The importance of climate transition plans and the links to CSRD

What is a Climate Transition Plan?

A Climate Transition Plan (CTP) is a comprehensive plan that outlines how a company will adapt its strategy and business model to ensure compatibility with the goals of the Paris Agreement - in particular, limiting global warming to 1.5°C and achieving climate neutrality by 2050.
Companies are expected to provide detailed and substantial information on their CTPs so that stakeholders, including investors, can assess and compare their commitment to climate action and their readiness for a low-carbon future.

The importance of climate transition plans for sustainability reporting

The Climate Transition Plan is an important instrument for fulfilling the goals and obligations of the EU Green Deal and the Corporate Sustainability Reporting Directive (CSRD).

The European Green Deal

In line with the Paris Agreement, the European Green Deal, which was presented on December 11, 2019, serves as a roadmap for the EU to make its economy more sustainable. Although it does not contain legally binding commitments, it lays the foundation for future legislation and policies that introduce more specific and legally enforceable requirements (e.g. the EU Climate Law).

CSRD

To support the objectives of the European Green Deal, the Corporate Sustainability Reporting Directive (CSRD) came into force on January 5, 2023.

By integrating sustainability reporting into the EU corporate reporting framework, the CSRD requires companies to report on how their business models and strategies are aligned with a sustainable economy. This improves the quality and comparability of sustainability data and enables investors and stakeholders to better assess climate-related risks, opportunities and financial impacts.

ESRS

The European Sustainability Reporting Standards (ESRS), developed by the European Financial Reporting Advisory Group (EFRAG), set out the required disclosures on material environmental, social and governance (ESG) impacts, risks and opportunities that are required for reporting under the CSRD. The ESRS are divided into general (ESRS 1-2), thematic (environment: E 1-5, social: S 1-4, governance: G 1) and sector-specific standards (completion expected by 2025). The specific content of a Climate Transition Plan is defined in the disclosure requirements E1-1 to E1-4 of the ESRS.

Elements of the Climate Transition Plan and their integration into ESRS

E1-1 – Transition plan for climate change mitigation

Companies must develop and disclose a transition plan to mitigate climate change that aligns their strategies with the Paris Agreement to limit global warming to 1.5°C and achieve climate neutrality by 2050.

The plan must include the following:

• Clear targets
• Decarbonization strategies
• Investments and financing
• Assessment of greenhouse gas emissions included
• Disclosure of investments in fossil fuels
• Alignment of the plan with the overall business strategy and financial planning
• Approval by the supervisory authority and regular progress monitoring to review the effectiveness of the plan

E1-2 – Policies related to climate change mitigation andadaptation

Companies are obliged to disclose their climate protection policy in order to manage the risks, impacts and opportunities in the area of climate protection and adaptation to climate change.

The company should indicate whether and how the strategies cover the following topics:

• Mitigation of climate change and adaptation to its consequences
• Energy efficiency
• Use of renewable energies
• Other relevant areas

E1-3 - Actions and resources in relation to climate change

Companies are required to disclose their actions and resources to mitigate and adapt to the impacts of climate change.

This includes:

• Descriptions of mitigation and adaptation measures, including nature-based solutions
• Significant investment and operating costs associated with these measures
• An assessment of the effectiveness of the emission reduction measures

Companies must also outline future plans and resources for further climate protection measures.

E1-4 – Targets related to climate change mitigation and adaptation

Companies are obliged to disclose their climate protection targets, with a focus on the absolute reduction of greenhouse gas emissions and other climate targets such as energy efficiency, the use of renewable energies and the reduction of climate risks.

The goals shall:

• Cover Scope 1, Scope 2 and Scope 3 emissions separately or in combination, without relying on carbon offsets or credits
• Refer to a base year and a baseline
• Include milestones for 2030 and 2050 (if applicable)
• Be science-based and consistent with a 1.5°C temperature rise limit
• Explain how business developments affect future emissions
• Include relevant measures related to climate change

Determination of a base year:

The base year should not be more than three years before the first year of the target period. After 2030, the target values and the base year should be updated for each subsequent five-year period.

What happens if your company does not have a Climate Transition Plan?

If your company does not have a Climate Transition Plan, it must state under ESRS if and when such a plan is to be introduced. This could pose a reputational risk as stakeholders increasingly value climate-related disclosures and actions. In addition, the company could be exposed to higher risks with regard to future regulations (e.g. carbon tax, emissions caps), financial penalties, restricted access to capital or resistance from investors.

Industry examples

1. Siemens

Siemens has set itself ambitious targets as part of its DEGREE sustainability framework, including net zero emissions by 2030 and a 90% reduction in emissions compared to 2019. Click here for the Siemens Sustainability Report 2023.

2. Volvo Group

Volvo is focusing on electrification and plans to achieve 35% electric vehicles by 2030 and fossil-free operation by 2040. Click here for the Volvo Group Annual Report 2023.

3. Schneider Electric

With its Zero Carbon Project and EcoDesign Way, Schneider has taken measures to promote sustainable products and drastically reduce carbon emissions. Click here for the Schneider Electric's 2023 Sustainable Development Report.

Create a Climate Transition Plan with Tanso

The Tanso software supports companies in the creation and implementation of reduction measures. Based on live data from the Corporate Carbon Footprint (CCF), it enables transparent tracking of progress, comparison of scenarios and precise control. In addition, the reduction module integrates organizational structures and defines responsibilities in order to implement measures efficiently and achieve targets in a traceable manner. All functions - from CCF management and hotspot analyses to progress tracking - are bundled in a central platform.