Climate Risk Is a Balance Sheet Issue: How ESRS E1 Changes Corporate Financial Planning

ESRS E1 is the most technically demanding of the ESRS topical standards — and for most companies, it requires the most fundamental shift in how sustainability data intersects with financial reporting. The standard demands that climate risk move from the sustainability report to the finance function’s core agenda.

The standard requires companies to disclose transition risks and physical risks, conduct scenario analysis, publish a climate transition plan, and report Scope 1, 2, and 3 greenhouse gas emissions with targets aligned to a 1.5°C pathway. What makes E1 distinctively challenging is the explicit connection it draws between climate data and financial statements.

This creates a structural challenge for finance functions. Climate risk assessment has historically been managed separately from financial planning — often sitting in sustainability teams with limited connections to the CFO’s office. ESRS E1 breaks down that separation permanently.

Scenario analysis under E1 follows the logic established by TCFD — now integrated into IFRS S2 and ESRS — requiring at least two climate scenarios, typically a below-1.5°C transition scenario and a higher physical risk scenario. The output must inform both strategic planning and financial risk provisioning in a demonstrable way.

Companies that handle this well are establishing cross-functional climate risk working groups early — bringing together sustainability, finance, risk, and operations — and building data collection infrastructure well ahead of the reporting deadline.