Disclosing climate transition plans

What is a climate transition plan?

A transition plan is part of a company's overall strategy. It typically covers its emissions targets and interim milestones; the decarbonisation levers, such as renewable power, electrification, efficiency, product changes and supplier engagement; the capital and operating expenditure planned; locked-in emissions from existing assets; the role, if any, of carbon removals and credits; adaptation to physical risks; and governance, with board oversight and links to pay. See ESRS E1.

What do the standards require about transition plans?

• IFRS S2: information about any climate-related transition plan, including key assumptions and dependencies, how the company plans to achieve its targets, and progress. It does not require a plan. The IFRS Foundation's June 2025 guidance, which builds on the Transition Plan Taskforce's materials, explains what to disclose. See IFRS S2.
• ESRS E1: where the company has a plan, its key features and whether its targets are compatible with limiting warming to 1.5 degrees; if not, a transparent explanation. Without a plan, the company says so and whether, and when, it expects to adopt one.
• CSDDD: the Omnibus I Directive removed the obligation to adopt and put into effect a transition plan, though CSRD disclosure of any plan remains.
• United Kingdom: listed companies reporting under UK SRS must state whether they have published a transition plan, without being required to produce one.

Disclosing a transition plan: a manufacturer's plan to 2030

A manufacturer's scope 1 and 2 emissions were 100,000 tonnes in its 2023 base year. Its target is a 42% cut by 2030, gross, without carbon credits. Its plan names four levers.

The plan discloses the capital expenditure behind each lever, 60 million euros in total, and that it depends on grid connections for the heat pumps and on renewable power prices staying near current levels. It identifies the gas boilers as locked-in emissions until their replacement in 2028, links 10% of executive bonuses to annual milestones, and reports progress each year. Scope 3 targets, mostly purchased steel, follow in a later version. See market-based scope 2.

What makes a transition plan credible?

Credible plans are specific and quantified: they show which actions deliver which reductions, by when, at what cost, and how they are funded; they set interim milestones; they are consistent with capital budgets and the financial statements; they explain the dependencies, such as policy, technology and supply chains; and they separate gross reductions from carbon credits. Vague commitments, targets without funded actions, and heavy reliance on future offsets undermine credibility.

How should carbon credits appear in a transition plan?

Targets under ESRS E1 are gross, set before removals and carbon credits, and IFRS S2 asks how far a company plans to rely on carbon credits to meet its net targets, with details of the credits, such as whether they come from removals or avoided emissions and the verification scheme. A credible plan shows credits as a supplement for residual emissions, not a substitute for cutting them, and reports credits bought and retired separately from the emissions inventory. Reliance on credits early in a plan, while emissions stay flat, draws scrutiny from investors and regulators alike. See carbon credits in reporting, setting and reporting net zero targets and greenwashing risk.

How does a transition plan connect to the financial statements?

A plan to retire assets early or replace equipment affects useful lives, impairment testing and provisions, and its capital expenditure should appear in the company's budgets and, under the EU Taxonomy, in its aligned capital expenditure. The assumptions in the plan and in the accounts should be consistent, or the differences explained. See climate risk in impairment testing, climate and useful lives, climate commitments and provisions, EU Taxonomy reporting and climate scenario analysis.

This guide is general information. It is not tax or legal advice for your situation.