First draft of EFRAG Implementation Guidance on transition plans

For the EFRAG TEG meeting on 4 November 2024, EFRAG published a first draft of an Implementation Guidance on transition plans (EFRAG IG draft – Transition Plan for Climate Change Mitigation). This draft was previously developed together with an Advisory Group which consists of representatives from various European institutions (e.g. DG FISMA, DG CLIMA, DG ENV, EBA, EIOPA and others).

The EFRAG IG draft clarifies the ESRS disclosure requirements for the transition plan with reference to climate change mitigation in accordance with ESRS E1-1, para. 16. EFRAG is currently planning to publicly consult on the draft at the beginning of 2025 (after discussed by EFRAG-TEG and EFRAG-SRB) and to publish the final IG by mid-2025.

The draft prepared for the EFRAG TEG meeting is available here. The cover note prepared for the meeting and the recording of the meeting are available here.

The EFRAG IG draft has five chapters. After the introduction, the second chapter explains the EU regulatory framework for reporting requirements for transition plans, including those of ESRS Set 1. Here, connections with other sustainability topics such as biodiversity or the ‘just transition’ are also explained. The third chapter clarifies the relevant disclosure requirements of ESRS Set 1 in more detail. The fourth chapter establishes the link to other international and EU regulations (e.g. EU taxonomy, CSDDD). The final chapter contains FAQs. These clarify, for example, that transition plans can also include emission reduction targets that are not compatible with a 1.5° target.

Georg Lanfermann, President of the DRSC, commented on the work on the Implementation Guidance as follows: “With this first draft EFRAG addresses an issue that is currently being prominently discussed, namely the practical application of the disclosure requirement regarding the transition plan. However, it is questionable whether an almost 60-page, detailed document is in fact necessary to apply the ESRS E1 in practice. The discussions at EFRAG and the subsequent consultation will shed light on this question.”

Meanwhile, EFRAG is also working on information material to illustrate the development of transition plans (‘Reference Practices on Transition Planning’). EFRAG intends to publish this information material as an ‘EFRAG Staff/Secretariat paper’, not as an Implementation Guidance. It will therefore not be publicly consulted.

In addition to EFRAG, the Platform for Sustainable Finance is also currently working on a report on transition plans. This report is expected to be published together with a report on transition finance in December 2024. The Platform report is intended to support financial market participants in assessing the core elements of a transition plan for the purposes of transition financing and to provide the EU Commission with recommendations on how companies can be supported in developing robust transition plans.

The importance of transition plans was also addressed in a European Commission recommendation on transition financing from June 2023 (Recommendation (EU) 2023/1425), according to which the ESRS ‘provide a template for developing credible transition and action plans’.