EU CSRD: EFRAG publishes draft Transition Plan Implementation Guidance

On 4 November 2024, the European Financial Reporting Advisory Group (EFRAG) held the first public meeting of the Sustainability Reporting Technical Expert Group (TEG) to discuss the draft Implementation Guidance on Transition Plan for Climate Change Mitigation (“TP IG” or “Guidance”). The documents for the meeting, including an early draft of the TP IG, are available here. The Guidance is non-authoritative and accompanies the European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD) but does not form part of them. 

According to the Cover Note for the TEG meeting, the draft reflects an early stage of the development of EFRAG position. The draft therefore is subject to change, both as a result of further amendments on TEG level as well following review by the EFRAG Sustainability Reporting Board (SRB). 

Scope of the Guidance

Sector-agnostic. The TP IG refers to sector-agnostic ESRS, which apply to all undertakings, regardless of which sector or sectors they operate in. It will not, therefore, fully address the sector-specific challenges related to transition plans. The Guidance mentions that further clarifications on transition plans for financial institutions will be provided in the sector standards.

Climate change mitigation only. The Guidance focuses on transition plans for climate change mitigation as outlined in ESRS E1-1. However, it acknowledges that transition plans often interact with other environmental and social topics. The TP IG contains a high-level description of how to disclose impacts on some sustainability matters arising from the transition plan (just transition, biodiversity, resilience and adaptation and governance). It is noted that disclosure requirements for information beyond climate are covered by other topical ESRS. 

Focus on ESRS. Although the Guidance in Chapters 2 and 4 describes the European framework for transition plans, including the Corporate Sustainability Due Diligence Directive (CSDDD) and EU Taxonomy, its scope remains with the ESRS. In relation to CSDDD, EFRAG noted that both CSDDD and CSRD use the same definition of transition plan for climate change mitigation. For companies falling under the CSDDD, there are obligations to conduct risk-based human rights due diligence concerning actual and potential adverse impacts with respect to their operations, subsidiaries and business partners – as well as to prevent, mitigate, and remediate those potential adverse impacts. These obligations equally apply to the implementation of its transition plan with respect to potential adverse impacts to affected stakeholders. Reporting on these aspects can take place in the sustainability statement prepared according to ESRS. 

Not for SMEs. The guidance mentions that it has been developed for use by large listed and unlisted companies that are subject to ESRS. Non-listed small- and medium-sized enterprises (SMEs) may use the Voluntary SME standard currently being developed by EFRAG.

Explanation of the ESRS requirements 

Chapter 3 of the TP IG explains how to implement the requirements of ESRS E1. Companies must disclose their targets and explain how they are compatible with the 1.5˚C target set by the Paris Agreement, and describe the decarbonisation levers, such as operational and product adjustments, that support emission reduction. They are also required to disclose investments and funding supporting these plans, including EU Taxonomy-aligned CapEx. The Guidance emphasises that climate transition plans must be embedded in an undertaking’s overall strategy, with explicit support from governance bodies. 

Undertakings are required to provide updates on the progress of implementing their transition plans. This includes tracking the effectiveness of planned actions and their contribution toward emission reduction targets. The Guidance notes that in the first year of implementing the transition plan, this is not a strict requirement. 

FAQs

Chapter 5 of the Guidance contains FAQs related to the transition plans. EFRAG noted that additional explanations will be published in the coming months to address transition plan-related topics. This chapter addresses questions on compatibility with a 1.5˚C target, key characteristics and completeness of the transition plan, absence of a transition plan and the possibility of concluding it is not material, integration of subsidiaries, etc.

Other EFRAG materials

Reference Practices on Transition Planning. This document will provide good practices to guide through the climate transition planning process. EFRAG has not released the draft Reference Practices yet. According to the Cover Note, priority was given to the TP IG, but work is being carried out on both documents simultaneously. The Guidance mentions that Reference Practices will focus on process elements and will provide practical examples of GHG inventory and GHG emission reduction targets. EFRAG decided that this document will not be part of the TP IG and will be published as an EFRAG Staff/Secretariat paper, i.e. it will not go through the EFRAG due process which involves public feedback. 

Workbook. The ESRS Workbook will provide a detailed map of the ESRS data points interconnecting with climate transition plan-related disclosure requirements. It will present the abstract of each ESRS and the complete content within a single Excel tool. The Workbook is still under development. 

Interaction with international standards

Chapter 4 of the Guidance contains links and explanations on how ESRS disclosures on the climate transition plan relate to other regulatory or voluntary initiatives, including SEC, TPT and GFANZ. EFRAG admitted that this chapter requires further work and coordination with relevant organisations, and noted that during the preparation of the TP IG concerns were expressed about the necessity to align with the TPT Disclosure Framework (for more information on TPT, see our blog post). Regarding the TPT Disclosure Framework and GFANZ EFRAG notes these are voluntary frameworks, and undertakings are not required to be familiar with them when reporting under the ESRS. 

Next steps 

EFRAG plans to have the draft TP IG approved by the SR TEG and the Sustainability Reporting Board (SRB) before the end of 2024. EFRAG then intends to release the draft for public feedback in January-February 2025 and publish the final document in the spring of 2025.

For more information on the CSRD and ESRS, see our CSRD Demystified materials, and for more materials on transition plans - our Climate transition planning & transition finance collection.