Transition plans: Preparing for climate change impacts
Background
On 1 January 2024, the Corporate Sustainability Reporting Directive (the “CSRD”) and the European Sustainability Reporting Standards (the “ESRS”) came into force. The CSRD requires the following types of undertakings to apply the new rules for the first time in the 2024 financial year, for sustainability reports published in 2025:
• EU companies which are large public interest undertakings and have more than 500 employees, already subject to the Non Financial Reporting Directive (the “NFRD”);
• Non-EU companies with securities listed on an EU regulated market, which are large undertakings and have more than 500 employees.
The new CSRD/ESRS reporting requirements for sustainability information (“sustainability report”) are far more granular and extensive than those currently applicable to non-financial disclosures under the NFRD (“non-financial statements”). Notably, stakeholders expect entity-specific disclosures on transition plans as well as on climate-related targets, actions and progress.
The CSSF has therefore decided to assess the disclosures on transition plans in the current and the future sustainability reporting by sending a questionnaire to a selection of issuers under its supervision and concerned by the CSRD (“issuers”).
ESRS E1 - AR 1 defines a transition plan as relating to the undertaking's efforts in climate change mitigation. When disclosing its transition plan, the undertaking is expected to provide a high-level explanation of how it will adjust its strategy and business model to ensure compatibility with the transition to a sustainable economy and with the limiting of global warming to 1.5°C in line with the Paris Agreement (…) and the objective of achieving climate neutrality by 2050 with no or limited overshoot (…), and where applicable, how it will adjust its exposure to coal, and oil and gas-related activities.
Objective of the review
The objective of the fact-finding exercise is to serve as a tool to draw the issuers' attention to key points to keep in mind when reporting on transition plans.
The intention was also to shed light on the challenges faced by issuers in the preparation of their transition plans and on their state of awareness and preparedness prior to the publication of their first sustainability reports in accordance with ESRS.
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