Crossing the Channel: UK vs EU rules on transition plans

A climate transition plan can be the standout element of a sustainability reporting suite – and they’re fast becoming a core part of UK and EU disclosures. 

However, different jurisdictions are asking for different things. Below, we unpack what’s being asked of companies, where there’s alignment and convergence, and how you can make your transition plan the best of both worlds.

A climate transition plan unites, in one impactful communication, all the actions an entity is taking on its way to net zero – including its decarbonisation activities, costs and expenditures, and responses to climate risks and opportunities.

Over the past few years transition plans have become enshrined within disclosure frameworks. And they’ve become increasingly expected of companies as the next step in mature climate reporting – sometimes published standalone, and sometimes integrated into reports.

Plans have proven popular even prior to regulation, with a 2023 CDP report finding that 25% of 23,000 CDP-reporting companies had a 1.5°C-aligned climate transition plan. And legislative pressure is building with the arrival of CSRD and impending UK Sustainability Reporting Standards (SRS), both of which request transition plans in company disclosures.

UK vs EU 

Companies with cross-jurisdictional reporting requirements, or who are aiming to appeal to a broad base of readers, will be wondering how transition plan requirements differ across regions.

In a nutshell, in UK SRS the S2 climate standard endorses the Transition Plan Taskforce (TPT) framework – following the IFRS’ official adoption of TPT materials in 2024 - while in the EU, the CSRD requires disclosures under ESRS E1. These diverge in key areas. The official ESRS guidance document on plans (released in 2024 and not final) is notably chilly on TPT, describing it as a “valuable reference point” which can “help [companies] prepare” – but stopping far short of recommending it for ESRS.

The good news is that the majority of line items are answered by both frameworks – as can be seen in the TPT’s own comparison document (published 2023 and therefore not up to date with revised ESRS). This is because, fundamentally, they are both asking for the same thing: disclosures on the targets, actions, governance and resources that are a part of an entity’s transition to net zero.

Despite broad similarities however, there are divergences too. Below, we’re highlighting four big areas where plan preparers should take note:

1. 1.5°C alignment 

In ESRS, emissions reductions targets must be in line with the limiting of global warming to 1.5°C, in line with the Paris Agreement. TPT doesn’t set any such requirement on GHG targets. Given the difficulty for many entities of meeting 1.5°C, this is one of the more challenging parts of ESRS plans, and will depend on a company-level commitment to stringent emissions reductions.

2. Strategic Ambition

While ESRS organises its plan requirements around emissions targets, TPT requires a “strategic ambition” as a plan’s guiding light. This involves stating the plan’s overall objectives, including addressing how adverse impacts will be avoided along the way. In this way, TPT asks for companies to begin by thinking holistically about their role in the transition, and by considering what kind of entity their business will have to become in a net zero future.

3. Engagement 

TPT’s third pillar, “Engagement”, asks plan preparers to recognise that no entity can achieve net zero on its own, and that collaboration will be required from across industries, communities and government. It requires communications on how an entity is applying pressure in the value chain to create necessary changes, its membership in trade organisations, and how it engages with government and regulators. With no direct equivalent in ESRS, many companies use this third pillar as an opportunity to reflect and improve on how they communicate and engage with their most important stakeholders.

4. Alignment with the EU Taxonomy

Specific to ESRS is a requirement for companies to disclose on any capital expenditure plans related to aligning with EU Taxonomy activities – the Taxonomy being the EU’s classification of the economic activities it considers sustainable. The aim here is to ensure consistency between EU frameworks – for now however, the revised draft of E1 has made this referencing voluntary.

What should I do next? 

Transition plans remain an outstanding way to establish leadership and demonstrate control over the different aspects of your response to climate change. Given that ESRS transition plans are largely consistent with the TPT framework, we recommend that companies begin with TPT alignment. We see this as best practice, and as the approach which produces the most complete and impressive communications. ESRS-specific requirements can be built into this more easily than can vice-versa. In turn, for companies which are already aligned with ESRS, very little work will have to be done to align with S2’s transition plan requirements.

The next dates to keep an eye on are the publication of the revised ESRS in November, and the outcomes of the UK SRS consultation in Autumn. Happy planning!

Still have questions? We’re here to help. For everything transition plan, be in touch at [email protected].