] ESRS 2 Workers in the value chain, [draft] ESRS S3 Affected communities and [draft] ESRS S4 Consumers and users.. 10. This [draft] Standard should be read in conjunction with [draft] ESRS 1 General requirements and [draft] ESRS 2 General disclosures. [Draft] ESRS E1 Climate change November 2022 Page 5 of 45 [Draft] ESRS E1 Climate change Disclosure Requirements ESRS 2 General disclosures 11. The requirements of this section should be read in conjunction with the disclosures required by [draft] ESRS 2 on Chapter 2 Governance, Chapter 3 Strategy and Chapter 4 Impact, risk and opportunity management. The resulting disclosures shall be presented alongside the disclosures required by [draft] ESRS 2, except for [draft] ESRS 2 SBM-3 Material impacts, risks and opportunities and their interaction with strategy and business model(s), for which the undertaking has an option to present the disclosures alongside the topical disclosure. Governance Disclosure requirement related to ESRS 2 GOV-3 Integration of sustainability-related performance in incentive schemes 12. The undertaking shall disclose whether the performance of members of the administrative, management and supervisory bodies has been assessed against the GHG emission reduction targets reported under Disclosure Requirement E1-4. Strategy Disclosure Requirement E1-1 – Transition plan for climate change mitigation 13. The undertaking shall disclose its transition plan for climate change mitigation.1 14. The objective of this Disclosure Requirement is to enable an understanding of the undertaking’s past, current, and future mitigation efforts to ensure that its strategy and business model(s) are compatible with the transition to a sustainable economy, and with the limiting of global warming to 1.5 °C in line with the Paris Agreement and with the objective of achieving climate neutrality by 2050 and, where relevant, the undertaking’s exposure to coal, oil and gas-related activities. 15. The information required by paragraph 13 shall include: (a) by reference to GHG emission reduction targets (as required by Disclosure Requirement E1-4), an explanation of how the undertaking’s targets are compatible with the limiting of global warming to 1.5°C in line with the Paris Agreement; (b) by reference to GHG emission reduction targets (as required by Disclosure Requirement E1-4) and the climate change mitigation actions (as required by Disclosure Requirement E1-3), an explanation of the decarbonisation levers identified, and key actions planned, including changes in the undertaking’s product and service portfolio and its adoption of new technologies; (c) by reference to the climate change mitigation actions (as required by Disclosure Requirement E1-3), an explanation of the undertaking’s investments and funding supporting the implementation of the transition plan; (d) a qualitative assessment of the potential locked-in GHG emissions from the undertaking’s key assets and products. This shall include an explanation of if and how these emissions may jeopardise the achievement of the undertaking’s GHG emission reduction targets and drive transition risk, and if applicable, an explanation of the undertaking’s plans to manage its GHG-intensive and energy-intensive assets and products; (e) if applicable, an explanation of the undertaking’s objective for aligning its economic activities (revenues) with the Taxonomy Regulation (EU) 2020/852 including any delegated regulations related to climate change mitigation and adaptation and its plans for future Taxonomy alignment (revenues, CapEx and CapEx plans); 1 This information is aligned with the Regulation (EU) 2021/1119 of the European Parliament and of the Council (EU Climate Law), Article 2 (1); and with the Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Regulation), Article 2. [Draft] ESRS E1 Climate change November 2022 Page 6 of 45 [Draft] ESRS E1 Climate change 16. (f) a disclosure on whether or not the undertaking is excluded from the EU Paris-aligned Benchmarks;2 (g) an explanation of how the transition plan is embedded in and aligned with the undertaking’s overall business strategy and financial planning and whether it is approved by its administrative, management and supervisory bodies; and (h) an explanation of the undertaking’s progress in implementing the transition plan. In case the undertaking does not have a transition plan in place, it shall indicate whether and, if so, when it will adopt a transition plan. Disclosure Requirement related to ESRS 2 SBM-3 – Material impacts, risks and opportunities and their interaction with strategy and business model(s) 17. The undertaking shall describe the resilience of its strategy and business model(s) in relation to climate change. This description shall include: (a) the scope of the resilience analysis; (b) how the resilience analysis has been conducted, including the use of climate scenario analysis as referenced in the Disclosure Requirement related to [draft] ESRS 2 IRO1 below and the related application requirement paragraphs; and (c) the results of the resilience analysis including the results from the use of scenario analysis. Impact, risk and opportunity management Disclosure requirement related to ESRS 2 IRO-1 – Description of the processes to identify and assess material climate-related impacts, risks and opportunities 18. The undertaking shall describe the process to identify and assess climate-related impacts, risks and opportunities. This description shall include: (a) impacts on climate change, in particular, the undertaking’s GHG emissions (as required by Disclosure Requirement ESRS E1-6); (b) climate-related physical risks in own operations and along the value chain, in particular: (c) 19. i. the identification of climate-related hazards, considering at least high emission climate scenarios; and ii. the assessment of how its assets and business activities may be exposed and are sensitive to these climate-related hazards, creating gross physical risks for the undertaking. climate-related transition risks and opportunities in own operations and along the value chain, in particular: i. the identification of climate-related transition events, considering at least a climate scenario in line with limiting global warming to 1.5°C with no or limited overshoot; and ii. 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 undertaking. When disclosing the information required under paragraphs 18(b) and 18(c), the undertaking shall explain how it has used climate-related scenario analysis to inform the identification and 2 This disclosure requirement is included consistent with the requirements in EBA Pillar 3 ITS- template 1 climate change transition risk; and is aligned with the Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Regulation), Articles 12.1 (d) to (g) and 12.2. [Draft] ESRS E1 Climate change November 2022 Page 7 of 45 [Draft] ESRS E1 Climate change assessment of physical and transition risks and opportunities over the short-, medium- and long-term time horizons. Impact, risk and opportunity management Disclosure Requirement E1-2 – Policies related to climate change mitigation and adaptation 20. The undertaking shall disclose the policies it has adopted to manage its material impacts, risks and opportunities related to climate change mitigation and adaptation. 21. The objective of this Disclosure Requirement is to enable an understanding of the extent to which the undertaking has policies that address the identification, assessment, management and/or remediation of its material climate change mitigation and adaptation impacts, risks and opportunities. 22. The disclosure required by paragraph 20 shall contain the summarised information on the policies implemented by the undertaking to manage its material impacts, risks and opportunities related to climate change mitigation and adaptation (see [draft] ESRS 2 DC-P Policies adopted to manage material sustainability matters). 23. The undertaking shall indicate whether and how its policies address the following areas: (a) climate change mitigation; (b) climate change adaptation; (c) energy efficiency; (d) renewable energy deployment; and (e) other. Disclosure Requirement E1-3 – Actions and resources in relation to climate change policies 24. The undertaking shall disclose its climate change mitigation and adaptation actions and the resources allocated for their implementation. 25. 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. 26. The description of the actions and resources related to climate change mitigation and adaptation shall follow the principles stated in [draft] ESRS 2 DC-A Actions and resources in relation to material sustainability matters. 27. In addition to [draft] ESRS 2 DC-A, the undertaking shall: (a) when listing key actions taken in the reporting year and planned for the future, present the climate change mitigation actions by decarbonisation lever including the naturebased solutions; (b) when describing the outcome of the actions for climate change mitigation, include the achieved and expected GHG emission reductions; and (c) relate significant monetary amounts of CapEx and OpEx required to implement the actions to; i. the relevant line items or notes in the financial statements; ii. the key performance indicators required under article 8 of Taxonomy Regulation (EU) 2020/852; and iii. if applicable, the CapEx plan required by Commission delegated regulation (EU) 2021/2178. [Draft] ESRS E1 Climate change November 2022 Page 8 of 45 [Draft] ESRS E1 Climate change Metrics and targets Disclosure Requirement E1-4 – Targets related to climate change mitigation and adaptation 28. The undertaking shall disclose the climate-related targets it has adopted. 29. The objective of this Disclosure Requirement is to enable an understanding of the targets the undertaking has set to support its climate change mitigation and adaptation policies and address its material climate-related impacts, risks and opportunities. 30. The disclosure of the targets required in paragraph 28 shall contain the information required in [draft] ESRS 2 DC-T Tracking effectiveness of policies and actions through targets. 31. For the disclosure required by paragraph 28, the undertaking shall disclose whether and how it has set GHG emissions reduction targets and/or any other targets to manage material climate-related impacts, risks and opportunities, for example, renewable energy deployment, energy efficiency, climate change adaptation, and physical or transition risk mitigation. 32. If the undertaking has set GHG emission reduction targets3, [draft] ESRS 2 DC-T and the following requirements shall apply: (a) GHG emission reduction targets shall be disclosed in absolute value (either in tonnes of CO2 equivalent or as a percentage of the emissions of a base year) and, if deemed meaningful, in intensity value; (b) GHG emission reduction targets shall be disclosed for Scope 1, 2, and 3 GHG emissions. The undertaking shall explain how the consistency of these targets with the GHG inventory boundaries is ensured (as required by Disclosure Requirement E1-6). The undertaking shall not include GHG removals, carbon credits or avoided emissions as a means of achieving the GHG emission reduction targets; (c) the undertaking shall disclose its current base year and baseline value, and from 2030 onwards, update the base year for its GHG emission reduction targets after every five-year period thereafter. The undertaking may disclose the past progress made in meeting its targets before its current base year provided that this information is consistent with the requirements of this [draft] Standard; (d) GHG emission reduction targets shall at least include target values for the year 2030 and, if available, for the year 2050. From 2030, target values shall be set after every five-year period thereafter; (e) the undertaking shall state whether the GHG emission reduction targets are sciencebased and compatible with limiting global warming to 1.5°C. The undertaking shall state which guidance or framework has been used to determine these targets including the underlying climate and policy scenarios. As part of the critical assumptions for setting GHG emission reduction targets, the undertaking shall briefly explain how it has considered future developments (e.g., changes in sales volumes, shifts in customer preferences and demand, regulatory factors, and new technologies) and how these will potentially impact both its GHG emissions and emissions reductions; and (f) the undertaking shall describe the expected decarbonisation levers and their overall quantitative contributions to achieve the GHG emission reduction targets (e.g., energy or material efficiency and consumption reduction, fuel switching, use of renewable energy, phase out or substitution of product and process). Disclosure Requirement E1-5 – Energy consumption and mix 33. The undertaking shall provide information on its energy consumption and mix. 3 This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 as reflecting an additional indicator related to principal adverse impacts as set out by indicator #4 in Table 2 of Annex 1 of the related Delegated Regulation with regard to disclosure rules on sustainable investments (respectively “Investments in companies without carbon emission reduction initiatives”); and is aligned with the Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Regulation), Article 6. [Draft] ESRS E1 Climate change November 2022 Page 9 of 45 [Draft] ESRS E1 Climate change 34. The objective of this Disclosure Requirement is to provide an understanding of the undertaking’s total energy consumption in absolute value, improvement in energy efficiency, exposure to coal, oil and gas-related activities, and the share of renewable energy in its overall energy mix. 35. The disclosure required by paragraph 33 shall include the total energy consumption in MWh related to own operations as follows: (a) (b) 36. total energy consumption from non-renewable sources for high climate impact4 sectors disaggregated by5: i. fuel consumption from coal and coal products; ii. fuel consumption from crude oil and petroleum products; iii. fuel consumption from natural gas; iv. fuel consumption from other non-renewable sources; v. consumption from nuclear products; and vi. consumption of purchased or acquired electricity, heat, steam, and cooling from non-renewable sources; and total energy consumption from renewable sources disaggregated by: i. fuel consumption for renewable sources (including biomass, biogas, nonfossil fuel waste, hydrogen from renewable sources, etc.); ii. consumption of purchased or acquired electricity, heat, steam, and cooling from renewable sources; and iii. consumption of self-generated non-fuel renewable energy. In addition, where applicable, the undertaking shall disaggregate and disclose separately its non-renewable energy production and renewable energy production in MWh.6 Energy intensity based on net revenue7 37. The undertaking shall provide information on the energy intensity (total energy consumption per net revenue) associated with activities in high climate impact sectors. 38. The disclosure on energy intensity required by paragraph 37 shall only be derived from the total energy consumption and net revenue from activities in high climate impact sectors. 39. The undertaking shall specify the high climate impact sectors that are used to determine the energy intensity required by paragraph 37. 40. The undertaking shall disclose the reconciliation to the relevant line item or notes in the financial statements of the net revenue amount from activities in high climate impact sectors (the denominator in the calculation of the energy intensity required by paragraph 37). 4 High climate impact sectors are those listed in NACE Sections A to H and Section L (as defined in the Regulation (EU) 2019/2088 and Annex 1 of the related Delegated Regulation with regard to disclosure rules on sustainable investments). 5 This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 as reflecting a mandatory indicator related to principal adverse impacts as set out by indicator #5 in Table 1 of Annex 1 of the related Delegated Regulation with regard to disclosure rules on sustainable investments (respectively “Share of non-renewable energy consumption and production”). The breakdown serves as a reference for an additional indicator related to principal adverse impacts as set out by indicator #5 in Table 2 of the same Annex (respectively “Breakdown of energy consumption by type of non-renewable sources of energy”). 6 This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 as reflecting a mandatory indicator related to principal adverse impacts as set out by indicator #5 in Table 1 of Annex 1 of the related Delegated Regulation with regard to disclosure rules on sustainable investments (respectively “Share of non-renewable energy consumption and production”). 7 This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 as reflecting a mandatory indicator related to principal adverse impacts as set out by indicator #6 in Table 1 of Annex 1 of the related Delegated Regulation with regard to disclosure rules on sustainable investments (respectively “Energy consumption intensity per high impact climate sector”). [Draft] ESRS E1 Climate change November 2022 Page 10 of 45 [Draft] ESRS E1 Climate change Disclosure Requirement E1-6 – Gross Scopes 1, 2, 3 and Total GHG emissions 41. 42. The undertaking shall disclose its8: (a) gross Scope 1 GHG emissions; (b) gross Scope 2 GHG emissions; (c) gross Scope 3 GHG emissions; and (d) total GHG emissions. The objective of the Disclosure Requirement in paragraph 41 in respect of: (a) gross Scope 1 GHG emissions as required by paragraph 41(a) is to provide an understanding of the direct impacts of the undertaking on climate change and the proportion of its total GHG emissions that are regulated under emission trading schemes. (b) gross Scope 2 GHG emissions as required by paragraph (b) is to provide an understanding of the indirect impacts on climate change caused by the undertaking’s consumed energy whether externally purchased or acquired. (c) gross Scope 3 GHG emissions as required by paragraph 41(c) is to provide an understanding of the GHG emissions that occur in the undertaking’s value chain beyond its Scope 1 and 2 GHG emissions. For many undertakings, Scope 3 GHG emissions may be the main component of the GHG inventory and are an important driver of the undertaking’s transition risks. (d) total GHG emissions as required by paragraph 41(d) is to provide an overall understanding of the undertaking’s GHG emissions and whether they occur from its own operations or the value chain. This disclosure is a prerequisite for measuring progress towards reducing GHG emissions in accordance with the undertaking’s climate-related targets and EU policy goals. 43. The information from this Disclosure Requirement is also needed to understand the undertaking’s climate-related transition risks. 44. When disclosing the information on GHG emissions required under paragraph 41, the undertaking shall be consistent with the requirements of defining the reporting undertaking and its value chain under [draft] ESRS 1 section 5.1 Reporting undertaking and value chain. The undertaking shall explain the accounting for GHG emissions from its associates, joint ventures, unconsolidated subsidiaries (investment entities) and contractual arrangements in joint arrangements that are not structured through an entity (i.e., jointly controlled operations and assets). These entities and arrangements can be part of the undertaking’s value chain. The following requirements shall apply: (a) If the undertaking has operational control of associates, joint ventures (accounted for under either the equity method or proportionally consolidated in the undertaking’s group financial statements), and unconsolidated subsidiaries (investment entities) (i.e., if it has the ability to control the operational activities and relationships of these entities); i. it shall include their full (Scope 1 and 2) GHG emissions in its reported GHG emissions (primarily as Scope 1 and 2 GHG emissions if the undertaking is a non-financial corporation, and as Scope 3 GHG emissions under the financial investments category particularly if it is a financial institution). ii. the undertaking shall not apply the share of equity held in these entities to limit the proportion of their GHG emissions that it includes in its reported GHG emissions. 8 This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 as reflecting a mandatory indicator related to principal adverse impacts as set out by indicators #1 and #2 in Table 1 of Annex 1 of the related Delegated Regulation with regard to disclosure rules on sustainable investments (respectively “GHG emissions” and “Carbon footprint”). This information is aligned with the Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Regulation), Articles 5 (1), 6 and 8 (1). [Draft] ESRS E1 Climate change November 2022 Page 11 of 45 [Draft] ESRS E1 Climate change (b) If the undertaking has operational control of contractual arrangements in joint arrangements that are not structured through an entity (i.e., jointly controlled operations and assets) (for instance, through its holding of an environmental license or permit from the local authorities), it shall include their full (Scope 1 and 2) GHG emissions in its reported GHG emissions. (c) Conversely, in its reported Scope 1 and 2 GHG emissions, the undertaking shall not include any (Scope 1 and 2) GHG emissions from the entities (i.e., associates, joint ventures and, unconsolidated subsidiaries) and contractual arrangements in jointly controlled operations where it does not have operational control. However, when these entities and contractual arrangements are part of the undertaking’s value chain, their Scope 1, 2 and 3 GHG emissions shall be accounted for as part of the undertaking’s Scope 3 GHG emissions. 44. In case of significant changes in the definition of what constitutes the reporting undertaking and its value chain, the undertaking shall disclose these changes and explain their effect on the year-to-year comparability of its reported GHG emissions (i.e., the effect on the comparability of current versus previous reporting period GHG emissions). 45. The disclosure on gross Scope 1 GHG emissions required by paragraph (a) shall include: 46. 47. (a) the gross Scope 1 GHG emissions in metric tonnes of CO2eq; and (b) the percentage of Scope 1 GHG emissions from regulated emission trading schemes. The disclosure on gross Scope 2 GHG emissions required by paragraph (b) shall include: (a) the gross location-based Scope 2 GHG emissions in metric tonnes of CO2eq; and (b) the gross market-based Scope 2 GHG emissions in metric tonnes of CO2eq. For Scope 1 and Scope 2 emissions disclosed as required by paragraphs (a) and (b), the undertaking shall disaggregate the information, separately disclosing emissions from: (a) the consolidated accounting group entities (i.e., the parent and subsidiaries for which it has financial control) that are subject to full consolidation in the group financial statements; and (b) associates, joint ventures, unconsolidated subsidiaries, and jointly controlled operations and assets that are not subject to full consolidation in the group financial statements but for which the undertaking has operational control (i.e., the ability to control the operational activities and relationships). 48. The disclosure of gross Scope 3 GHG emissions required by paragraph (c) shall include GHG emissions in metric tonnes of CO2eq from each significant Scope 3 category (i.e., each Scope 3 category that is a priority for the undertaking). 49. The disclosure of total GHG emissions required by paragraph (d) shall be the sum of Scope 1, 2 and 3 GHG emissions required by paragraphs (a) to (c). The total GHG emissions shall be disclosed with a disaggregation that makes a distinction of: (a) the total GHG emissions derived from the underlying Scope 2 GHG emissions being measured using the location-based method; and (b) the total GHG emissions derived from the underlying Scope 2 GHG emissions being measured using the market-based method. GHG Intensity based on net revenue9 50. The undertaking shall disclose its GHG emissions intensity (total GHG emissions per net revenue). 9 This information supports the information needs of financial market participants subject to Regulation (EU) 2019/2088 as reflecting a mandatory indicator related to principal adverse impacts as set out by indicator #3 in Table 1 of Annex 1 of the related Delegated Regulation with regard to disclosure rules on sustainable investments (respectively “GHG intensity of investee companies”). This information is aligned with the Commission Delegated Regulation (EU) 2020/1818 (Climate Benchmark Regulation), Article 8 (1). [Draft] ESRS E1 Climate change November 2022 Page 12 of 45 [Draft] ESRS E1 Climate change 51. The disclosure on GHG intensity required by paragraph 50 shall provide the total GHG emissions in metric tonnes of CO2eq (required by paragraph (d)) per net revenue. 52. The undertaking shall disclose the reconciliation to the relevant line item or notes in the financial statements of the net revenue amounts (the denominator in the calculation of the GHG emissions intensity required by paragraph 50). Disclosure Requirement E1-7 – GHG removals and GHG mitigation projects financed through carbon credits 53. 54. 55. 56. The undertaking shall disclose: (a) GHG removals and storage from its own operations and its upstream and downstream value chain it may have developed in metric tonnes of CO2eq; and (b) the amount of GHG emission reductions or removals from climate change mitigation projects outside its value chain it has financed through any purchase of carbon credits. The objective of this Disclosure Requirement in respect of: (a) GHG removals and storage in its own operations and the value chain as required by paragraph 53(a) is to provide transparency and comparable information on the undertaking’s actions to permanently remove or actively support the removal of GHG from the atmosphere, potentially for achieving net-zero targets (as stated in paragraph 57). (b) GHG mitigation projects financed through carbon credits outside the undertaking’s value chain as required by paragraph 53(b) is to provide an understanding of the extent and quality of carbon credits the undertaking has purchased from the voluntary market and cancelled in the reporting period, potentially for supporting its GHG neutrality claims (as stated in paragraph 58). The disclosure on GHG removals and storage required by paragraph 53(a) shall include, if applicable: (a) the total amount of GHG removals and storage in metric tonnes of CO2eq disaggregated and separately disclosed for the amount related to the undertaking’s own operations and its value chain, and broken down by removal activity; and (b) the calculation assumptions, methodologies and frameworks applied by the undertaking. The disclosure on carbon credits required by paragraph 53(b) shall include, if applicable: (a) the total amount of carbon credits outside the undertaking’s value chain in metric tonnes of CO2eq that are verified against recognised national or international quality standards and cancelled in the reporting period; and (b) the total amount of carbon credits outside the undertaking’s value chain in metric tonnes of CO2eq planned to be cancelled in the future based on existing contractual agreements. 57. In the case where the undertaking discloses a net-zero target in addition to the gross GHG emission reduction targets (as required by Disclosure Requirement E1-4, paragraph 32), it shall explain the scope, methodologies and frameworks applied and how the residual GHG emissions (after approximately 90-95% of GHG emission reduction) are intended to be neutralised by GHG removals in its own operations and value chain. 58. In addition to reporting on its gross GHG emission reduction targets as required in Disclosure Requirement E1-4 and possibly on its net zero targets in line with paragraph 57, the undertaking may have made public claims of GHG neutrality that involve the use of carbon credits by reference to the information disclosed under paragraph 53(b). In such a case, the undertaking shall explain the credibility and integrity of the carbon credits used, and whether [Draft] ESRS E1 Climate change November 2022 Page 13 of 45 [Draft] ESRS E1 Climate change and how its claims of GHG neutrality neither impede nor reduce the achievement of its GHG emission reduction targets.10 Disclosure Requirement E1-8 – Internal carbon pricing 59. The undertaking shall disclose whether it applies internal carbon pricing schemes, and if so, how these support its decision making and incentivise the implementation of climate-related policies and targets. 60. The information required in paragraph 59 shall include: (a) the type of internal carbon pricing scheme, for example, the shadow prices applied for CapEX or research and development (R&D) investment decision making, internal carbon fees or internal carbon funds; (b) the specific scope of application of the carbon pricing schemes (activities, geographies, entities, etc.); (c) the carbon prices applied according to the type of scheme and critical assumptions made to determine the prices, including the source of the applied carbon prices and why these are deemed relevant for their chosen application. The undertaking may disclose the calculation methodology of the carbon prices including the extent to which these have been set using scientific guidance and how their future development is related to science-based carbon pricing trajectories; and (d) the current year approximate gross GHG emission volumes by Scopes 1, 2 and 3 in metric tonnes of CO2eq covered by these schemes, as well as their share of the undertaking’s overall GHG emissions for each respective Scope. Disclosure Requirement E1-9 – Potential financial effects from material physical and transition risks and potential climate-related opportunities 61. 62. 63. The undertaking shall disclose its (a) potential financial effects from material physical risks; (b) potential financial effects from material transition risks; and (c) potential to pursue material climate-related opportunities. The information required by paragraph 61 differs from and is in addition to the information on the current/past financial effects reflected in the financial statements required under [draft] ESRS 2 SBM-3. The objective of this Disclosure Requirement related to: (a) potential financial effects due to material physical and transition risks is to provide an understanding of how these risks have a material influence (or are likely to have a material influence) on the undertaking’s cash flows, performance, position, development, cost of capital or access to finance over the short-, medium- and longterm time horizons. Potential financial effects from these risks include financial effects that do not meet the recognition criteria for inclusion in the line items and notes to the financial statements. The results of scenario analysis used to conduct resilience analysis as required under paragraphs AR 11 to AR 14 should inform the assessment of potential financial effects from material physical and transition risks. (b) potential to pursue material climate-related opportunities is to enable an understanding of how the undertaking may financially benefit from material climaterelated opportunities. This disclosure is complementary to the information requested under the Taxonomy Regulation. The disclosure of potential financial effects from material physical risks required by paragraph 61(a) shall include11: 10 This information is aligned with the Regulation (EU) 2021/1119 of the European Parliament and of the Council (EU Climate Law), Article 2 (1). 11 This information is aligned with the Commission Delegated Regulation (EU) 2020/1816 (Climate Benchmark Regulation), Annex II. [Draft] ESRS E1 Climate change November 2022 Page 14 of 45 [Draft] ESRS E1 Climate change 64. 65. 66. 67. (a) the monetary amount and proportion (percentage) of assets at material physical risk over the short-, medium- and long-term time horizons; with the monetary amounts of these assets disaggregated by acute and chronic physical risk12; (b) the proportion of assets at material physical risk addressed by the climate change adaptation actions; (c) the location of significant assets at material physical risk13; and (d) the monetary amount and proportion (percentage) of net revenue from its business activities at material physical risk over the short-, medium- and long-term time horizons. The disclosure of potential financial effects from material transition risk required by paragraph 61(b) shall include: (a) the monetary amount and proportion (percentage) of assets at material transition risk over the short-, medium- and long-term time horizons; (b) the proportion of assets at material transition risk addressed by the climate change mitigation actions; (c) a breakdown of the carrying value of its real estate assets by energy-efficiency classes14; (d) liabilities that may have to be recognised in financial statements over the short-, medium- and long-term time horizons; and (e) the monetary amount and proportion (percentage) of net revenue from its business activities at material transition risk over the short-, medium- and long-term time horizons including, where relevant, the net revenue from the undertaking’s customers operating in coal, oil and gas-related activities. The undertaking shall disclose reconciliations to the relevant line items or notes in the financial statements of the following: (a) significant amounts of the assets and net revenue at material physical risk (as required by paragraph 63). (b) significant amounts of the assets, liabilities, and net revenue at material transition risk (as required by paragraph 64). For the disclosure of potential to pursue climate-related opportunities required by paragraph 61(c), the undertaking shall consider 15: (a) its expected cost savings from climate change mitigation and adaptation actions; and (b) the potential market size or expected changes to net revenue from low-carbon products and services or adaptation solutions to which the undertaking has or may have access. A quantification of the financial effects that arise from opportunities is not required if such a disclosure does not meet the qualitative characteristics of useful information included under [draft] ESRS 1 Appendix C Qualitative characteristics of information. 12 This disclosure requirement is consistent with the requirements included in EBA Pillar 3 ITS - Template 5: Banking book Climate change physical risk: Exposures subject to physical risk. 13 This disclosure requirement is consistent with the requirements included in EBA Pillar 3 ITS - Template 5: Banking book Climate change physical risk: Exposures subject to physical risk 14 This disclosure requirement is consistent with the requirements included in EBA Pillar 3 ITS - Template 2: Banking book Climate change transition risk: Loans collateralised by immovable property - Energy efficiency of the collateral 15 This information is aligned with the Commission Delegated Regulation (EU) 2020/1816 (Climate Benchmark Regulation), Annex II. [Draft] ESRS E1 Climate change November 2022 Page 15 of 45 [Draft] ESRS E1 Climate change Appendix A: Defined terms This appendix is an integral part of the [draft] ESRS E1 and has the same authority as the other parts of the [draft] Standard. Carbon credit Carbon dioxide (CO2) equivalent (eq) Climate change adaptation Climate change mitigation Climate-related opportunity Climate-related physical risk (Physical risk from climate change) Climate resilience Climate-related transition risk [Draft] ESRS E1 Climate change November 2022 A carbon credit is a convertible and transferable instrument representing GHG emissions that have been reduced, avoided or removed through projects that are verified according to recognised quality standards. Carbon credits can be issued from projects within (sometimes referred to as insets) or outside the undertaking’s value chain (sometimes referred to as offsets). The amount of carbon dioxide (CO2) emission that would cause the same integrated radiative forcing or temperature change, over a given time horizon, as an emitted amount of a greenhouse gas (GHG) or a mixture of GHGs. CO2eq is the universal unit of measurement to indicate the global warming potential (GWP) of each greenhouse gas, expressed in terms of the GWP of one unit of carbon dioxide. It is used to evaluate releasing (or avoiding releasing) different greenhouse gases on a common basis. Climate change adaptation means the process of adjustment to actual and expected climate change and its impacts. (Based on the Regulation (EU) 2020/852) Climate change mitigation means the process of reducing GHG emissions and holding the increase in the global average temperature to well below 2 °C and pursuing efforts to limit it to 1,5 °C above preindustrial levels, as laid down in the Paris Agreement. (Based on the Regulation (EU) 2020/852) Climate-related opportunities refer to the potential positive effects related to climate change on the undertaking. Efforts to mitigate and adapt to climate change can produce opportunities for undertakings, such as through resource efficiency and cost savings, the adoption and utilisation of low-emissions energy sources, the development of new products and services, and building resilience along the supply chain. Climate-related opportunities will vary depending on the region, market, and industry where the undertaking operates. Climate-related physical risks are risks that arise from the physical effects of climate change. They typically include acute physical risks, which arise from particular hazards, especially weather-related events such as storms, floods, fires or heatwaves, and chronic physical risks, which arise from longer-term changes in the climate, such as temperature changes, rising sea levels, reduced water availability, biodiversity loss and changes in land and soil productivity. The capacity of an entity to adjust to uncertainty related to climate change. This involves the capacity to manage climate-related risks and benefits from climate-related opportunities, including the ability to respond and adapt to transition risks and physical risks. Climate-related transition risks are risks that arise from the transition to a low-carbon and climate-resilient economy. They typically include policy risks, legal risks, technology risks, market risks and reputational risks and can arise from related transition events. Page 16 of 45 [Draft] ESRS E1 Climate change Decarbonisation levers Direct GHG emissions (Scope 1) Emission reduction GHG removal and storage Global warming potential (GWP) Greenhouse Gases (GHG) High climate impact sectors [Draft] ESRS E1 Climate change November 2022 Aggregated types of mitigation actions such as energy efficiency, electrification, fuel switching, use of renewable energy, products change, and supply-chain decarbonisation that fit with undertakings' specific actions. GHG emissions from sources owned or controlled by the undertaking. Emissions reduction: decrease in Scope 1, 2, 3 or total GHG emissions at the end of the reporting period, relative to baseline emissions; Emission reductions may result from, among others, energy efficiency, electrification, suppliers' decarbonisation, electricity mix decarbonisation, sustainable products development or changes in reporting boundaries or activities (e.g., outsourcing, reduced capacities.), provided they are achieved within the undertaking's own operation and value chain; removals and avoided emissions are not counted as emission reductions. (Anthropogenic) Removals refer to the withdrawal of GHGs from the atmosphere as a result of deliberate human activities. These include enhancing biological sinks of CO2 and using chemical engineering to achieve long-term removal and storage. Carbon capture and storage (CCS) from industrial and energy-related sources, which alone does not remove CO2 in the atmosphere, can reduce atmospheric CO 2 if it is combined with bioenergy production (BECCS). Removals can be subject to reversals, which are any movement of stored GHG out of the intended storage that re-enters the surface and atmosphere. For example, if a forest that was grown to remove a specific amount of CO2 is subject to a wildfire, the emissions captured in the trees are reversed. Global warming potential (GWP) is a factor describing the radiative forcing impact (degree of harm to the atmosphere) of one unit of a given GHG relative to one unit of CO2. Greenhouse Gases (GHG) are those gaseous constituents of the atmosphere, both natural and anthropogenic, that absorb and emit radiation at specific wavelengths within the spectrum of terrestrial radiation emitted by the Earth’s surface, the atmosphere itself and by clouds. This property causes the greenhouse effect. Water vapour (H2O), carbon dioxide (CO2), nitrous oxide (N2O), methane (CH4) and ozone (O3) are the primary GHGs in the Earth’s atmosphere. Moreover, there are a number of entirely human-made GHGs in the atmosphere, such as the halocarbons and other chlorine- and bromine-containing substances, dealt with under the Montreal Protocol. Besides CO2, N2O and CH4, the Kyoto Protocol deals with the GHGs sulphur hexafluoride (SF6), hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs). High climate impact sectors are those listed in NACE Sections A to H and Section L. (as defined in the Regulation (EU) 2019/2088 and Annex 1 of the related Delegated Regulation with regard to disclosure rules on sustainable investments) Page 17 of 45 [Draft] ESRS E1 Climate change Indirect GHG emissions (Scope 2) Indirect GHG emissions (Scope 3) Internal carbon price Internal carbon pricing scheme Land use change uptakes and emissions Locked-in GHG emissions Indirect GHG emissions are a consequence of the operations of the undertaking but occur at sources owned or controlled by another company. Scope 2 GHG emissions are indirect emissions from the generation of purchased or acquired electricity, steam, heat, or cooling consumed by the undertaking. Indirect GHG emissions are a consequence of the operations of the undertaking but occur at sources owned or controlled by another company. Scope 3 GHG emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions. Scope 3 GHG emissions are considered as estimated emissions in comparison with Scope 1 and 2 as their calculation is based on a combination of methods and primary and secondary data ranging from precise figures (supplier-specific or sites-specific methods) to extrapolated figures (average-data or spend-based methods). Internal carbon price is a price used by entities to assess the financial implications of changes to investment, production, and consumption patterns, as well as potential technological progress and future emissions abatement costs. An organisational arrangement that allows the undertaking to apply carbon prices in strategic and operational decision making. There are two types of internal carbon prices commonly used by undertakings. The first type is a shadow price, which is a theoretical cost or notional amount that the undertaking does not charge but that can be used in assessing the economic implications or trade-offs for such things as risk impacts, new investments, net present value of projects, and the cost-benefit of various initiatives. The second type is an internal tax or fee, which is a carbon price charged to a business activity, product line, or other business unit based on its GHG emissions (these internal taxes or fees are similar to intracompany transfer pricing). Carbon uptakes and emissions (CO2, CO and CH4) originate from carbon stock changes caused by land use change and land use. This sub-category includes biogenic carbon exchanges from deforestation, road construction or other soil activities (including soil carbon emissions). For native forests, all related CO2 emissions are included and modelled under this sub-category (including connected soil emissions, and products derived from native forests and residues), while their CO2 uptake is excluded. (Adapted from Recommendation (EU) 2021/2079 Publications Office (europa.eu) pages 66, 173, 263 et 368) Locked-in emissions are estimates of future GHG emissions that are likely to be caused by the undertaking’s key assets or products sold within their operating lifetime. Nature-based solutions Nature-based solutions are understood as actions to protect, conserve, restore, sustainably use and manage natural or modified terrestrial, freshwater, coastal and marine ecosystems which address social, economic and environmental challenges effectively and adaptively, while simultaneously providing human well-being, ecosystem services, resilience and biodiversity benefits. Net-zero target Setting a net-zero target at the level of the undertaking aligned with meeting societal climate goals means (1) achieving a scale of value chain emissions reductions consistent with the depth of abatement at the point of reaching global net-zero in 1.5˚C pathways, and (2) [Draft] ESRS E1 Climate change November 2022 Page 18 of 45 [Draft] ESRS E1 Climate change neutralizing the impact of any residual emissions (after approximately 90-95% of GHG emission reduction) by permanently removing an equivalent volume of CO2. Non-renewable energy Potential financial effects Purchased or acquired energy Recognised quality standards for carbon credits Renewable energy Scenario Scenario analysis Scope 3 category [Draft] ESRS E1 Climate change November 2022 Non-renewable energy is energy which cannot be identified as being derived from renewable sources. (Adapted from Annex 1 of the Delegated Regulation with regard to disclosure rules on sustainable investments pursuant to Art. 8(4), 9(6) and 11(5) of Regulation (EU) 2019/2088) Fossil fuels such as oil, natural gas, and coal are examples of nonrenewable resources. Potential financial effects are the effects on the undertaking’s future position, performance and cash flow arising from material sustainability matters whereby the reporting of such effects falls outside the scope of existing accounting requirements. When the undertaking has received its energy from a third party. The term “acquired” reflects circumstances where a company may not directly purchase electricity (e.g., a tenant in a building), but where the energy is brought into the undertaking’s facility for use. Recognised quality standards for carbon credits are those that are verifiable by independent third parties, make requirements and project reports publicly available and at a minimum ensure additionality, permanence, avoidance of double counting and provide rules for calculation, monitoring, and verification of the project’s GHG emissions. Renewable energy is energy taken from sources that are inexhaustible. As such, renewable energy covers wind, solar (solar thermal and solar photovoltaic) and geothermal energy, ambient energy, tide, wave and other ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas, and biogas. (Art. 2 (1) Directive (EU) 2018/2001) A plausible description of how the future may develop based on a coherent and internally consistent set of assumptions about key driving forces (e.g., rate of technological change, prices) and relationships. Note that scenarios are neither predictions nor forecasts but are used to provide a view of the implications of developments and actions. Scenario analysis is a process for identifying and assessing a potential range of outcomes of future events under conditions of uncertainty. Scope 3 category is one of the 15 types of Scope 3 emissions identified by the GHG Protocol Corporate Standard and detailed by the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard. (adapted from GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard, Glossary (Version 2011)) Undertakings that choose to account for their Scope 3 emissions based on the indirect GHG emissions categories of ISO 14064-1:2018 may also refer to the category defined in clause 5.2.4 (excluding indirect GHG emissions from imported energy) of ISO 14064-1:2018. Page 19 of 45 [Draft] ESRS E1 Climate change Transition plan for climate change mitigation [Draft] ESRS E1 Climate change November 2022 An aspect of the undertaking’s overall strategy that lays out the entity’s targets and actions for its transition towards a lower-carbon economy, including actions such as reducing its GHG emissions and with the objective of limiting climate change to 1.5°C and climate neutrality. Page 20 of 45 [Draft] ESRS E1 Climate change Appendix B: Application Requirements This Appendix is an integral part of the [draft] ESRS E1. It supports the application of the requirements set for in paragraphs 1 to 67 and has the same authority as the other parts of the [draft] Standard. Strategy Disclosure Requirement E1-1 – Transition plan for climate change mitigation AR 1. A transition plan relates to the undertaking’s efforts in climate change mitigation. When disclosing its transition plan, the undertaking is expected to provide a high-level explanation of how it will adjust its strategy and business model to ensure compatibility with the transition to a sustainable economy and with the limiting of global warming to 1.5°C in line with the Paris Agreement (or an updated international agreement on climate change) and the objective of achieving climate neutrality by 2050 with no or limited overshoot as established in Regulation (EU) 2021/1119 (European Climate Law), and where applicable, its exposure to coal, and oil and gas-related activities. AR 2. Sectoral pathways have not yet been defined by the public policies for all sectors. Hence, the disclosure under paragraph 15(a) on the compatibility of the transition plan with the objective of limiting global warming to 1.5°C should be understood as the disclosure of the undertaking’s GHG emissions reduction target. The disclosure under paragraph 15(a) shall be benchmarked in relation to a pathway to 1.5°C. This benchmark should be based on either the sectoral decarbonisation methodology if available for the undertaking’s sector or the absolute contraction methodology bearing in mind its limitations (i.e., it is a simple translation of emission reduction objectives from the State to Corporate level). AR 3. When disclosing the information required under paragraph 15(d), the undertaking may consider: (a) the cumulative locked-in GHG emissions associated with key assets from the reporting year until 2030 and 2050 in tCO2eq. This will be assessed as the sum of the estimated Scopes 1 and 2 GHG emissions over the operating lifetime of the active and firmly planned key assets. Key assets are those owned or controlled by the undertaking, and they consist of existing or planned assets (such as stationary or mobile installations, facilities, and equipment) that are sources of either significant direct or energy-indirect GHG emissions. Firmly planned key assets are those that the undertaking will most likely deploy within the next five years. (b) the cumulative locked-in GHG emissions associated with the direct use-phase GHG emissions of sold products in tCO2eq, assessed as the sales volume of products in the reporting year multiplied by the sum of estimated direct use-phase GHG emissions over their expected lifetime. This requirement only applies if the undertaking has identified the Scope 3 category “use of sold products” as significant under Disclosure Requirement E1-6 paragraphs 48 and AR 44. (c) an explanation of the plans to manage, i.e., to transform, decommission or phase out its GHG-intensive and energy-intensive assets and products. AR 4. When disclosing the information required under paragraph 15 (e), the undertaking shall explain how the alignment of its economic activities with the provisions of the Delegated Act (EU) 2021/2139 (evolution of green revenue) supports its transition to a sustainable economy. In doing so, the undertaking shall take account of the information required to be disclosed under Article. 8 of the Taxonomy Regulation (in particular, the green revenue, and CapEx and, if applicable, CapEx plans). AR 5. If applicable, the explanation referred to in paragraphs 15 (e) and AR 4 shall take into consideration the amount16 of CapEx in the current reporting year that is related to coal, oil 16 The CapEx amounts considered are related to the following NACE codes: (a) B.05 Mining of coal and lignite, B.06 Extraction of crude petroleum and natural gas (limited to crude petroleum), [Draft] ESRS E1 Climate change November 2022 Page 21 of 45 [Draft] ESRS E1 Climate change and gas-related economic activities. The undertaking shall also disclose significant CapEx amounts invested during the reporting year related to coal, oil and gas-related economic activities. AR 6. When disclosing the information required under paragraph 15 (f), the undertaking shall state whether or not it is excluded from the EU Paris-aligned Benchmarks in accordance with the exclusion criteria stated in Articles 12.1 (d) to (g)17 and 12.2 of the Climate Benchmark Standards Regulation18. Disclosure Requirement related to [draft] ESRS 2 SBM-3 - Material impacts, risks and opportunities and their interaction with strategy and business model(s) AR 7. When disclosing the information on the scope of the resilience analysis as required under paragraph 17(a), the undertaking shall explain which part of its own operations and value chain as well as which material physical and transition risks may have been excluded from the analysis. AR 8. When disclosing the information on how the resilience analysis has been conducted as required under paragraph 17(b), the undertaking shall explain: AR 9. (a) the critical assumptions about how the transition to a lower-carbon and resilient economy will affect its surrounding macroeconomic trends, energy consumption and mix, and technology deployment assumptions; (b) the time horizons applied and their alignment with the climate and business scenarios considered for determining material physical and transition risks (paragraphs AR 12 to AR 13) and setting GHG emissions reduction targets (reported under Disclosure Requirement E1-4); and (c) how the estimated potential financial effects from material physical and transition risks (as required by Disclosure Requirement E1-9) as well as the mitigation actions and resources (disclosed under Disclosure Requirement E1-3) were considered. When disclosing the information on the results of the resilience analysis as required under paragraph 17(c), the undertaking shall explain: (a) the areas of uncertainties of the resilience analysis and to what extent the assets and business activities at risk are considered within the definition of the undertaking’s strategy, investment decisions, and current and planned mitigation actions; (b) B.09.1 Support activities for petroleum and natural gas extraction (limited to crude petroleum), (c) C.19 Manufacture of coke and refined petroleum products, (d) D.35.1 - Electric power generation, transmission and distribution and (e) D.35.3 - Steam and air conditioning supply (limited to coal-fired and oil-fired power and/or heat generation), (f) G.46.71 - Wholesale of solid, liquid and gaseous fuels and related products (limited to solid and liquid fuels). 1. For gas-related activities, the NACE code definition addresses activities with direct GHG emissions that are higher than 270 gCO2/KWh. Article 12.1 of the Climate Benchmark Standards Regulation states “that Administrators of EU Paris-aligned Benchmarks shall exclude the following companies: d) companies that derive 1% or more of their revenues from exploration, mining, extraction, distribution or refining of hard coal and lignite; or e) companies that derive 10% or more of their revenues from exploration, extraction, distribution or refining of oil fuels; or f) companies that derive 50% or more of their revenues from exploration, extraction, manufacturing or distribution of gaseous fuels; or g) companies that derive 50% or more of their revenues from electricity generation with a GHG intensity of more than 100 g CO2 e/KWh.” 17 Article 12.2 states that “Administrators of EU Paris-aligned Benchmarks shall exclude from those benchmarks any companies that are found or estimated by them or by external data providers to significantly harm one or more of the environmental objectives referred to in Article 9 of Regulation (EU) 2020/852 of the European Parliament and of the Council, in accordance with the rules on estimations laid down in Article 13(2) of this Regulation.” 18 This disclosure requirement is consistent with the requirements in EBA Pillar 3 ITS- template 1 climate change transition risk [Draft] ESRS E1 Climate change November 2022 Page 22 of 45 [Draft] ESRS E1 Climate change (b) the ability of the undertaking to adapt its business model(s) in the future, for example, in securing ongoing access to finance at an affordable cost of capital, in the redeployment, upgrading or decommissioning of existing assets, shifting its products and services portfolio and reskilling its workforce. Impact, risk and opportunity management Disclosure Requirement related to [draft] ESRS 2 IRO-1 Description of the processes to identify and assess material climate-related impacts, risks and opportunities AR 10. When disclosing the information on the processes to identify and assess climate impacts as required under paragraph 18(a), the undertaking shall explain how it has: (a) screened its activities and plans in order to identify actual and potential future GHG emission sources and, if applicable, drivers for other climate-related impacts (e.g., emissions of black carbon or tropospheric ozone or land use changes) in own operations and along the value chain; and (b) assessed the actual and potential impacts on climate change (i.e., its total GHG emissions) as material in line with the CSRD and SFDR requirements. AR 11. Note: The undertaking may link the information disclosed under paragraphs 18(a) and AR 10 to the information disclosed under the following Disclosure Requirements: Disclosure Requirement E1-1, paragraph 15(d) on locked-in GHG emissions; Disclosure Requirement E1-4 and Disclosure Requirement E1-6. AR 12. When disclosing the information on the processes to identify and assess physical risks as required under paragraph 18(b), the undertaking shall explain whether and how: (a) it has identified climate-related hazards (see table below) over the short-, mediumand long-term time horizons and screened whether its assets and business activities may be exposed to these hazards; (b) it has defined short-, medium- and long-term time horizons and how these definitions are linked to the expected lifetime of its assets, strategic planning horizons and capital allocation plans; (c) it has assessed the extent to which its assets and business activities may be exposed and are sensitive to the identified climate-related hazards, taking into consideration the likelihood, magnitude and duration of the hazards as well as the geospatial coordinates (such as Nomenclature of Territorial Units of StatisticsNUTS for the EU territory) specific to the undertaking’s locations and supply chains; and (d) the identification of climate-related hazards and the assessment of exposure and sensitivity are informed by high emissions climate scenarios, for example, based on IPCC SSP5-8.5 or relevant regional climate projections based on these emission scenarios. For general requirements regarding climate-related scenario analysis see paragraphs 18, 19, AR 13 and AR 14. Classification of climate-related hazards (Source: Commission delegated regulation (EU) 2021/2139) Temperature-related Chronic Changing temperature (air, freshwater, marine water) Wind-related Changing wind patterns Water-related Solid massrelated Changing precipitation patterns and types (rain, hail, snow/ice) Coastal erosion Heat stress Precipitation or hydrological variability Soil degradation Temperature variability Ocean acidification Soil erosion Permafrost thawing Saline intrusion Solifluction Sea level rise Water stress [Draft] ESRS E1 Climate change November 2022 Page 23 of 45 [Draft] ESRS E1 Climate change Acute Heat wave Cyclones, hurricanes, typhoons Drought Avalanche Cold wave/frost Storms (including blizzards, dust, and sandstorms) Heavy precipitation (rain, hail, snow/ice) Landslide Wildfire Tornado Flood (coastal, fluvial, pluvial, ground water) Subsidence Glacial lake outburst AR 13. When disclosing the information on the processes to identify transition risks and opportunities as required under paragraph 18(c), the undertaking shall explain whether and how it has: (a) identified transition events (see the table with examples below) over the short-, medium- and long-term time horizons and screened whether its assets and business activities may be exposed to these events. In case of transition risks and opportunities, what is considered long-term may cover more than 10 years and may be aligned with climate-related public policy goals; (b) assessed the extent to which its assets and business activities may be exposed and are sensitive to the identified transition events, taking into consideration the likelihood, magnitude and duration of the transition events; (c) informed the identification of transition events and the assessment of exposure by climate-related scenario analysis consistent with the Paris Agreement and limiting climate change to 1.5°C, for example, based on scenarios of the International Energy Agency (Net zero Emissions by 2050, Sustainable Development Scenario, etc). For the general requirements related to climate-related scenario analysis see paragraphs 18, 19, AR 13 to AR 14; and (d) identified assets and business activities that are incompatible with or need significant efforts to be compatible with a transition to a climate-neutral economy (for example, due to significant locked-in GHG emissions or incompatibility with the requirements for Taxonomy-alignment under Commission Delegated Regulation (EU) 2021/2139). Examples of climate-related transition events (examples based on TCFD classification) Policy and legal Technology Market Reputation Increased pricing of GHG emissions Substitution of existing products and services with lower emissions options Changing customer behaviour Shifts in consumer preferences Enhanced emissionsreporting obligations Unsuccessful investment in new technologies Uncertainty in market signals Stigmatization of sector Mandates on and regulation of existing products and services Costs of transition to lower emissions technology Increased cost of raw materials Increased stakeholder concern Mandates on and regulation of existing production processes Negative stakeholder feedback Exposure to litigation Climate-related scenario analysis AR 14. When disclosing the information required under paragraphs 17, 18, 19, AR 11 and AR 12, the undertaking shall 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 time horizons, including: [Draft] ESRS E1 Climate change November 2022 Page 24 of 45 [Draft] ESRS E1 Climate change (a) which scenarios were used, their sources and alignment with state-of-the-art science; (b) narratives, time horizons, and endpoints used with a discussion of why it believes the range of scenarios used covers its plausible risks and uncertainties; (c) the key forces and drivers taken into consideration in each scenario and why these are relevant to the undertaking, for example, policy assumptions, macroeconomic trends, energy usage and mix, and technology assumptions; and (d) key inputs and constraints of the scenarios, including their level of detail (e.g., whether the analysis of physical climate-related risks is based on geospatial coordinates specific to the undertaking’s locations or national- or regional-level broad data). AR 15. Note: When conducting scenario analysis, the undertaking may consider the following guidance: TCFD Technical Supplement on “The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities” (2017); TCFD “Guidance on Scenario Analysis for Non-Financial Companies” (2020); ISO 14091:2021 “Adaptation to climate change — Guidelines on vulnerability, impacts and risk assessment”; any other recognised industry standards; and EU, national, regional and local regulations. AR 16. The undertaking shall briefly explain how the climate scenarios used are compatible with the critical climate-related assumptions made in the financial statements. Impact, risk and opportunity management Disclosure Requirement E1-2 – Policies related to climate change mitigation and adaptation AR 17. Policies related to either climate change mitigation or climate adaptation may be disclosed separately as their objectives, people involved, actions and resources needed to implement them are different. AR 18. Policies related to climate change mitigation address the management of the undertaking’s GHG emissions, GHG removals and transition risks over different time horizons, in its own operations and/or in the value chain. The requirement under paragraph 13 may relate to stand-alone climate change mitigation policies as well as relevant policies on other matters that indirectly support climate change mitigation including training policies, procurement or supply chain policies, investment policies or product development policies. AR 19. Policies related to climate change adaptation address the management of the undertaking’s physical climate risks and climate change adaptation-related transition risks. The requirement under paragraphs 20 and 23 may relate to stand-alone climate change adaptation policies as well as relevant policies on other matters that indirectly support climate change adaptation including training policies, and emergency or health and safety policies. Disclosure Requirements E1-3 – Actions and resources in relation to climate change policies AR 20. When disclosing the information on actions as required under paragraphs 27(a) and 27(b), the undertaking may: (a) disclose its key actions taken and/or plans to implement climate change mitigation and adaptation policies in its single or separate actions; (b) aggregate types of mitigation actions (decarbonisation levers) such as energy efficiency, electrification, fuel switching, use of renewable energy, products change, and supply-chain decarbonisation that fit the undertakings' specific actions; (c) disclose the list of key mitigation actions alongside the measurable targets (as required by Disclosure Requirement E1-4) with disaggregation by decarbonisation levers; and [Draft] ESRS E1 Climate change November 2022 Page 25 of 45 [Draft] ESRS E1 Climate change (d) disclose the climate change adaptation actions by type of adaptation solution such as nature-based adaptation, engineering, or technological solutions. AR 21. When disclosing the information on resources as required under paragraph 27(c), the undertaking shall only disclose the significant OpEx and CapEx amounts required for the implementation of the actions as the purpose of this information is to demonstrate the credibility of its actions rather than to reconcile the disclosed amounts to the financial statements. The disclosed CapEx and OpEx amounts shall be the additions made to both tangible and intangible assets during the current financial year as well as the planned additions for future periods of implementing the actions. The disclosed amounts shall only be the incremental financial investments directly contributing to the achievement of the undertaking’s targets. AR 22. In line with the requirements of [draft] ESRS 2 DC-A, the undertaking shall explain if and to what extent its ability to implement the actions depends on the availability and allocation of resources. Ongoing access to finance at an affordable cost of capital can be critical for the implementation of the undertaking’s actions, which include its adjustments to supply/demand changes or its related acquisitions and significant research and development (R&D) investments. AR 23. The amounts of OpEx and CapEx required for the implementation of the actions disclosed under paragraph 27(c) shall be consistent with the key performance indicators (proportion of CapEx and OpEx) and, if applicable, the CapEx plan mentioned by Commission delegated regulation (EU) 2021/2178. The undertaking shall explain any potential differences between the significant OpEx and CapEx amounts disclosed under this [draft] Standard and the amounts disclosed under the Taxonomy Regulation (EU) 2020/852 due to, for instance, non-eligible economic activities. The undertaking may structure its actions by economic activity to accommodate its OpEx and CapEx plan aligned to the Taxonomy Regulation. Metrics and targets Disclosure Requirement E1-4 – Targets related to climate change mitigation and adaptation AR 24. When disclosing the information required under paragraph 32(b), the undertaking shall specify the share of the target related to each respective GHG emission Scope (1, 2 or 3). The undertaking shall state the method used to calculate Scope 2 GHG emissions included in the target (i.e., either the location-based or market-based method). If the boundary of the GHG emission reduction target diverges from that of the GHG emissions reported under Disclosure Requirement E1-6, the undertaking shall disclose the respective percentage of Scope 1, 2, 3 and total GHG emissions covered by the target. For the GHG emission reduction targets of its subsidiaries, the undertaking shall analogously apply these requirements at the level of the subsidiary. AR 25. When disclosing the information required under paragraph 32(c) on base year and baseline value: (a) the undertaking shall briefly explain how it has ensured that the baseline value against which the progress towards the target is measured is representative of the activities covered and the influences from external factors (e.g., temperature anomalies in a certain year influencing the amount of energy consumption and related GHG emissions). This can be done by the normalisation of the baseline value, e.g., by using a baseline value that is derived from a three-year average if this increases the representativeness and allows a more faithful representation of the baseline value; (b) the baseline value and base year shall not be changed unless significant changes in either the target or reporting boundary occur. In such a case, the undertaking shall explain how the new baseline value affects the new target, its achievement and presentation of progress over time. To foster comparability, when setting new targets, the undertaking shall select a recent base year that does not precede the first reporting year of the new target period by longer than three years. For [Draft] ESRS E1 Climate change November 2022 Page 26 of 45 [Draft] ESRS E1 Climate change example, for 2030 as the target year and a target period between 2025 and 2030, the base year shall be selected from the period between 2022 and 2025; (c) the undertaking shall update its base year from 2030 and after every five-year period thereafter. This means that before 2030, the base years chosen by undertakings’ may be either the currently applied base year for existing targets or the first year of application of the CSRD (2024, 2025 or 2026) and, after 2030, every five years (2030, 2035, etc); and (d) when presenting climate-related targets, the undertaking may disclose the progress in meeting these targets made before its current base year. In doing so, the undertaking shall, to the greatest extent possible, ensure that the information on past progress is consistent with the requirements of this [draft] Standard. In the case of methodological differences, for example, regarding target boundaries, the undertaking shall provide a brief explanation for these differences. AR 26. When disclosing the information required under paragraphs 32(d) and 32(e), the undertaking shall present the information over the target period with reference to a sectorspecific, if available, or a cross-sector emission pathway in line with limiting global warming to 1.5°C. For this purpose, the undertaking shall calculate a 1.5°C aligned reference target value for Scope 1 and 2 (and, if applicable, a separate one for Scope 3) against which its own GHG emission reduction targets or interim targets in the respective Scopes can be compared. AR 27. The reference target value may be calculated by multiplying the GHG emissions in the base year with either a sector-specific or cross-sector emission reduction factor. These emission reduction factors can be derived from different sources. The undertaking should ensure that the source used is based on an emission reduction pathway compatible with limiting global warming to 1.5°C. The undertaking may derive the reduction factors for its specific sectors and emission Scopes from the following: AR 28. (a) the One Earth Climate Model (OECM) and its report prepared by the University of Technology Sydney for the UN-convened Net Zero Asset Owners Alliance and the European Climate Foundation19; (b) the Science-based Target Initiative (SBTi) using the Sectoral Decarbonisation Approach (SDA) if available, and/or the Absolute Contraction Approach (ACA); The emission reduction factors are subject to further development. Consequently, undertakings are encouraged to only use updated publicly available information. Cross-sector (ACA) reductions pathway based on the year 2020 as the reference year 2030 2050 -42% -90% Source: based on Pathways to Net-zero –SBTi Technical Summary (Version 1.0, October 2021) AR 29. The reference target value is dependent on the base year and baseline emissions of the undertaking’s GHG emission reduction target. As a result, the reference target value for undertakings with a recent base year or from higher baseline emissions may be less stringent than it will be for undertakings that already have taken ambitious past actions to reduce GHG emissions. Therefore, undertakings that have in the past achieved GHG emissions reductions in line with either a 1.5°C-aligned cross-sector or sector-specific pathway, may adjust their baseline emissions accordingly to determine the reference target value. Accordingly, if the undertaking is adjusting the baseline emissions to determine the 19 Teske, S., Niklas, S., Nagrath, K., Talwar S., Atherton, A., Guerrero Orbe, J., (2020), Sectoral pathways and Key Performance Indicators: aluminium, chemical, cement, steel, textile & leather industry, power utilities, gas utilities, agriculture, forestry, the aviation and shipping industry, road transport, and the real estate & building industry. Available at: https://www.unepfi.org/wordpress/wp-content/uploads/2022/05/UTS_Limit-global-warming_Sectoral-Pathways-and-KeyKPIs.pdf (pages 19-30). [Draft] ESRS E1 Climate change November 2022 Page 27 of 45 [Draft] ESRS E1 Climate change reference target value, it shall not consider GHG emission reductions that precede the year 2020 and it shall provide appropriate evidence of its past achieved GHG emission reduction. AR 30. AR 31. When disclosing the information required under paragraph 32(f), the undertaking shall explain: (a) by reference to its climate change mitigation actions, the decarbonisation levers and their estimated quantitative contributions to the achievement of its GHG emission reduction targets broken down by each Scope (1, 2 and 3); (b) whether it plans to adopt new technologies and the role of these to achieve its GHG emission reduction targets; and (c) whether and how it has considered a diverse range of climate scenarios, at least including a climate scenario in line with limiting global warming to 1.5°C, to detect relevant environmental-, societal-, technology-, market- and policy-related developments and determine its decarbonisation levers. The undertaking may present its GHG emission reduction targets together with its climate change mitigation actions (see paragraph AR 20) as a table or graphical pathway showing developments over time. The following figure and table provide examples combining targets and decarbonisation levers: Base year (e.g., 2025) 2030 target 2035 target 100 60 40 Energy efficiency and consumption reduction - -10 -4 Material efficiency and consumption reduction - -5 - Fuel switching - -2 - Electrification - - -10 Use of renewable energy - -10 -3 GHG emissions (ktCO2eq) [Draft] ESRS E1 Climate change November 2022 … Up to 2050 target Page 28 of 45 [Draft] ESRS E1 Climate change Phase out or substitution of product change - -8 - Phase out or substitution of process change - -5 -3 Other - - Disclosure Requirement E1-5 – Energy consumption and mix Calculation guidance AR 32. When preparing the information on energy consumption required under paragraph 33, the undertaking shall: (a) only report energy consumed from processes owned or controlled by the undertaking applying the same perimeter applied for reporting GHG Scopes 1 and 2 emissions; (b) exclude feedstocks and fuels that are not combusted for energy purposes. The undertaking that consumes fuel as feedstocks can disclose information on this consumption separately from the required disclosures; (c) ensure all quantitative energy-related information is reported in either Mega-Watthours (MWh) in Lower Heating Value or net calorific value. If raw data of energyrelated information is only available in: (d) energy units other than MWh, such as Giga-Joules (GJ) or British Thermal Units (Btu); i. volume units, such as cubic feet or gallons; or ii. mass units, such as kilograms (kg) or pounds (lb), (e) it shall be converted to MWh using suitable conversion factors (see for example the Annex II of the Fifth Assessment IPCC report). Conversion factors for fuels shall be made transparent and applied in a consistent manner; (f) ensure all quantitative energy-related information is reported as final energy consumption, referring to the amount of energy the undertaking actually consumes using for example the table in Annex IV of the EU Directive 2012/27 on energy efficiency; (g) avoid double counting fuel consumption when disclosing self-generated energy consumption. If the undertaking generates electricity from either a non-renewable or renewable fuel source and then consumes the generated electricity, the energy consumption shall be counted only once under fuel consumption; (h) not offset energy consumption even if onsite generated energy is sold to and used by a third party; (i) not count energy that is sourced from within the organisational boundary under “purchased or acquired” energy; (j) account for steam, heat or cooling received as “waste energy” from a third party’s industrial processes under “purchased or acquired” energy; (k) account for renewable hydrogen as a renewable fuel. Hydrogen that is not completely derived from renewable sources shall be included under “fuel consumption from other non-renewable sources”; and (l) adopt a conservative approach when splitting the electricity, steam, heat or cooling between renewable and non-renewable sources based on the approach applied to calculate market-based Scope 2 GHG emissions. The undertaking shall only consider these energy consumptions as deriving from renewable sources if the origin of the purchased energy is clearly defined in the contractual arrangements with its suppliers (renewable power purchasing agreement, [Draft] ESRS E1 Climate change November 2022 Page 29 of 45 [Draft] ESRS E1 Climate change standardised green electricity tariff, market instruments like Guarantee of Origin from renewable sources in Europe or similar instruments like Renewable Energy Certificates in the US and Canada, etc.). AR 33. The information required under paragraph 35(a) shall be disaggregated by type of nonrenewable source and this shall be done only for high climate impact sectors. AR 34. The information on Energy consumption and mix may be presented using the following tabular format Energy consumption and mix Comparative Year N (1) Fuel consumption from coal and coal products (MWh) (2) Fuel consumption from crude oil and petroleum products (MWh) (3) Fuel consumption from natural gas (MWh) (4) Fuel consumption from other non-renewable sources (MWh) (5) Consumption from nuclear products (MWh) (6) Consumption of purchased or acquired electricity, heat, steam, and cooling from non-renewable sources (MWh) (7) Total non-renewable energy consumption (MWh) (calculated as the sum of lines 1 to 6) Share of non-renewable sources in total energy consumption (%) (8) Fuel consumption for renewable sources (including biomass, biogas, nonfossil fuel waste, renewable hydrogen, etc.) (MWh) (9) Consumption of purchased or acquired electricity, heat, steam, and cooling from renewable sources (MWh) (10) The consumption of self-generated non-fuel renewable energy (MWh) (11) Total renewable energy consumption (MWh) (calculated as the sum of lines 8 to 10) Share of renewable sources in total energy consumption (%) Total energy consumption (MWh) (calculated as the sum of lines 7 and 11) AR 35. The total energy consumption with a distinction between renewable and non-renewable energy consumption may be graphically presented in the sustainability statement showing developments over time (e.g., through a pie or bar chart). Energy intensity based on net revenue Calculation guidance AR 36. When preparing the information on energy intensity required under paragraph 37, the undertaking shall: [Draft] ESRS E1 Climate change November 2022 Page 30 of 45 [Draft] ESRS E1 Climate change (a) calculate the energy intensity ratio using the following formula: 𝑇𝑜𝑡𝑎𝑙 𝑒𝑛𝑒𝑟𝑔𝑦 𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛 𝑓𝑟𝑜𝑚 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑖𝑒𝑠 𝑖𝑛 ℎ𝑖𝑔ℎ 𝑐𝑙𝑖𝑚𝑎𝑡𝑒 𝑖𝑚𝑝𝑎𝑐𝑡 𝑠𝑒𝑐𝑡𝑜𝑟𝑠 (𝑀𝑊ℎ) 𝑁𝑒𝑡 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑓𝑟𝑜𝑚 𝑎𝑐𝑡𝑖𝑣𝑖𝑡𝑖𝑒𝑠 𝑖𝑛 ℎ𝑖𝑔ℎ 𝑐𝑙𝑖𝑚𝑎𝑡𝑒 𝑖𝑚𝑝𝑎𝑐𝑡 𝑠𝑒𝑐𝑡𝑜𝑟𝑠 (𝑀𝑜𝑛𝑒𝑡𝑎𝑟𝑦 𝑢𝑛𝑖𝑡) AR 37. ; (b) express the total energy consumption in MWh and the net revenue in monetary units (e.g., Euros); (c) the numerator and denominator shall only consist of the proportion of the total final energy consumption (in the numerator) and net revenue (in the denominator) that are attributable to activities in high climate impact sectors. In effect, there should be consistency in the scope of both the numerator and denominator; (d) calculate the total energy consumption in line with the requirement in paragraph 35; (e) calculate the net revenue in line with the accounting standards requirements applicable for the financial statements, i.e., IFRS 15 Revenue from Contracts with Customers or local GAAP requirements. The quantitative information may be presented in the following table. Energy intensity per net revenue Comparative N % N / N-1 Total energy consumption from activities in high climate impact sectors per net revenue from activities in high climate impact sectors (MWh/Monetary unit) Connectivity of energy intensity based on net revenue with financial reporting information AR 38. The reconciliation of net revenue from activities in high climate impact sectors to the relevant financial statements line item or disclosure (as required by paragraph 40) may be presented either: (a) by a cross-reference to the related line item or disclosure in the financial statements; or (b) If the net revenue cannot be directly cross-referenced to a line item or disclosure in the financial statements, by a quantitative reconciliation using the below tabular format. Net revenue from activities in high climate impact sectors used to calculate energy intensity Net revenue (other) Total net revenue (Financial statements) Disclosure Requirements E1-6 – Gross Scopes 1, 2, 3 and Total GHG emissions Calculation guidance AR 39. When preparing the information for reporting GHG emissions as required by paragraph 41, the undertaking shall: (a) consider the principles, requirements and guidance provided by the GHG Protocol Corporate Standard (version 2004 or the latest one) and GRI 305 (version 2016 which is directly based on the requirements of the GHG Protocol). The undertaking may consider the requirements stipulated by ISO 14064-1:2018. If the undertaking already applies the GHG accounting methodology of ISO 140641: 2018, it shall nevertheless comply with the requirements of this standard (e.g., regarding reporting boundaries and the disclosure of market-based Scope 2 GHG emissions); (b) disclose the methodologies and emissions factors used to calculate or measure GHG emissions, and provide a reference or link to any calculation tools used; [Draft] ESRS E1 Climate change November 2022 Page 31 of 45 [Draft] ESRS E1 Climate change (c) include emissions of CO2, CH4, N2O, HFCs, PFCs, SF6, and NF3. Additional GHG may be considered when significant; (d) use the most recent Global Warming Potential (GWP) values published by the IPCC based on a 100-year time horizon to calculate CO 2eq emissions of non-CO2 gases; and (e) disclose the methodologies and emissions factors used to calculate or measure GHG emissions, and provide a reference or link to any calculation tools used. AR 40. The undertaking may disaggregate its Scope 1, 2 and 3 GHG emissions by country, operating segments, economic activity, subsidiary, GHG category (CO2, CH4, N2O, HFCs, PFCs, SF6, NF3, and other GHG considered by the undertaking) or source type (stationary combustion, mobile combustion, process emissions and fugitive emissions) as appropriate. AR 41. When preparing the information on gross Scope 1 GHG emissions required under paragraph 45(a), the undertaking shall: AR 42. (a) calculate or measure GHG emissions from stationary combustion, mobile combustion, process emissions and fugitive emissions; and use suitable activity data that include the non-renewable fuel consumption; (b) use suitable and consistent emission factors; (c) disclose biogenic emissions of carbon from the combustion or biodegradation of biomass separately from the Scope 1 GHG emissions, but include emissions of other types of GHG (in particular N2O); and (d) exclude any purchased, sold or transferred carbon credits or GHG allowances; (e) for activities reporting under the EU ETS, report on Scope 1 emissions following the EU ETS methodology. The EU ETS methodology may also be applied to activities in geographies and sectors that are not covered by the EU ETS; (f) disclose carbon uptakes and emissions (CO 2, CO, CH4) from direct land use and land use change separately from the Scope 1 GHG emissions, but include emissions of other types of GHG when applicable. When preparing the information on the percentage of Scope 1 GHG emissions from regulated emission trading schemes required under paragraph 45(b), the undertaking shall: (a) consider GHG emissions from the installations it operates that are subject to regulated Emission Trading Schemes (ETS), including the EU-ETS, national ETS and non-EU ETS, if applicable; (b) only include emissions of CO2, CH4, N2O, HFCs, PFCs, SF6, and NF3; (c) ensure the same accounting period for gross Scope 1 GHG emissions and GHG emissions regulated under the ETS; and (d) calculate the share by using the following formula: GHG emissions in (t CO2 eq)from EU ETS installations + national ETS installations + nonEU ETS installations Scope 1 GHG emissions (t CO2 eq) AR 43. When preparing the information on gross Scope 2 GHG emissions required under paragraph 46, the undertaking shall: (a) consider the principles and requirements of the GHG Protocol Scope 2 Guidance (version 2015 or the latest one); it may also consider corresponding requirements for the quantification of indirect GHG emissions from imported energy in ISO 14064-1:2018; (b) include purchased or acquired electricity, steam, heat, and cooling consumed by the undertaking; (c) avoid double counting of GHG emissions reported under Scope 1 or 3; (d) apply the location-based and market-based methods to calculate Scope 2 GHG emissions; [Draft] ESRS E1 Climate change November 2022 Page 32 of 45 [Draft] ESRS E1 Climate change Note: Location-based method quantifies Scope 2 GHG emissions based on average energy generation emission factors for defined locations, including local, subnational, or national boundaries (GHG Protocol, “Scope 2 Guidance”, Glossary, 2015); Note: 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 (GHG Protocol, “Scope 2 Guidance”, Glossary, 2015); in this case, the undertaking may disclose the share of market-based scope 2 GHG emissions linked to purchased electricity bundled with instruments such as Guarantee of Origins or Renewable Energy Certificates. AR 44. (e) disclose biogenic emissions of carbon from the combustion or biodegradation of biomass separately from the Scope 2 GHG emissions but include emissions of other types of GHG (in particular N2O). In case the emission factors applied do not separate the percentage of biomass or biogenic CO 2, the undertaking shall disclose this. In case GHG emissions other than CO 2 (particularly N2O) are not available for, or excluded from, location-based grid average emissions factors or with the market-based method information, the undertaking shall disclose this; (f) exclude any purchased, sold or transferred carbon credits or GHG allowances from the calculation of Scope 2 GHG emissions; (g) adhere to the rules as set out in chapter 7.1 of the GHG Protocol Scope 2 Guidance (version 2015 or the latest one) and disclose the required information accordingly; (h) disclose carbon uptakes and emissions (CO2, CO, CH4) from indirect land use and land use change separately from the Scope 2 GHG emissions, but include emissions of other types of GHG when applicable. When preparing the information on gross Scope 3 GHG emissions required under paragraph 48, the undertaking shall: (a) consider the principles and provisions of the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Version 2011 or latest one); and it may consider the corresponding requirements for the quantification of indirect GHG emissions from ISO 14068:2018; (b) if it is a financial institution, consider the GHG Accounting and Reporting Standard for the Financial Industry from the Partnership for Carbon Accounting Financial (PCAF); (c) screen its total Scope 3 GHG emissions based on the 15 Scope 3 categories identified by the GHG Protocol Corporate Standard and GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (Version 2011) using appropriate estimates. Alternatively, it may screen i

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