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CSRD Climate Risk Reporting: What EU Companies Must Disclose From 2026 Onwards
By: Johannes Fiegenbaum on 7/4/25, 7:20 PM · Last updated September 4, 2026
Under the CSRD, climate risk is not a report of its own. It is disclosed under ESRS E1, the standard whose formal topic name is climate change, and it splits into two categories: physical risk and transition risk. This page defines both, maps them to the E1 disclosure requirements they feed, and says who still reports after the 2025 Omnibus.
CSRD Climate Risk in Plain Terms: Physical and Transition Risk Under ESRS E1
Physical risk is the risk that the physical climate damages your operations. It is acute when it arrives as an event (flood, storm, hail, heat wave) and chronic when it arrives as a trend (rising mean temperature, drought, sea level rise). It attaches to places: sites, warehouses, supplier plants, transport routes.
Transition risk is the risk that the shift to a low-carbon economy damages your business model. It comes from policy and law, from technology, from markets and from reputation. It attaches to products, markets and contracts rather than to coordinates.
| Risk type | Typical examples | Where it lands in ESRS E1 |
|---|---|---|
| Physical, acute | Flood, storm, hail, heat wave at a named site | Material risks under SBM-3; anticipated financial effects under E1-9 |
| Physical, chronic | Rising mean temperature, drought, water stress, sea level rise | SBM-3; E1-9; the resilience of the strategy |
| Transition, policy and legal | Carbon pricing, phase-out rules, permit conditions | SBM-3; the transition plan under E1-1; internal carbon pricing under E1-8 |
| Transition, technology and market | Low-carbon substitutes, shifting demand, input costs | E1-1; targets under E1-4 |
Most E1 climate risk sections I read fail in the same place. They describe the climate accurately and stop, without naming an affected asset, a time horizon or a euro range. A risk that is not attached to something the business owns is a weather report, and an auditor will read it as one.
Who Must Report Climate Risk After the 2025 Omnibus, and What Applies Below the Threshold
Directive (EU) 2026/470, the Omnibus I directive, entered into force on 18 March 2026 and is the applicable frame. CSRD reporting applies to companies with more than 1,000 employees and more than 450 million euro in net turnover; both criteria must be met. It applies to financial years from 1 January 2027, with first reports in 2028, and limited assurance is mandatory from that first year. Listed SMEs are fully exempt. Source: European Commission, Omnibus package.
One point the top search results leave out: the CSRD is a directive, not a regulation. The binding deadline comes from your member state's implementing act, and transposition has run late in more than one country. Check the national law, not only the EU timetable.
Below the threshold the obligation disappears but the demand does not. Banks price transition risk into credit terms, large customers pass requirements down the value chain, and tenders ask for figures. That demand lands in the VSME standard, where climate-related data sits in the comparability module under C4. The wording matters: C4 is voluntary, and "resilience assessment" is ESRS E1-9 language, not VSME language. For a company that has just dropped out of scope, the honest advice is to keep the site-level physical risk screening and drop everything else. That is the piece the bank asks for.
How to Assess Physical and Transition Climate Risks
The sequence below is the one I run, whether the output goes into a full ESRS E1 section or a two-page annex for a lender.
- Site list. Every owned and leased location with coordinates, plus the supplier and logistics nodes you could not substitute at short notice.
- Time horizons. Short, medium and long, defined once and used everywhere, because E1-9 asks for financial effects per horizon.
- Scenarios. A moderate and a high-emissions pathway, so the result is a range instead of a single number.
- Exposure classification. Per hazard and per site, on a fixed scale, so sites can be compared.
- Financial effect. A range tied to the asset or the revenue stream at risk, not a point estimate.
- Documentation. Why each risk was prioritised or dropped. This is what assurance providers actually test.
A pattern from practice, on a multi-site industrial group in Central Europe: the group-level risk narrative was sent back, and the same substance as a per-site exposure table went through without further questions. Nothing in the analysis had changed. The granularity was the deliverable.
Scenario analysis is a subject of its own and is treated separately rather than here. Start with choosing the right SSP scenario, then work the results into the numbers with the guide to integrating climate risks into financial planning.
CSRD Climate Risk and the EU Taxonomy: Where the Two Assessments Overlap
If you are caught by both, you run one analysis and report it twice. The overlap is real, but the questions are not identical.
| ESRS E1 climate risk | EU Taxonomy adaptation screening | TCFD carry-over to IFRS S2 | |
|---|---|---|---|
| Question asked | Which risks are material, and what do they cost? | Is the activity exposed, and are adaptation solutions in place? | How do climate risks affect strategy and financial position? |
| Scenarios | Required, across defined horizons | Required for the vulnerability assessment | Required |
| Output | Narrative plus quantified financial effects | Pass or fail against the screening criteria | Narrative plus metrics |
The practical consequence: build the physical risk screening once, at site level and per hazard, and it serves the Taxonomy adaptation criteria, feeds E1-9 and carries over to IFRS S2 without a second round of data collection.
FAQs
What are the two main types of climate risk under the CSRD?
Physical risk and transition risk. Physical risk is damage from the climate itself, acute as an event such as a flood, chronic as a trend such as drought, and it attaches to locations. Transition risk is damage from the shift to a low-carbon economy through policy, technology, markets and reputation, and it attaches to products and contracts. ESRS E1 expects both, on defined time horizons.
Is the CSRD the same as ESG?
No. ESG is a broad label for environmental, social and governance topics. The CSRD is an EU directive that makes a defined subset of them a legally required, audited part of the management report, structured by the ESRS. Climate change is one ESRS topic, E1, and climate risk is one part of it. More on the structure in the guide to the ESRS.
Has the TCFD been disbanded, and can existing TCFD work be reused for ESRS E1?
The TCFD was wound up in 2023 and its monitoring work passed to the IFRS Foundation, with the recommendations carried into IFRS S2. The framework moved rather than disappeared. Existing TCFD material maps onto ESRS E1 well: governance, strategy and risk management translate almost directly. What has to be rebuilt is the site-level detail and the quantified financial effect, because TCFD reporting often stopped at the narrative.
What happens to climate risk reporting if we fall below the CSRD threshold?
The statutory duty ends, the questions do not. Banks, large customers and public tenders keep asking, and the VSME standard is where that demand lands: climate-related data sits in the voluntary comparability module under C4. Keep the site-level physical risk screening and drop the rest, as set out in the practical steps for VSMEs.
Johannes Fiegenbaum
ESG and sustainability consultant based in Hamburg, specialised in VSME reporting and climate risk analysis. Has supported 300+ projects for companies and financial institutions, from mid-sized manufacturers to major banks and insurers.
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