ESRS E1 Climate Change Explained for SMEs: Practical EU Reporting Guide with Scope 1, 2 and 3
Learn ESRS E1 climate reporting in simple language. Understand Scope 1, Scope 2, Scope 3 emissions, climate risks, transition plans, and practical reporting examples for SMEs.
Sustainable Supply Chains Explained Simply: How Businesses RedESRS E1 Climate Change Explained for SMEs: Practical EU Reporting Guide
Why Climate Is Usually the First Sustainability Topic Companies Face
For most businesses starting sustainability reporting, climate becomes the first major topic. Why? Because climate affects both:
• environmental impact
• business costs
This makes climate highly material under both dimensions of double materiality. Under European Sustainability Reporting Standards, ESRS E1 climate Change is often the first standard companies must understand deeply. Even small businesses increasingly face climate questions from:
• customers
• banks
• investors
• procurement systems
The challenge is that many managers hear technical words like:
• Scope 1
• Scope 2
• Scope 3
• transition plan
• climate risk
But do not know where to begin. The good news:
Climate reporting becomes manageable when broken into simple operational logic.
What ESRS E1 Actually Requires
ESRS E1 asks companies to explain:
How the company affects climate and how climate affects the company. This follows double materiality directly. That means companies must report:
• greenhouse gas emissions
• climate risks
• climate opportunities
• transition actions
• targets
Climate reporting is not only about counting emissions. It is also about explaining future resilience.
The Three Emission Categories Every Company Must Understand
The most important foundation is knowing emissions categories.
These are divided into:
Scope 1 Emissions
Scope 1 means:
Direct emissions created by the company itself
Typical Scope 1 Sources
• fuel burned in company vehicles
• gas boilers
• production combustion
• owned machinery
SME Example: Bakery
A bakery uses gas ovens daily. The gas burned inside the bakery creates direct emissions.
That is Scope 1.
Scope 2 Emissions
Scope 2 means:
Indirect emissions from purchased energy
Typical Scope 2 Sources
• purchased electricity
• purchased heating
• purchased cooling
SME Example: Office Company
An office buys electricity from the grid. The office does not generate emissions directly, but electricity production causes emissions elsewhere.
That becomes Scope 2.
Scope 3 Emissions
Scope 3 means:
All other indirect emissions across the value chain
This is usually the largest and hardest category.
Typical Scope 3 Sources
• supplier emissions
• transport
• employee commuting
• product use
• waste treatment
• purchased materials
SME Example: Food Producer
A food company buys flour. The emissions from wheat farming, milling, and transport are Scope 3. Even though they happen outside the factory.
Why Scope 3 Often Surprises Companies
Many businesses discover:
Their own factory emissions are smaller than supply chain emissions.
Example
Packaging manufacturer:
Own electricity = moderate emissions
Purchased plastic materials = very high emissions
Scope 3 dominates total footprint.
Which Scope SMEs Should Start With First
Small businesses often ask:
Do we need all three immediately?
Best practical answer:
First Start With Scope 1 and Scope 2
Because data is easier to collect.
Use:
• fuel invoices
• electricity bills
• heating invoices
Then Add Main Scope 3 Sources
Only biggest categories first.
Examples:
• raw materials
• transport
• outsourced services
Practical SME Climate Data Table
Emission Area Data Source
Gas use Energy invoice
Electricity Utility invoice
Fuel Fuel receipts
Transport Logistics invoices
This already creates a strong first climate dataset.
Climate Risk: The Part Many SMEs Miss
Climate reporting is not only emissions.
It also asks:
How can climate affect business continuity?
Two Types of Climate Risk
Physical Risk
Direct climate effects
Examples:
• floods
• storms
• heatwaves
• drought
Transition Risk
Risks caused by economic transition to low carbon systems
Examples:
• energy price changes
• carbon taxes
• regulation
• customer pressure
Example: Finnish Food Company
A food company in Oulu may face:
Physical risk
Transport disruption during extreme winter weather
Transition risk
Energy cost increases due to market changes
Both matter under climate reporting.
Climate Opportunities Also Matter
ESRS E1 also requires businesses to identify positive opportunities.
Examples of Climate Opportunities
• energy efficiency
• renewable energy
• lower transport costs
• low-carbon products
Example
A packaging company develops recyclable material. This reduces emissions and creates market advantage.
What Is a Climate Transition Plan?
A transition plan explains:
How the company intends to reduce climate impact over time It does not need to be perfect immediately. But direction must exist.
Simple SME Transition Plan Example
Year 1
Measure electricity and fuel
Year 2
Reduce energy waste
Year 3
Evaluate renewable electricity
This already qualifies as strategic climate planning.
What Targets Should SMEs Use First?
Targets must be realistic.
Good First Targets
Reduce electricity by 5%
Reduce fuel use by 3%
Cut packaging waste by 10%
Why Small Targets Work Better
Large unrealistic targets damage credibility. Small measurable targets build trust.
Common Climate Reporting Mistakes
Mistake 1: Waiting for Perfect Data
Start with available invoices.
Mistake 2: Ignoring Scope 3 Completely
Even rough estimates help.
Mistake 3: Treating Climate as Only Environmental Issue
Climate affects finance too.
Example: Energy as Double Materiality Topic
Impact Side
Energy creates emissions
Financial Side
Energy creates cost volatility
One topic becomes central in both dimensions.
Consultant Shortcut for SMEs
Ask:
Which three climate-related costs changed most in the last two years? Often this reveals climate relevance immediately.
Example Answers
• electricity
• transport
• heating
These usually become first reporting priorities.
First-Year Climate Reporting Structure for SMEs
Minimum Climate Section
1. Main energy sources
2. Main emission sources
3. Main climate risks
4. First reduction actions
Example First-Year Statement
“Our main climate impact comes from purchased electricity and gas use. In 2026 we began monthly tracking of both categories and identified packaging transport as our largest indirect emission source.” This is already strong reporting language.
Why Banks Increasingly Ask Climate Questions
Climate risk now influences financing. Banks increasingly assess:
• energy dependency
• transition readiness
• operational resilience
Why Customers Ask Too
Large customers often request:
• carbon data
• climate targets
• supplier emissions estimates
Strong SME Advantage
Businesses that already understand climate basics answer faster. This improves competitiveness.
Final Strategic Conclusion
ESRS E1 should not be feared. For SMEs, climate reporting starts with simple operational visibility:
• what energy is used
• where emissions happen
• where risks emerge
• where reductions are possible
The strongest companies begin early and improve gradually. Because climate reporting is not built in one year. It becomes stronger each year.