EFRAG’s 2025 ESRS Drafts: What They Mean for Physical Climate Risk Scenario Analysis and Disclosures within the Corporate Sustainability Reporting Directive (CSRD)

Zurich, September 1st, 2025

As part of the Omnibus Simplification Package, the European Financial Reporting Advisory Group (EFRAG) published new exposure drafts of the European Sustainability Reporting Standards (ESRS) at the end of July 2025. The proposed simplifications are now open for consultation until the end of September 2025. The goal of the simplification is to reduce the required data points and streamline the Corporate Sustainability Reporting Directive (CSRD) requirements while still focusing on the robustness of disclosures on material sustainability topics.

For businesses exposed to physical climate risks, such as extreme heat, flooding, drought, or storms, the proposed revision of the ESRS E1 (Climate Change) standard is of particular interest. The proposed revision introduces clarifications and simplifications for how companies should assess and disclose their exposure to climate hazards and streamline the Corporate Sustainability Reporting Directive (CSRD) with reduced data points. It also provides insights into how to incorporate adaptation strategies and the related financial implications.

Why the Changes Matter

The original ESRS framework is complex and can lead to a significant reporting burden, especially for smaller companies. Therefore, EFRAG has proposed to reduce mandatory data points by 57% by eliminating the voluntary data points and restructuring the standards for clarity.

For physical climate risk disclosures, the aim is to ensure that information remains decision-useful but also practical for companies to implement.

Key Proposed Simplifications for Physical Climate Risk

The ESRS E1 Exposure Draft (July 2025) proposes several changes related to scenario analysis and the financial assessment of physical hazards:

1. Scenario Analysis and Risk Assessment Remain Central

Companies will still need to disclose how physical climate risks are identified, assessed, and integrated into resilience planning. However, the methodology is now less prescriptive in the proposed amendments with a reduction in data points, which provides businesses with more flexibility in structuring and presenting the scenario analysis.

2. Gross vs. Net Disclosures Clarified

EFRAG introduces “gross versus net” guidance on how to treat mitigation, adaptation, and prevention measures when assessing material risks.

Gross risk relates to the exposure before considering adaptation or resilience measures.
Net risk corresponds to the residual exposure after actions such as infrastructure upgrades or insurance coverage.

This helps improve comparability while ensuring companies don’t understate risks by only reporting “managed” exposures.

3. Disclosure of Anticipated Financial Effects from Physical Climate Risk

A new streamlined disclosure requirement proposes that companies must report:

The monetary amount and % of assets at material physical risk before adaptation actions,
The location of key exposed assets,
The % of assets covered by adaptation actions,
The revenue share at material physical risk before adaptation, and
The methodology, assumptions, time horizons, and limitations behind the analysis.

4. Reliefs and Proportionality

Companies may apply “undue cost or effort” reliefs and partial scope reporting for complex metrics. This can provide a significant relief, especially for multinational companies with diverse value chains and for SMEs entering the Corporate Sustainability Reporting Directive CSRD scope later.

What This Means for Companies

Companies that are preparing their Corporate Sustainability Reporting Directive (CSRD) reports, and especially the climate scenario analysis, the proposal for the revised ESRS has the following impacts:

Reduced reporting burden by eliminating excessive data points and streamline the Corporate Sustainability Reporting Directive (CSRD).
Clarification on physical risk disclosures, particularly around gross vs. net exposure.
More flexibility in applying scenario analysis without rigid templates.
Transparency in assumptions and methodologies.

While the proposed simplifications facilitate compliance for companies, physical climate risk analysis remains an essential component of CSRD reporting.

Next Steps

Based on the feedback on the consultation of the drafts, EFRAG will submit its technical advice to the European Commission by 30 November 2025.
A revised Delegated Act is expected soon after, with implications for Corporate Sustainability Reporting Directive (CSRD) reporters from 2026 onwards.

Final Thoughts

For companies exposed to chronic and acute climate risks in their own operations and value chain, a solid climate risk management and scenario analysis process enables a forward-looking approach to reduce potential disruptions and costs from climate extremes. This aspect is still reflected in the proposed ESRS changes and therefore highlights the importance of robust physical climate risk modeling.

At Correntics, we empower organizations to quantify their exposure to hazards such as flooding, heat stress, and drought, and align their analysis with Corporate Sustainability Reporting Directive (CSRD) and ESRS E1. Want to learn how your company can prepare for ESRS E1 physical risk disclosures? Contact us at info@correntics.com