ESRS E1 and EU Taxonomy Regulation: Can climate risks be managed in an integrated manner?

Climate resilience analysis according to ESRS E1

The ESRS E1 climate resilience analysis assesses a company’s ability to manage climate-related risks and exploit opportunities. These are first identified by means of a climate scenario analysis which involves simulating various climate scenarios and differentiating between physical and transitional risks. Finally, measures to ensure resilience are derived from such analysis.

Climate risk and vulnerability analysis in accordance with the EU Taxonomy Regulation

The climate risk and vulnerability analysis is prescribed by the EU Taxonomy Regulation as part of the “Do No Significant Harm” criteria. A catalog of potential climate hazards, including physical risks, is used to assess their relevance and impact on the company and to develop adaptation measures.

A comparison of the two approaches

There are clear differences between the two approaches according to ESRS and the EU Taxonomy Regulation, but there are also similarities and therefore potential for useful synergies between the analysis requirements.

The ESRS analysis assesses strategic resilience and considers the entire company, whereas the analysis in accordance with the EU Taxonomy Regulation is conducted for compliance testing purposes and relates to specific economic activities. In addition, the EU Taxonomy Regulation takes particular account of physical risks over the economic activity’s lifetime. The ESRS analysis also includes transition risks as well as the short, medium and long-term view.

The focus on physical risks is a key common feature of both approaches. The same applies to the objective of companies strategically anchoring the monitoring and management of climate risks. In addition, both analysis approaches use climate scenarios and emphasize the importance of adaptation measures. The EU Taxonomy Regulation provides for the development of solutions to avoid significant adverse effects and the ESRS analysis provides for the development of a resilience strategy.

Application of integrated climate risk management

Dovetailing the two analyses can avoid duplication of work and inconsistencies in the assessments. The integration of data, processes and results as well as the use of the same methods, sources or standardized location analyses are possible connection points for increasing efficiency. An integrated approach and continuous monitoring allow companies to monitor their resilience strategy and adapt to new challenges. Integrated climate risk management can not only meet the regulatory requirements of ESRS E1 and the EU Taxonomy Regulation, but also contribute to ensuring the resilience of companies.

Read the full article in WPg - Die Wirtschaftsprüfung, issue 05/2025.