What are your climate risks for your business?

Your company is your city. Every city has external boundaries. What comes in from outside and what goes out. Raw materials arriving from suppliers. Products going to customers. Services provided in the field. Energy consumed along all of that journey. Your city knows what happens within its walls. What it often does not see is what happens outside them.

And that is precisely where the dragon lives.

Scope 3 emissions are the greenhouse gases that your company does not produce directly, but for which it is responsible throughout the entire supply chain. Suppliers using coal to produce your raw materials. Customers using your product for years after your company delivered it. Logistics transporting all of that hundreds of kilometres. Investors, banks and major buyers increasingly ask one question: how much does your city pollute outside its walls? And they increasingly demand a number, not a promise.

The ESRS, VSME and IFRS reporting standards give that question legal weight.

The European Sustainability Reporting Standards ESRS, in particular ESRS E1, and their version for small and medium-sized enterprises VSME, together with the IFRS framework for climate reporting, introduce a structured obligation to measure, report and plan climate targets. This is not voluntary. It is the direction in which the European capital market, regulation and business partners are collectively pushing all companies, regardless of size.

This kind of dragon does not only come with a deadline. It comes with financial consequences.

Companies that cannot prove the environmental impact of their operations forfeit access to green credit lines. They fail to win supplier contracts with major buyers who have their own ESRS obligations. They squander investor confidence as investors assess climate risk as financial risk. A city that does not know what happens outside its walls becomes a city whose doors to the outside are being closed.

The greenhouse gas Scope 1, 2 and 3 inventory is the first step. Scope 1 are direct emissions from your processes and vehicles. Scope 2 are emissions from purchased electricity and heat. Scope 3 are all other emissions along the supply chain, from suppliers to the end user of your product. Without that inventory, your city does not know how large the dragon it faces is.

The climate risk assessment according to ESRS E1 identifies which climate changes physically and transitionally affect your business. Temperature rise, extreme weather events, regulatory changes, market preference changes. Each of those risks has a financial value. The assessment turns them from a vague threat into manageable data.

The climate transition plan is your map towards lower emissions. It sets measurable GHG emission reduction targets, defines measures and responsibilities, and shows investors, banks and business partners that your company knows where it is going and how to get there. A transition plan according to ESRS E1 is not just a document. It is a signal to the market that your company manages its future, rather than merely reacting to it.

Setting emission reduction targets completes the circle. Targets must be measurable, time-bound and aligned with European climate ambitions. Companies with clear targets more easily access green financial instruments, more easily retain supplier relationships and more easily communicate with investors who place climate risk alongside financial risk.

Your city has data on its supply chain. It has invoices, supplier contracts, logistics records. What it lacks is the methodology that turns that data into a manageable climate strategy.

The dragon of Scope 3 emissions and investor pressure does not wait. Unfortunately, neither do the opportunities that come to companies. It is prudent to face this pressure with numbers rather than anxiety.