Introduction

The Corporate Sustainability Reporting Directive (CSRD) requires companies to report annually on environmental, social and governance (ESG) impacts and risks. This guide focuses on physical climate risk requirements under ESRS E1 (Climate Change), explaining why identifying, quantifying and managing physical risks is essential for business resilience and regulatory compliance

Which companies must report under CSRD and when

CSRD applies to all large EU companies, listed EU companies (excluding micro-enterprises), and non-EU companies generating more than €150 million in EU revenue with at least one EU subsidiary or branch. Companies previously under the NFRD must report from 2024 (published in 2025). Other large EU companies report from 2026, listed SMEs from 2027, and qualifying non-EU companies from 2029. The directive became effective in 2023, establishing a phased but mandatory reporting regime

CSRD overview: goals and scope explained

CSRD aims to improve transparency, consistency and comparability of sustainability reporting. Companies must disclose environmental and social impacts, governance arrangements, and how sustainability issues affect strategy and financial performance. Climate change (E1) is a core pillar, alongside pollution, water, biodiversity and resource use. Reporting must be reliable, subject to third-party assurance, and updated annually. Continuous monitoring of climate indicators and alignment with standardised formats are required to ensure decision-useful disclosures.

Reporting physical risk: technical requirements

Under ESRS E1, companies must disclose how physical climate risks affect assets, operations and value chains across short-, medium- and long-term horizons. Key disclosures include processes to identify and assess risks (ESRS 2 IRO-1), policies for mitigation and adaptation (E1-2), actions and resources (E1-3), targets (E1-4), and anticipated financial effects (E1-9). Scenario analysis must consider at least one high-emissions pathway (e.g. RCP8.5) and assess both acute and chronic hazards. Financial impacts must be quantified as monetary values and as proportions of assets and net revenue, disaggregated by hazard type and time horizon. Disclosures should reconcile with financial statements and explain methodologies, assumptions and limitations

CSRD and real estate: strategies for managing physical climate risks

Real estate is identified as a highly exposed sector due to sensitivity to hazards such as flooding, heatwaves, storms, wildfires and sea level rise. Physical risks directly affect asset values, operating viability, insurance costs and long-term returns. CSRD requires real estate companies to assess portfolio-level exposure and integrate climate risk into acquisition, due diligence and asset management processes. The report highlights that embedding physical risk assessments can support capital allocation decisions, protect property values and improve long-term resilience beyond regulatory compliance

Conclusion

CSRD makes physical climate risk reporting a mandatory business practice rather than a voluntary exercise. While compliance is complex, robust assessment of physical risks and adaptation actions can uncover hidden financial exposures and support more resilient strategies. Integrating climate risk into planning, risk management and investment decisions is presented as essential for reducing future financial shocks and maintaining business continuity, particularly in climate-exposed sectors such as real estate