European Commission mulls framework to assess corporate transition plans
JRC recommendation comes in report about geographical importance of climate strategies
The EU’s research arm suggested a framework to developed to help companies, investors and regulators evaluate corporate climate transition plans.
Scientists at the European Commission’s Joint Research Centre (JRC) published a report this week on the need to consider where a business’s operations and assets are located when deciding whether its transition plan is credible.
In it, the authors suggest an EU Transition Plan Credibility Assessment Framework, explaining what makes a robust climate strategy, “would reduce the burden for companies to prepare credible transition plans and guide transition-plan users’ credibility analysis”.
“It may also support a common definition of transition finance that would facilitate the tracking of transition finance flows,” they added.
Climate transition plans are a big topic across Europe, where the Corporate Sustainability Reporting Directive will soon require large firms to disclose their strategies, and the Corporate Sustainability Due Diligence Directive will require a portion of those to be implemented.
The EU’s Platform on Sustainable Finance, which advises the Commission on the financial aspects of its ESG agenda, is due to publish a report on transition plans and related financing in coming weeks.
The EU’s advisory body on corporate reporting, EFRAG, should launch a consultation on transition plans under the European Sustainability Reporting Standards next month, REP understands.
“Credible transition plans are needed for sound decision-making along the transition journey,” said the JRC in its report, adding they will help “unlock” the finance companies need to decarbonise.
Geographical considerations
The paper lays out some initial recommendations for assessing whether decarbonisation goals are realistic when seen in their geographical context.
It suggests mapping the location of a company’s assets, along with the levers it says it will pull to meet its climate targets, and identifying any roadblocks.
For example, there may be a shortage of workers with the relevant skills in a particular region, or local policies that prohibit the use of certain technologies. Natural resources or transport infrastructure may be scarce, and consumer behaviour may vary between places.
The paper suggests the EU should ensure transition plans reflect geographical dependencies in order to support the development of useful industrial policy, and better understand the needs of companies seeking to transition.
“As the European Commission makes the Clean Industrial Deal a cornerstone of its next mandate, creating the right investment conditions for the industry to decarbonise and compete becomes a priority,” it says.
The JRC will publish a fuller set of guidance for geographical considerations next year.
Progress in hard-to-abate sectors
Meanwhile, a review done by Climate Bonds Initiative (CBI) this week shows that more than half of steel and cement companies to have issued sustainability-linked debt had legitimate transition plans in place.
The NGO is working on its own framework to assess the credibility of climate transition plans, but it will focus more on the technologies companies are promising to deploy, and their capital expenditure. Its priority sectors will include agriculture, steel, cement and oil & gas.