Under the EU’s Corporate Sustainability Reporting Directive (CSRD), climate is the central topic. It is reported through ESRS E1, the climate standard inside the European Sustainability Reporting Standards (ESRS), and it asks for something most older frameworks only suggested: a quantified, asset-level view of how physical climate hazards affect a company’s balance sheet.
This guide covers what ESRS E1 requires on climate and physical risk: the disclosure requirements and how they are changing, how materiality decides what you report, and the data workflow behind a defensible disclosure. For who has to report, the post-Omnibus thresholds, and the filing timeline, see the companion guide on CSRD reporting requirements.
- Under the CSRD, the EU’s sustainability reporting law, climate is reported through ESRS E1, the climate standard inside the European Sustainability Reporting Standards (ESRS).
- The physical-risk half of ESRS E1 asks for a quantified, asset-level view of how climate hazards affect the balance sheet, not the narrative older frameworks settled for.
- The financial-effects metric (E1-9 in the binding 2023 standard, E1-11 in the November 2025 amended draft) asks for the carrying amount of assets at material physical risk before adaptation, the percentage covered by adaptation, and net revenue at risk.
- Climate is material almost everywhere: ESMA’s 2025 review found ESRS E1 material for 100% of the 91 issuers it reviewed.
ESRS E1 covers mitigation, adaptation, and energy, and you cannot quietly skip it
ESRS E1 (Climate Change) spans three areas: mitigation (cutting emissions), adaptation (defending the business from physical climate effects), and energy. Climate has a unique status in the CSRD. It is the only topic where a company that decides it is not material must explain that conclusion in detail. In practice climate is material almost everywhere: ESMA’s 2025 review of 91 reporting companies found ESRS E1 assessed as material by 100% of them.
This guide focuses on the climate and physical-risk side of E1. The emissions accounting and transition-plan mechanics are covered elsewhere; physical risk is where asset-level data does the work.
The disclosure requirements are being renumbered, and it matters
ESRS E1 exists in two versions, and reading the wrong one is the most common trap.
The binding 2023 standard (in force now, the version Wave 1 files against) has 9 disclosure requirements. The November 2025 amended draft from EFRAG, the body that drafts the standards, expands E1 to 11 disclosure requirements and renumbers them. The amended draft is the technical basis for the slimmed ESRS revision the Omnibus mandated, expected to apply from FY 2027.
Three shifts are worth pinning, because the same label points to different content across versions:
| What it covers | 2023 binding | Nov 2025 amended draft |
|---|---|---|
| Physical-risk identification + scenario analysis | ESRS 2 IRO-1 + SBM-3 | DR E1-2 |
| Resilience of the business model | inside SBM-3 | DR E1-3 (its own requirement) |
| Anticipated financial effects (the climate metric) | E1-9 | E1-11 |
In plain terms: “E1-3” means actions in the 2023 standard but resilience in the amended draft, and the financial-effects requirement moves from E1-9 to E1-11. A reader who knows one version will misread the other. Continuuiti’s walk-throughs of physical-risk identification, the financial-effects metric, and the adaptation chain each pin both versions.
The physical-risk disclosures: identify, test resilience, quantify the effect
Three requirements carry the physical-risk substance.
Identification and scenario analysis. A company has to show how it found its physical climate risks: the data sources and methodology, hazard screening across its operations and value chain, and how exposed and sensitive its assets are. The amended draft consolidates this into DR E1-2 and asks for scenario analysis using at least one high-emissions scenario for physical risks. In the binding 2023 standard the same work sits in ESRS 2 IRO-1 and SBM-3. The detail of the screening method is covered in the physical-risk identification walk-through.
Resilience. The amended draft pulls resilience out of the strategy disclosure and makes it its own requirement (DR E1-3), asking how scenario outcomes inform strategy, the company’s adaptive capacity across time horizons, and the key uncertainties. The adaptation and resilience guide covers how this connects to the actions a company takes.
Anticipated financial effects. This is the number. The requirement (E1-9 in the binding standard, E1-11 in the amended draft) asks for the carrying amount of assets at material physical risk before adaptation, the percentage of those assets covered by adaptation actions, and the net revenue from exposed activities. The carrying amount is the value an asset is recorded at on the balance sheet. The before-adaptation framing is deliberate: report the raw exposure first, then how much of it you have addressed. The mechanics, and what changed between versions, are in the financial-effects walk-through.
Adaptation is the response side, and it has its own disclosure chain
Adaptation is how a company responds to the physical risks it has found: the policy, the actions and resources, the resilience analysis, and the coverage percentage above. The amended draft reshaped this chain, thinning some parts while promoting resilience into its own requirement. The full chain is covered in the climate adaptation disclosure guide. The point for physical risk: the coverage percentage your whole adaptation effort produces is a disclosed, assured figure.
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Materiality decides what you report, through the financial lens
Nothing in E1 triggers until a physical risk clears the materiality test. The CSRD uses double materiality: a topic is reported if it is material either because it affects the business (financial materiality, the outside-in view) or because the business affects people and the environment (impact materiality, the inside-out view).
Physical climate risk is assessed almost entirely through the financial lens: hazards damage assets and revenue. A risk is material if it could affect the company’s financial position or performance over the short, medium, or long term, and that judgment is forward-looking, so a risk that is immaterial today can become material at a longer horizon. ESRS sets no numeric threshold; it is reasoned judgment, and ESMA has flagged that “why it is not material” conclusions must be evidenced, not boilerplate. The full materiality logic is in the double materiality for physical risk guide.
Physical risk does not stop at your own fence line
E1 asks about climate-related risks in own operations and along the value chain. A company whose own sites are safe can still depend on a supplier in a flood plain. ESMA has noted that supply-chain assessments too often stop at the first tier. How far the value-chain obligation reaches, and where the practical limits sit, is covered in the value-chain physical risk guide.
The value chain is also where CSRD reporting meets the EU due diligence directive. The CSDDD vs CSRD guide explains how the two directives divide reporting and due diligence duties.
The data points you actually gather
EFRAG enumerated the exact fields behind these requirements in its data-point list, which is unusual: most frameworks leave preparers to infer the data they need from paragraph text. For physical risk the list resolves to a handful of monetary figures, percentages, a location table keyed to EU territorial classifications, and the process disclosures behind them. Which fields, and which are due regardless of materiality, is covered in the physical-risk data points guide.
How ESRS E1 compares to TCFD and IFRS S2
Most companies meet climate disclosure through more than one framework. The older TCFD recommendations treated the physical-risk financial number as optional. The mandatory regimes do not. IFRS S2, the global baseline from the ISSB, requires the amount and percentage of assets exposed to physical risk (paragraph 29(c)); ESRS E1 pins that further, adding the before-adaptation gross view and the adaptation-coverage percentage. The substance overlaps heavily, but ESRS adds the impact-materiality lens that IFRS S2 does not require. Continuuiti covers the ESRS E1 versus IFRS S2 and ESRS E1 versus TCFD comparisons in detail, including how an EU reporter maps one disclosure to the other. (The IFRS S2 detail is Continuuiti’s separate coverage of that standard.)
The physical-risk data workflow
Scope and materiality decisions belong to the wider compliance process on the CSRD reporting requirements page. Once a physical risk is material, the data workflow behind the disclosure is:
- Screen every material location. Run documented hazard screening across operational and material supply-chain sites: flooding, heat, wildfire, drought, sea-level rise, and the other physical hazards, with transparent data sources.
- Run scenario analysis. Use at least one high-emissions scenario for physical risk. SSP5-8.5 (a high-emissions pathway, roughly 4.4 degrees of warming by 2100) is the standard high case; pairing it with SSP2-4.5 (a moderate pathway) gives the range ESRS expects.
- Quantify the financial effect. Convert exposure into the carrying amount of materially exposed assets before adaptation, the percentage covered by adaptation, and net revenue at risk. For flood-exposed assets this means turning hazard depth into monetary loss with depth-damage curves.
- Document methodology and sources. ESRS requires transparency on assumptions, parameters, and limitations, and a clear trail from raw hazard data to the disclosed figures, because the disclosure is assured.
This is where Continuuiti fits: forward-looking, scenario-aware, asset-level physical-risk screening across 12 hazards, with flood-damage estimates built on established depth-damage curves (HAZUS and the JRC’s Huizinga functions). We supply the exposure base the disclosure is built on; the company maps its own carrying amounts and adaptation actions onto it. We are candid about the boundary: our damage estimates are strongest for flooding, while wind, wildfire, and drought damage curves remain a gap across the industry, and we do not model business interruption. Where a figure is an estimate, the standard expects it disclosed as one.
Frequently asked questions
What does ESRS E1 require on climate risk?
Identification of climate-related risks with scenario analysis, a resilience assessment, and the anticipated financial effects of physical risk. The financial effects are the carrying amount of exposed assets before adaptation, the percentage covered by adaptation, and net revenue at risk, plus the policies and actions behind them. It applies where climate is material, which is almost always.
Did the physical-risk financial metric change in the amended ESRS?
The substance held. The 2023 standard places it in E1-9; the November 2025 amended draft renames it E1-11 and tightens the wording (for example, “carrying amount” and a reporting-date anchor). The before-adaptation exposure, the adaptation-coverage percentage, and net revenue at risk are in both versions.
Does the CSRD require climate scenario analysis?
For physical risk, the amended ESRS E1 expects at least one high-emissions scenario (such as SSP5-8.5). The 2023 standard requires disclosing how scenario analysis informed the assessment. Companies disclose the scenarios used, key assumptions, and how the outcomes shaped strategy.
Is climate disclosure mandatory under the CSRD?
For in-scope companies, climate is effectively mandatory. ESRS E1 is the only topic a company must justify in detail if it claims to be immaterial, and ESMA found it material for all 91 issuers in its 2025 review.
How does ESRS E1 differ from IFRS S2 on physical risk?
The substance is close. ESRS E1 is more prescriptive: it asks for the before-adaptation gross exposure and the adaptation-coverage percentage, and it adds the impact-materiality lens that IFRS S2 does not require.
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Sources
- ESRS E1 Climate Change, 2023 issuance (Commission Delegated Regulation (EU) 2023/2772, Annex 1): physical-risk identification (ESRS 2 IRO-1, SBM-3), resilience (SBM-3), anticipated financial effects (E1-9 para 66).
- EFRAG draft Amended ESRS E1, November 2025 exposure draft: 11 disclosure requirements; identification (E1-2), resilience (E1-3), anticipated financial effects (E1-11 para 38). Not yet adopted; target FY 2027.
- ESMA, Materiality matters fact-finding (October 2025): ESRS E1 assessed material by 100% of the 91 issuers reviewed; materiality conclusions must be evidenced, not boilerplate.
- Continuuiti physical-risk methodology: 12-hazard asset-level screening; HAZUS and JRC Huizinga flood-damage curves; SSP2-4.5 and SSP5-8.5 scenarios; baseline to 2050 horizons; flood-damage scope and gaps.
