EU Commission’s advisory body issues guidance on credible transition plans

November 8th, 2024

The European Financial Reporting Advisory Group (EFRAG) has released initial voluntary guidance on how businesses should draw up credible climate transition plans.

The official advisory body to the European commission on sustainability reporting outlined how plans should be developed to ensure that they comply with new reporting standards.

These standards include the Corporate Sustainability Reporting Directive, which has been in effect since January, and the Corporate Sustainability Due Diligence Directive, introduced in July, with the first aligned corporate reports due in 2027.

EFRAG’s guidelines state all transition plans should include emissions targets, an explanation of their alignment with the Paris Agreement and detailed strategies for meeting these targets, without over-reliance on carbon credits or other environmental attribute certificates.

Rather than creating a simple, generic climate plan, these guidelines seek to provide people with an understanding of how a company’s past, current and future efforts to ensure that its strategy and business model align with the goal of limiting global warming to 1.5° C.

Therefore, these disclosures are expected to increase transparency, thus allowing people to assess the ambition and credibility of each transition plan.

In addition, under the new guidelines, plans should detail how the transition will be financed, including alignment with the EU’s green finance taxonomy, as well as the business’ exposure to and involvement in high-carbon sectors.

The guidance highlighted the need to consider the social and biodiversity impacts, risks and opportunities associated with the climate transition plan. Therefore, companies should disclose how these plans might affect workers, communities and ecosystems within their operations and across their value chain.

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