EU advisors issue draft guidance for climate transition plans

EFRAG proposes rules for disclosing decarbonisation strategies under the European Sustainability Reporting Standards

EFRAG has issued draft guidance on what companies should disclose on their climate strategies in order to fulfil their obligations under EU regulation.

The group, which advises the European Commission on the details of its sustainability reporting agenda, has published a 59-page document outlining how it thinks climate transition plans should be addressed within the European Sustainability Reporting Standards (ESRS). 

Transition plans are popping up across the EU’s legislative agenda, including in the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CS3D). They are also being added into existing prudential rules for banks and insurers, to help regulators manage system-wide financial risks. 

EFRAG’s document explains what should be required from companies under ESRS, and how the standards dovetail with those other files, in addition to the EU’s taxonomy. 

It says entities should disclose their climate targets, and explain how they are compatible with meeting 1.5°C and how they will achieve them.

Transition plans should also include a financing plan, with references to how much of an issuer’s capital expenditure will be aligned with the climate mitigation pillar of the EU taxonomy.

“The document emphasises that climate transition plans must be embedded in an undertaking’s overall strategy, with explicit support from governance bodies,” EFRAG continued. 

“This ensures alignment between sustainability goals and corporate planning.”

In line with CS3D, firms should also provide updates on how they have implemented their transition plans over time, including how effective their plans have been at achieving the ultimate goal. 

Companies should explain how their climate transition plans are expected to impact workers, communities and the natural world. 

The proposals are still in draft form, and need to be approved by EFRAG’s technical expert group for sustainability reporting, and the sustainability reporting board responsible for deciding the group’s official positions. 

If it gets the green light from those two bodies, it will go to public consultation before being finalised and presented to the Commission.