A Comprehensive Guide to the European Sustainability Reporting Standards (ESRS): Focus on E1 to E5

The five Environmental Standards (ESRS E1 to E5) cover climate change, pollution, water and marine resources, biodiversity, and circular economy, helping companies understand and disclose their environmental impacts. These standards follow ESRS 2’s four reporting areas: governance, strategy, impact, risk and opportunity management, and metrics and targets. To meet CSRD reporting requirements, companies should use a double materiality analysis to assess risks and opportunities across each standard.

For official details on these standards, see pages 68–157 of Annex I in the European Commission’s first ESRS publication. This section, along with the provided document, offers a breakdown of objectives, sub-topics, and disclosure requirements to guide companies in aligning with these environmental standards.

Climate Change – ESRS E1

Subtopics:

• Climate Change Adaptation (ESRS E1-1): This refers to strategies and actions that organizations implement to adjust to current or expected climate conditions and minimize potential damage. For example, businesses may develop strategies to manage the impacts of rising temperatures or changing weather patterns.
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• Climate Change Mitigation (ESRS E2-2): This involves measures taken to reduce or prevent the emission of greenhouse gases. Companies focus on reducing their carbon footprint through renewable energy, energy efficiency, and sustainable practices.
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• Energy (ESRS E3-3): This sub-topic encompasses how energy is consumed, sourced, and managed. It includes the use of renewable energy, energy conservation measures, and transition plans to move away from non-renewable energy sources.

Objectives and Industry Implementation:

• Climate change impact assessment requires companies to conduct thorough lifecycle assessments to measure greenhouse gas emissions across scopes 1, 2, and 3. For example, a dairy cooperative should quantify methane emissions from livestock, carbon dioxide from production energy use, and transportation-related emissions. Companies can use digital platforms and data collection tools to achieve comprehensive reporting.
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• Companies need to develop a robust transition plan that includes steps such as switching to renewable energy, enhancing energy efficiency, and working with supply chain partners committed to sustainability. For instance, a brewery could plan to phase out coal-based energy in favor of solar panels and wind power.
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• Adaptation and mitigation policies should include actions like crop diversification to manage climate variability, using drought-resistant crops, or altering planting schedules based on climate data. A food processor could implement water-saving irrigation systems to prepare for potential water scarcity.
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• Companies should publish detailed action reports documenting initiatives such as investing in carbon offset programs, purchasing green electricity, or adopting carbon capture technology. A multinational food company could partner with local communities to reforest areas and create carbon sinks.
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• Tracking greenhouse gas emissions using recognized standards like the Greenhouse Gas Protocol and setting specific emissions reduction metrics, such as aiming for a 30 percent reduction over five years, are essential. A food distributor with a logistics focus might invest in electric or low-emission vehicles to reduce its carbon footprint.
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• Financial impact analysis should include how climate risks, such as extreme weather, could affect supply chain reliability and raw material costs. A coffee producer, for example, could analyze how changing rainfall patterns might impact bean quality and yield.

Pollution – ESRS E2

Subtopics:

• Pollution of Air (ESRS E2-1): Refers to the release of pollutants into the atmosphere that may cause harm to human health or the environment, such as greenhouse gases, particulate matter, NOx, and SOx.
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• Pollution of Water (ESRS E2-2): Involves contaminants discharged into water bodies that can affect aquatic life, human health, and water quality. This includes chemicals, waste products, or untreated sewage.
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• Pollution of Soil (ESRS E2-3): The presence of pollutants or hazardous substances in the soil due to industrial activities, agricultural chemicals, or waste disposal practices.
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• Pollution of Living Organisms and Food Resources (ESRS E2-4): Focuses on pollutants that can accumulate in plants, animals, and food products, potentially impacting ecosystems and human health.
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• Substances of Concern (ESRS E2-5): These are chemicals or compounds known to pose environmental or health risks, which companies need to manage or phase out in their operations.
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• Substances of Very High Concern (ESRS E2-6): Specific substances identified by regulatory bodies as having significant hazards (e.g., carcinogenic, mutagenic). Businesses must disclose their use and plans to reduce or eliminate these substances.
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• Microplastics (ESRS E2-7): Small plastic particles that pollute ecosystems and have a significant impact on marine life and water quality. Companies must assess and manage their role in contributing to microplastic pollution.

Objectives and Industry Implementation:

• Establish robust pollution management policies to mitigate emissions into air, water, and soil. These policies should prioritize prevention, reduction, and compliance with EU environmental standards, ensuring that all production practices meet or exceed current regulations.
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• Implement pollution control technologies and methods at production facilities. For example, a food processing plant could install state-of-the-art filtration systems to capture particulate matter and reduce emissions of nitrogen oxides (NOx) and sulfur oxides (SOx).
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• Develop comprehensive plans for managing substances of concern. This includes identifying and phasing out high-risk chemicals such as certain preservatives or industrial cleaning agents, replacing them with eco-friendly and safer alternatives.
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• Detail action plans that allocate resources toward pollution mitigation measures, such as the construction of water treatment facilities or upgrading to cleaner, less polluting machinery. A beverage manufacturer could implement on-site water purification systems that treat wastewater before it is released into local water sources.
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• Set clear, quantifiable targets for pollution reduction. These targets could include reducing ammonia emissions from livestock waste by 25% within a set period. Establish regular reporting intervals to update stakeholders on progress and outline adjustments to meet targets.

Water and Marine Resource Management – ESRS E3

Subtopics:

• Water (ESRS E3-1): Focuses on sustainable management and use of freshwater resources within operations, including initiatives to reduce water consumption.
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• Marine Resources (ESRS E3-2): Covers the sustainable use and protection of marine ecosystems and the responsible extraction and use of resources from oceans and seas.

Sub Sub topics:

• Water consumption
• Water withdrawals
• Water discharges
• Water discharges to water bodies and oceans
• Extraction and use of marine resources

Objectives and Industry Implementation:

• Establish detailed policies that prioritize the sustainable use of water, incorporating measures such as closed-loop systems that recycle water within production processes. For example, beverage manufacturers can use treated greywater for non-consumption purposes, helping to reduce overall water consumption.
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• Identify high-water stress regions within the value chain and develop targeted plans for minimizing water use. Food processing facilities in arid regions should disclose initiatives like rainwater harvesting or advanced irrigation systems that minimize withdrawals from local water sources.
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• Implement and maintain water treatment and pollution prevention systems to ensure compliance with local and EU water quality standards. A seafood processing company could adopt biological treatment methods that reduce pollutants in wastewater before discharge.
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• Set specific, measurable targets for water efficiency, such as a 30% reduction in water consumption over a five-year period. Detailed reporting should include data on water withdrawals, consumption, recycling, and discharge quality, providing a comprehensive view of water resource management.

Biodiversity and Ecosystems – ESRS E4

Subtopics:

• Direct Impact Drivers of Biodiversity Loss (ESRS E4-1): Activities directly causing the degradation or loss of biodiversity, such as deforestation or land clearing.
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• Impacts on the State of Species (ESRS E4-2): The effect that a company’s operations have on the population and health of various species within an ecosystem.
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• Impacts on the Extent and Condition of Ecosystems (ESRS E4-3): Refers to the changes in the size, quality, or integrity of ecosystems due to business activities.
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• Impacts on and Dependencies of Ecosystem Services (ESRS E4-4): The effects of a company’s operations on natural services provided by ecosystems (e.g., water filtration, air purification) and how the company relies on these services.

Sub-sub topics:

• Climate change
• Land-use change, fresh water-use change and sea-use change
• Direct exploitation
• Invasive alien species
• Pollution
• Others

Objectives and Industry Implementation:

• Develop and disclose policies that focus on minimizing impacts on biodiversity, supporting EU biodiversity goals, and implementing proactive measures to preserve ecosystems. These policies should align with the European Union Biodiversity Strategy for 2030.
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• Conduct thorough biodiversity impact assessments to identify and understand the ecological effects of sourcing practices and operational activities. For instance, a chocolate manufacturer sourcing cocoa should evaluate whether their supply chain contributes to deforestation and take steps to mitigate these impacts.
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• Implement a mitigation hierarchy in biodiversity management, focusing on avoiding harm first, minimizing impacts where avoidance is not feasible, and restoring or compensating for unavoidable impacts. Food producers should use strategies such as creating buffer zones around farms to protect native wildlife.
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• Engage with local and indigenous communities to include traditional ecological knowledge in biodiversity management efforts, ensuring that preservation strategies are sustainable and culturally sensitive.
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• Set concrete targets for biodiversity protection, such as restoring 10% of impacted natural areas annually, and continuously monitor and report on biodiversity conditions around operational sites. Companies involved in fisheries, for example, should report metrics on fish stock recovery and habitat restoration initiatives.

Circular Economy - ESRS E5

Sub-topics:

• Resource Inflows (ESRS E5-1), Including Resource Use: The type and quantity of materials a company uses, focusing on minimizing the input of virgin resources and increasing the use of recycled or renewable materials.
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• Resource Outflows Related to Products and Services (ESRS E5-2): How products and by-products are managed post-production, including waste management and product lifecycle practices.
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• Waste (ESRS E5-3): The waste generated by a company’s operations and efforts to minimize, reuse, or recycle it as part of circular economy initiatives.

Objectives and Industry Implementation:

• Shift business practices to incorporate circular economy principles by reducing the use of virgin resources, increasing the use of secondary materials, and embedding sustainable lifecycle management in operations.
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• Develop and disclose comprehensive policies that prioritize reusability, recyclability, and the use of recycled inputs. A snack manufacturer could commit to ensuring that all packaging incorporates at least 60% recycled content.
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• Introduce product lifecycle management practices that enhance the durability and recyclability of products. For instance, yogurt manufacturers can adopt reusable glass jars to minimize single-use packaging waste.
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• Implement measures that turn production waste into value-added products. For example, a bakery could develop processes to repurpose bread crusts and other by-products into animal feed or ingredients for secondary market products.
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• Set and disclose ambitious targets aimed at reducing waste. This could include achieving a 50% reduction in non-recyclable waste sent to landfills by 2030. Companies should provide regular updates on progress towards these goals, detailing any challenges and steps taken to overcome them.

ESG in Action: What Companies Are Focusing on and Why

In this section, we’ll highlight examples of initiatives that companies are undertaking to give you a clearer picture of the key areas they are prioritizing.

Arla

Arla Foods focuses on Climate Change (ESRS E1), Biodiversity (ESRS E4), and Resource Use (ESRS E5) as key environmental priorities, not addressing other ESG topics here. By reducing emissions, promoting sustainable land use, and managing resources efficiently, Arla meets regulations, enhances its brand, and leads in sustainability. This targeted strategy strengthens its resilience and reputation in the dairy industry.

Lotus Bakeries

Lotus Bakeries focuses on ESRS E1 (Climate Change) and ESRS E5 (Resource Use and Circularity) as key environmental priorities. Their approach emphasizes energy usage, carbon reduction, sustainable product packaging, and sourcing practices. This targeted focus on environmental sustainability helps Lotus Bakeries align with regulatory standards, enhance its brand value, and solidify its position as a responsible leader in the food industry.

Conclusion

By effectively engaging with the ESRS E1 to E5 standards, companies can improve their sustainability practices and ensure transparency in their environmental impact. These standards offer a structured approach to reporting that can enhance stakeholder trust and drive meaningful change. Organizations should take proactive steps to integrate these practices into their core operations, contributing to a more sustainable future while meeting regulatory requirements.

This comprehensive guide equips companies with the knowledge needed to navigate the complexities of ESRS standards while highlighting the significance of sustainable practices, especially in the food industry, where environmental impacts are particularly pronounced.

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