Key Elements of a Climate Transition Plan under the CSDDD

The climate transition plan under the Corporate Sustainability Due Diligence Directive (CSDDD) will be key to aligning the companies with the global climate objectives and the sustainability goals of the EU. This should include, among others, clear time-bound emission reduction targets, a set of decarbonization levers, detailed investment strategies, and solid governance mechanisms. It would also make it clear that concrete actions and ongoing accountability will be required on an ongoing basis, going beyond reporting and into the actual implementation. The framework of the CSDDD focuses on giving momentum to the transition toward a low-carbon economy with real emission reductions.

The key elements required to be included in a company's climate transition plan:

1. Time-Bound Targets

• Companies should be obligated to set time-framed emission reduction targets, not only climate-related goals.
• These must include targets for 2030 and in five-year steps from then until 2050 to give a valid pathway for longer-term emission reduction consistent with the timeline of the Paris Agreement.
• Targets should focus on absolute emission reductions for scopes 1-3, not relative reductions that might not be true reductions.
• The scope 3 emissions should be included for most companies, since they may be a big percentage of their companies' emissions. Particularly, financial institutions should make sure their plan addresses the financed emissions.
• These sources underpin targets supported by solid scientific evidence, coherent with the limit of 1.5°C heating of global warming, according to recent recommendations of the most prestigious scientific bodies such as the Intergovernmental Panel on Climate Change (IPCC) and the European Scientific Advisory Board on Climate Change.

2. Decarbonisation Levers and Key Actions

Beyond targets, the plan needs to define the decarbonisation levers on which the company is going to act. These are the broad strategies of the underlying emissions reduction, including the following:

• Energy efficiency: Optimising processes and technologies to reduce energy consumption.
• Electrification: Transitioning to electricity-powered technologies, especially from renewable sources.
• Fuel switching: Replacing high-emission fuels with lower-emission alternatives.
• Renewable energy: Increasing the use of renewable energy sources like solar, wind, and hydropower.
• Product changes: Changing product design to reduce the footprint at production, use, and disposal.
• Supply chain decarbonisation: Working with suppliers to reduce emissions along the value chain.

Such a plan should also outline the main actions associated with each of the levers, describing particular steps to be undertaken by the company for the given reduction in emission targets.? This could include:

• Specific investments in renewable energy infrastructure.
• Implementation of circular economy principles to reduce waste and resource consumption.
• Development of new, low-emission products or technologies.
• Collaboration with suppliers to implement sustainable practices.

The CSDDD specifically mentions "changes in the product and service portfolio of the company and the adoption of new technologies" as part of the key actions.

3. Investments and Funding

The plan needs to clearly explain and quantify the investment and funding allocated to underpin the implementation of the outlined decarbonisation measures. The financial transparency provided by the plan enables stakeholders to appraise the company's commitment and feasibility of the proposed action.

4. Governance and Oversight

This plan needs to clearly spell out the role of the administrative, management, and supervisory bodies in regard to monitoring and the execution of the climate transition plan. That would show internal governance and accountability at different levels quite clearly.

Additional Requirements:

• Annual Updates: The companies shall update their plans for climate transition annually. These updates shall describe the progress accomplished on the set targets, change in the plan due to new developments or challenges arising, and reassessment of investments and funding required for implementation.
• Alignment with the Corporate Sustainability Reporting Directive (CSRD): Companies already subject to the CSRD, including its mandatory climate-related disclosures, are presumed compliant with the CSDDD requirement to adopt a climate transition plan if their existing plan is in line with ESRS E1 requirements. The CS3D goes further, though, by requiring actual implementation and annual progress reporting of the plan, underlining concrete actions beyond disclosure.

Focus on Implementation: Planning and reporting are something that needs to be moved beyond into concrete implementation. The term "adopt and put into effect," indicates an obligation for actual action to be taken on the plan. The annual update reinforces this idea of focusing on implementation and accountability in terms of actual achievement of specified targets.

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Conclusion

The CSDDD climate transition plan requirements go beyond existing reporting frameworks, introducing a requirement for the implementation and ongoing review of a company's decarbonisation strategy, thereby driving real-world emission reductions. It holds companies accountable for their role in achieving EU climate ambitions and transitioning to a sustainable economy.