Transition Plans Need More Granularity
Helena Viñes Fiestas, Chair of the EU Platform on Sustainable Finance, says a public registry on emissions data could help European transition plans.
The EU Platform on Sustainable Finance (PSF) has just presented its report on corporate transition plans to the European Commission (EC), after two years of research.
In the report, the PSF makes nine recommendations to the EU’s executive. Many of these points are already familiar themes: the need to develop sectoral pathways or establish credible science-based targets, for example.
What is a slightly newer element – according to Helena Viñes Fiestas, Chair of the PSF – is the idea of establishing a monitoring framework and public registry of carbon reduction data, compiled on a sector-by-sector basis.
This registry would be distinct from the Net Zero Public Data Utility (NZPDU), which was founded in 2022 by French President Emmanuel Macron and Michael Bloomberg, the United Nations Special Envoy for Climate Ambition and Solutions.
While the NZPDU is focused on net zero commitments (based on voluntary initiatives), the idea behind the EU public registry is to focus on emission reductions in the EU and analysis at sector level as a support tool to inform policy and support companies in their passage towards net zero.
A monitoring framework
“Now we are starting to get into the nitty-gritty by having a framework on carbon removals, being very clear that offsetting cannot count for the achievement of interim targets,” said Fiestas.
In April, the Science Based Targets initiative confirmed that it would not embark on validating carbon credits quality, saying that other entities are better positioned for this task.
“We need to start thinking about, and going into, the nuance of those sectors for which there is currently no technological and economically viable solution for reaching net zero and work out how we’re going to support them.”
This is where a public registry could help, by shining more of a light on how the actions of companies in a particular sector are contributing to emissions within that sector and helping to inform policy decisions.
Besides chairing the PSF, Fiestas is also a Commissioner of the Spanish Financial Markets Authority and a Member of the Climate and Environment Advisory Council at the European Investment Bank. She is also Co-chair of the United Nations’ Taskforce on Net Zero Policy
The EC issued initial recommendations for the voluntary use of EU sustainable finance tools for transition finance in June 2023. The PSF was asked to look into how financial market participants could best be supported in assessing the core elements of these transition plans.
The current mandate for the PSF was due to end at the end of last year, but was extended by three months, until the end of March 2025, due to outstanding work that still needs to be finalised.
The PSF report suggests the establishment of a public register could provide a starting point for supervisory monitoring under the Corporate Sustainability Due Diligence Directive (CSDDD) and the Corporate Sustainability Reporting Directive (CSRD).
CSDDD and CSRD transition plan requirements are complementary. While the CSDDD provides an obligation for undertakings to adopt and implement transition plans, the CSRD requires disclosure of an undertaking’s transition plan according to the detailed reporting standards set out under European Sustainability Reporting Standards.
CSRD entered into force at the start of 2023 and CSDDD in July 2024. Both directives have transition periods built into them. The EU’s omnibus directive, due to be unveiled on 26 February, could yet change the future direction of these pieces of lesgilation, including those parts pertaining to transition plans.
“What is important is that when there is a substantiated change in a transition plan, this is transparently communicated to investors, but also to policymakers and to the external world,” said Fiestas. “In order to help companies reach net zero, and for Europe to become carbon neutral, we need to create a space to have much more of a dialogue and exchange.”
There are still many unanswered questions about how such a public registry might function, but by including this in the report the PSF hopes to start a discussion about some of these trickier areas.
One idea floated by Fiestas is that it could form part of the European Single Access Point, which provides centralised access to information about financial services, capital markets and sustainability. She said that it is now up to the EC, along with the European Securities and Markets Authority (ESMA), to look at some of these issues.
Towards more robust transition plans
In 2024, the EC published a report offering suggestions about making company transition plans more credible, highlighting the benefits that a credibility assessment framework could bring
Fiestas said that an EU public registry could be an important step in helping companies and policymakers identify where any weak spots lie.
“We need to really start looking at the elephants in the room and asking the hard questions. How do you reach net zero if there’s no technology available to help you reach this goal?” she said.
Fiestas added that, too often, investors focus on the end objective rather than considering the path that companies are taking to reach their goals. She said that European policymakers need to develop an environment that supports companies in making their transition plans robust, realistic and transparent.
“Transition finance cannot only be about forward-looking targets. You need the bottom-up as well as the top-down,” said Fiestas.
A key part of this is looking at where external dependencies lie for each sector. A new policy initiative might undermine the decarbonisation efforts of a company in a particular jurisdiction, for example. Closely-linked supply chains might mean that the actions of one company within a certain sector impedes the ability of all companies within that sector to meet their net zero goals. This raises the topic of Scope 3 emissions, and the fact that how these influence companies’ ability to meet their net zero goals is still poorly understood.
“Companies, rightly so, point to the fact that exogenous factors sometimes mean they can’t pull the right decarbonisation levers,” said Fiestas. “These need to be taken into account and consideration by financial market participants.”
Implementing credible transition plans can be even more challenging for firms that are spread across multiple jurisdictions, facing a myriad of often-conflicting scenarios, said Fiestas. Better monitoring and use of a public registry would help firms and investors chart a viable course forwards, she added.
Companies also need the ability to adjust targets in their transition plans based on the shifting environment in which they operate, said Fiestas. Having a clearer view on the progress being made in a given sector will help with this transition.
“A change in management is not a good reason to adjust targets, but it may be a good reason if there is a sudden change in policy direction that affects implementation,” said Fiestas.
Credible transition plans are central to encouraging greater shareholder participation in climate votes, but Fiestas doesn’t think firms should be subject to a mandatory vote on transition plans.
“It is really important to have a proper discussion between shareholders and companies, but it may not be so straight-forward to have a mandatory vote for certain companies depending on their ownership structure,” said Fiestas.
For instance, if one or two investors own a company, then there might be little to be gained on having a vote.
The way ahead
A new team of European Commissioners took office in December, and are yet to publish their work programme for the year ahead. This is expected to come out on 11 February. Fiestas hopes that a core part of the new EC’s work will be to take the PSF’s recommendations forward.
“The EU has a lot on its plate, but once things have settled down we would love the new EC to take forwards some, if not all, of our recommendations. I would also like to see the PSF continue this work when its mandate ends in March,” said Fiestas. “There’s a lot of new territory that we still need to cover. Financial accounting has 160 years of history. [Green transition planning] has very few. So we are learning all the time.”
With public finances under pressure and US President Donald Trump rolling back environmental policy, Fiestas warns that it would be “unwise” for European financial institutions and policymakers to veer from their current path.
“It is imperative for financial institutions to take account of both physical risks and transition risks, and the more visibility there is on policy frameworks the better,” said Fiestas. “We need to acknowledge that we don’t have the time to go very slowly: 2050 is not very far away.”
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