EU CSRD Draft Implementation Guidance for Climate Transition Plans Published – Key Points from the Guidance

This week, EFRAG published draft implementation guidance for transition plans for climate change mitigation (IG 4). Once finalized, IG 4 will provide support for undertakings required to report on their climate transition plans under the EU’s Corporate Sustainability Reporting Directive. 

For the uninitiated, EFRAG (the European Financial Reporting Advisory Group) is the technical adviser to the European Commission which developed the draft European Sustainability Reporting Standards under the CSRD. EFRAG’s mission is to serve the European public interest in both financial and sustainability reporting by developing and promoting European views in the field of corporate reporting.

The objective of EFRAG implementation guidance is to support the implementation activities of preparers and others using or analyzing sustainability reports under the ESRS. The guidance is non-authoritative. It accompanies but does not form part of the ESRS.

Draft IG 4 is broken out into multiple chapters, covering the European framework for climate transition plans, ESRS disclosure requirements for the plans, connections to other European regulatory frameworks and international standards and FAQs.

The guidance is focused on clarifying climate transition plan disclosure requirements under ESRS E1 (the climate change reporting standard). As noted above, it also links ESRS disclosure requirements to the recently adopted EU Corporate Sustainability Due Diligence Directive (discussed in this Ropes & Gray post) and the EU Taxonomy Regulation, among other legislation. Achieving 2050 climate neutrality is a key policy priority for the EU and the transition plan concept is reflected in a series of EU policy instruments.

Key points from the draft guidance

Draft IG 4 characterizes the following as among its key points:

1. Paris Agreement compatibility: Undertakings must disclose their climate targets and explain how they are compatible with the 1.5°C target set by the Paris Agreement. 
2. Actions and decarbonization levers: Undertakings must describe the decarbonization levers, such as operational and product adjustments, that support emissions reduction.
3. Investment and funding: Undertakings are required to disclose investments and funding supporting their climate transition plans, including EU Taxonomy-aligned CapEx.
4. Supporting disclosures: Undertakings conducting activities covered by the EU Taxonomy must disclose their alignment with Taxonomy criteria. This includes climate-related objectives and compliance with technical screening criteria.
5. Governance and strategy: Draft IG 4 emphasizes that climate transition plans must be embedded in an undertaking’s overall strategy, with explicit support from governance bodies. This is intended to ensure alignment between sustainability goals and corporate planning.
6. Progress reporting: 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 emissions reduction targets.
7. IROs arising from the transition plan: The guidance highlights the importance of considering social and biodiversity impacts, risks and opportunities (IROs) connected to the climate transition plan. Undertakings must disclose how climate transition plans may affect workers, communities and ecosystems and may be dependent from the undertaking’s adaptation actions.

Next steps

Draft IG 4 is an early draft. It still needs to be approved by EFRAG’s Sustainability Reporting Technical Expert Group and Sustainability Reporting Board. Once approved in draft by the SR TEG and SRB, it will be put out for public feedback and then finalized, sometime in 2025.

Other EFRAG guidance 

Over the summer, EFRAG finalized its first three ESRS Implementation Guidance documents. That guidance addresses the materiality assessment (IG 1), value chain (IG 2) and ESRS datapoints (IG 3). 

IG 1 is discussed in this Ropes & Gray post. IG 2 is discussed in our earlier post here.

Additional Ropes & Gray posts on the CSRD and ESRS 

For numerous additional posts discussing the Corporate Sustainability Reporting Directive and the European Sustainability Reporting Standards – including the topics discussed in this post – see Ropes and Gray’s Insights page. 

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