1 Why are transformation plans coming into focus now?
With the European Green Deal, the European Commission presented a comprehensive growth strategy in December 2019 with the aim of making Europe the first climate-neutral continent by 2050 (European Commission, 2019). The Green Deal marks a paradigm shift: climate protection is no longer just an ecological task, but an economic policy task of the first order. From now on, companies should not only operate sustainably, but also actively align their business models with the goals of the Paris Climate Agreement, in particular the 1.5 °C target.
In this context, transformation and transition plans are gaining legal relevance. These are structured roadmaps with which companies or financial players plan, document and implement the conversion of their value creation towards a climate-neutral, resource-conserving economy. These plans are no longer just voluntary strategic instruments, but are increasingly being required and monitored by law.
A key instrument is the Corporate Sustainability Reporting Directive (CSRD), which came into force in January 2023 (Directive (EU) 2022/2464). It obliges large companies in the EU to disclose how their business strategy is aligned with the transition to a sustainable economy and the 1.5 °C target as part of their sustainability reporting (Art. 19a (2) (a) (iii) of Directive 2013/34/EU as amended by the CSRD).
The specific form of these reporting obligations is set out in the European Sustainability Reporting Standards (ESRS), in particular ESRS E1-1 “Transition Plan for climate change mitigation”. This requires, among other things, the presentation of emission reduction pathways, investment decisions, timetables and progress reviews (Delegated Regulation (EU) 2023/2772, Annex I, ESRS E1).
The idea of transformation is also reflected in environmental legislation: Article 27d of the revised Industrial Emissions Directive (IED 2.0) stipulates for the first time an obligation to draw up a “transformation plan” for industrial facilities requiring a permit. The aim is to set out the path towards low-emission, resource-efficient production by 2030 or 2050 (see COM (2022) 156 final; Proposal for a Directive on Industrial Emissions).
In addition, there is the Carbon Border Adjustment Mechanism (CBAM), which has been gradually introduced since 2023. It obliges energy-intensive importers in particular to provide evidence of emissions data for imported products, which indirectly requires manufacturers abroad to be able to present credible decarbonization plans or transition strategies. This also creates an incentive for transformation beyond the borders of the EU.
At the same time, the European Banking Authority (EBA) has published new guidelines on the management of ESG risks (EBA/GL/2025/01). Although the term “transition plan” is not explicitly used in these guidelines, they clearly define that banks must present concrete plans for managing transition risks and achieving net zero targets in future. The basis for this includes greenhouse gas data in accordance with the PCAF standard, which is recorded in the loan and investment portfolio.
Finally, the Corporate Sustainability Due Diligence Directive (CSDDD) also discussed the introduction of mandatory climate transformation plans for large companies as part of the omnibus amendment. Although the originally envisaged obligation for the “binding implementation” of such a plan was weakened in the current version, the obligation to prepare and report on progress remains (see draft CSDDD, Art. 22 para. 1 in conjunction with the Commission's omnibus proposal). Omnibus proposal of the Commission).
In addition to these central EU regulations, there are also binding requirements at national level: In Germany, for example, the Energy Efficiency Act (EnEfG) obliges energy-intensive companies to introduce environmental management systems including CO₂ reduction paths by 2045 (Section 8 EnEfG). Many federal funding programs, such as the Federal Funding for Energy and Resource Efficiency in the Economy (BEW), also require transformation concepts as a prerequisite for funding.
These developments show that Transformation plans are no longer a vision of the future, but are becoming a legal and economic necessity. They combine climate targets with reporting obligations, investment decisions and corporate strategy and thus represent a central interface between sustainability policy and corporate management.
2 What specifically do the CSRD and ESRS require of companies?
The Corporate Sustainability Reporting Directive (CSRD) is the central EU directive for the further development of non-financial reporting. It obliges companies to report on sustainability, not only on environmental and social issues, but also on the strategic management of corporate transformation in line with the EU's climate targets. Read our Basics No. 2 (link).
A key element of this reporting is to demonstrate how companies are adapting their business models and strategies to the goal of a climate-neutral, sustainable economy and whether they are in line with the 1.5 °C target of the Paris Climate Agreement (CSRD, Art. 19a para. 2 lit. a no. iii, in conjunction with Art. 1 CSRD amending Directive 2013/34/EU) [CSRD 2022].
Obligation to report on transition plans
Although the CSRD does not explicitly use the term “transition plan”, there is a clear obligation to disclose the content of a transition plan. Article 19a (2) of the CSRD states:
“The information [...] shall include at least [...] the company's plans to ensure that its business model and strategy are consistent with the transition to a sustainable economy and with limiting global warming to 1.5 °C in accordance with the Paris Agreement, and information on the implementation of those plans.”
The CSRD applies in stages:
- From 2025 for companies that were already covered by the Non-Financial Reporting Directive (NFRD),
- from 2026 for large companies that were not previously required to report (at least 250 employees + € 40 million turnover or € 20 million balance sheet total)
- from 2027 for capital market-oriented SMEs (with opt-out until 2028),
- in future also for non-EU companies with significant EU turnover.
Current situation regarding the validity of the CSRD and the influence of the omnibus package
The CSRD (Directive (EU) 2022/2464) has formally been in force since January 2023. The member states were obliged to transpose it into national law by July 6, 2024. This implementation has not yet been completed in Germany, which is causing considerable legal uncertainty.
In addition, the European Commission presented the so-called “omnibus proposal” (COM (2023) 717 final) in October 2023. The aim was to reduce the administrative burden on companies by
- postponing the mandatory application of the ESRS standards by two years (for large companies without NFRD experience: from 2026 to 2028),
- and, in particular, weakening obligations to implement climate transformation plans (e.g. in the draft CSDDD, Art. 22).
These proposals have not yet been finalized, but have led to widespread criticism, for example from investor groups and sustainability associations who fear a dilution of reporting obligations. You can find our position here: Link
ESRS E1-1: The transition plan as a reporting element
The European Sustainability Reporting Standards (ESRS) specify the requirements of the CSRD. Section E1-1 of the ESRS E1 “Climate Change” standard, which is central to climate protection, contains explicit requirements for reporting on transition plans.
The aim of reporting in accordance with ESRS E1-1 is to disclose whether and how the company is on a path to climate neutrality that is compatible with the 1.5 °C target. In particular, companies must:
- Set out their transition plan for climate change mitigation,
- outline a short, medium and long-term time horizon,
- describe core measures of the plan (e.g. emission reduction pathways, technological changes, investment decisions),
- define interim targets (milestones),
- disclose the status of implementation and mechanisms for monitoring progress.
The standard emphasizes that transition plans must be integrated into the company's overall strategy and must not be viewed in isolation (ESRS E1, Disclosure Requirement E1-1) [ESRS 2023].
Link to other ESRS standards
The European Sustainability Reporting Standards (ESRS) are divided into thematic and cross-sectional reporting requirements. Two important cross-sectional areas are
- IRO (Impact, Risk and Opportunity): This is about the systematic identification of significant impacts, risks and opportunities in relation to sustainability.
- SBM (Strategy and Business Model): This section deals with how sustainability issues are strategically anchored in the business model.
Cross-references to transition plans can also be found in other ESRSs:
- ESRS 2 IRO-1: Companies must identify material climate and transition risks as part of their materiality analysis.
- ESRS 2 SBM-3: Strategic management measures in connection with ESG issues, including transition plans, must be explicitly explained.
- ESRS E1-2 to E1-9: are included in the quantitative assessment of the transition plan (e.g. Scope 1-3 emissions, emissions intensities, capital expenditure).
In terms of content and form, the transition plans thus form a link between strategy, risk, investment and impact. They become the focus of the new corporate reporting.
Differentiation from voluntary reporting
The ESRS standards explicitly emphasize that transition plans are not seen as a “nice to have” or voluntary strategy paper, but as a mandatory component of sustainability reporting. Only if a company can credibly demonstrate that no such plan is required (e.g. due to an already fully climate-neutral business activity) can it dispense with detailed disclosure, but must justify this (“comply or explain” principle).
3 What remains of the original implementation requirement in the CSDDD?
The Corporate Sustainability Due Diligence Directive (CSDDD), also known as the EU Supply Chain Directive, extends corporate responsibility beyond a company's own organization to global value chains. Originally, it also aimed to make it mandatory for companies to implement transition plans in order to achieve climate targets. However, in the final text, which was adopted in spring 2025 after lengthy trilogue negotiations, all that remained of this ambitious idea was a weakened reporting obligation.
Originally planned: Mandatory implementation of climate transformation plans
The drafts of the Commission and the European Parliament stipulated that companies must draw up and “effectively implement” a climate transformation plan in order to bring their business model into line with the goals of the Paris Agreement, in particular limiting global warming to 1.5°C.
Article 15(1) of the original draft (formerly Article 22) stated:
“Member States shall ensure that companies put into effect, in an enforceable manner, a plan to ensure that the business model and strategy of the company are compatible with the transition to a sustainable economy and with limiting global warming to 1.5 °C.”
(CSDDD, COM (2022) 71 final)
This wording would have meant that companies would not only have to plan, but also demonstrate and implement concrete measures for transformation, with potential liability consequences in the event of non-compliance.
Role of the omnibus proposal: weakening the implementation obligation
In February 2025, the European Commission presented a comprehensive relief package for companies with the so-called “Omnibus I” package (COM (2025) 80 ff.). In addition to postponing deadlines and increasing thresholds for the CSRD, it also included a substantive readjustment of the CSDDD: the originally planned obligation to implement the climate plan (“put into effect”) was removed.
The final CSDDD text takes up this proposal:
- Companies are now obliged to draw up and disclose a plan to comply with climate targets,
- but are no longer obliged to implement this plan in an enforceable manner.
- The new wording focuses on “adopt and update” instead of “put into effect” and thus offers flexibility in implementation.
In doing so, the legislator is responding to the argument that companies do not always have complete control over decarbonization measures in global value chains. At the same time, many observers criticize this change as a political step backwards and a weakening of EU climate policy in the area of corporate due diligence.
Link to the CSRD and overlaps in content
Despite the weakening, the CSDDD contains clear references to the CSRD and the ESRS, especially when it comes to climate-related disclosures and strategy adjustments. In practice, therefore, companies will often use the same transition plan for both CSRD compliance and CSDDD compliance, with the difference that:
- CSRD focuses on transparency and reporting for stakeholders,
- the CSDDD focuses on human rights and environmental due diligence in the core business and along the supply chain.
The CSDDD also obliges companies to regularly review and update the plan, which in effect requires continuous climate management, even if there is no longer a strict obligation to implement it.
Implications for companies
Companies should not see the weakening as an invitation to “greenwashing”. Rather:
- the pressure of expectations from investors, banks and customers to actually make progress in decarbonization remains high,
- a transition plan without implementation can easily be interpreted as greenwashing, with a loss of reputation and trust,
- The following still applies: if you want to finance, report and do business credibly, you need a realistic and resilient transformation roadmap, regardless of the legal obligation to implement it.
4 How binding are transformation plans in industry?
In addition to the CSRD, the need for transformation plans affects not only corporate reporting, but also industrial production itself. With the revision of the Industrial Emissions Directive (IED) published in April 2022, the European Commission is pursuing the goal of making energy-intensive industrial plants not only lower-emission, but also climate-neutral, resource-conserving and environmentally friendly in the long term. A central new element of this “IED 2.0” is the obligation to draw up a so-called “transformation plan” at plant level (Article 27d IED draft) [European Commission 2022].
Obligation to draw up a transformation plan (Article 27d IED draft)
According to the European Commission's proposal, operators of industrial installations requiring a permit will in future be obliged to draw up a transformation plan for each relevant installation. This should show how the respective installation:
- is brought into line with the objectives of the European Green Deal by 2030 or 2050 at the latest,
- can be operated in a climate-neutral and energy- and resource-efficient manner,
- and the stages (including milestones) in which this transformation is to take place.
The transformation plans should be part of the approval and monitoring process in accordance with the IED. The authority can refuse or amend permits if the plan is not available or is not ambitious enough.
In addition, the Commission will issue a delegated regulation by 2026 at the latest, which will specify the content of such a transformation plan. For example, on emission reductions, energy savings, technologies used, resources saved and investment requirements (see Article 27d (7) of the draft IED).
Who is affected?
The IED applies to around 50,000 large industrial facilities in Europe, including
- Power plants,
- steel, cement, chemical and paper industries,
- intensive livestock farming,
- waste treatment plants.
Several thousand facilities in Germany also fall under the IED application regime. Companies that operate several facilities requiring a permit must draw up several individual transformation plans accordingly, in addition to any overarching CSRD reporting at company level.
5 What role do transition plans play in the banking sector?
Transition and transformation plans are also increasingly required by supervisory law in the financial sector, albeit not primarily for individual companies, but as an instrument of ESG risk management for credit institutions. The new guidelines issued by the European Banking Authority (EBA) on January 8, 2025 (EBA/GL/2025/01), which are based on Article 74 of the Capital Requirements Directive (CRD VI), are decisive here.
Background: ESG risks as a core supervisory task
In its guidelines, the EBA emphasizes that ESG risks, in particular transition risks, are key risk drivers for banks. Transition risks arise as a result of legal, technological or market-related changes towards a climate-neutral economy. In future, banks will have to:
- explicitly consider ESG risks in their strategy, governance, risk management and disclosure,
- collect relevant ESG data on their loan and investment portfolios,
- measure the greenhouse gas emissions of their borrowers (in accordance with the PCAF standard),
- and develop management measures derived from this.
Focus on transition plans
Even if the term “transition plan” does not appear literally in the EBA guidelines, the content requirements for strategic plans to manage transition risks are clear. In particular, banks should:
- Analyze the impact of climate policy and emissions requirements on their portfolios,
- assess the extent to which borrowers themselves have transition plans,
- develop their own climate-related target paths and action plans,
- and carry out scenario analyses on CO₂ price risks and sectoral transition risks.
These plans are not only relevant for internal risk management, but are also incorporated into supervisory review processes (e.g. SREP: Supervisory Review and Evaluation Process) and future reporting obligations under CRR III.
Link to the CSRD and ESRS
The EBA emphasizes that its ESG risk guidelines have been designed coherently with the CSRD and the ESRS. In particular:
“Institutions should ensure consistency between their ESG risk management frameworks and the sustainability disclosures required under the CSRD and ESRS.”
(EBA/ GL/2025/01, P. 21)
This creates a mutual transfer of data and expectations:
- Companies that disclose ESG information and transition plans (e.g. in accordance with ESRS E1) make it easier for banks to analyze risk.
- Conversely, companies will in future be increasingly confronted with inquiries from their lenders about their transformation paths.
Implications for companies
From 2026, the new EBA guidelines will result in banks carrying out more checks when granting loans:
- whether a company has a credible transition plan,
- whether interim emission reduction targets exist,
- what the capital requirements are for the transformation
- and whether ESG risks are manageable from the lender's perspective.
This provides a clear incentive for companies to develop such a plan not only for reporting, but also for access to capital, and to communicate it in a comprehensible manner.
Note for small and medium-sized enterprises (SMEs)
Not all companies are affected to the same extent by the formal reporting obligations and legal requirements for transformation plans. Many small and medium-sized enterprises are not subject to the CSRD, the IED or the CSDDD. For them, the formal preparation of a comprehensive transition plan is not a priority. Nevertheless, smaller companies are also well advised to know and document their own greenhouse gas emissions, particularly in Scope 1 and 2, and to record them in simple tools if necessary. This enables them to provide reliable information to banks, funding bodies or clients and to meet increasing ESG requirements pragmatically.
6 Which other regulations set transformation incentives?
Even if not all laws explicitly use the term “transformation plan”, implicit requirements arise from other regulations:
- EU Taxonomy Regulation: requires proof of contribution to climate target achievement. Transition activities (Art. 10 para. 2) de facto require transformation plans.
- SFDR: Investors pay attention to credible decarbonization strategies for Art. 8/9 products.
- CBAM: Import emissions must be disclosed. Companies in third countries need realistic decarbonization pathways.
- EnEfG (Germany): Large energy consumers must submit strategies for CO₂ neutrality by 2045 (Section 8 EnEfG).
- BEW & funding programs: increasingly require transformation concepts as a prerequisite for funding.
Conclusion: Even without a direct obligation, many companies are under de facto pressure to develop a transformation plan for investments, funding, supply chains and market access.
From report to implementation
Transformation and transition plans are no longer a niche topic; they are now a central component of European sustainability regulation. Whether in reporting (CSRD/ESRS), in the supply chain (CSDDD), in plant operations (IED) or in the banking sector (EBA), legislators and supervisory authorities everywhere are demanding structured, credible and strategically embedded transformation roadmaps.
Even if individual obligations (e.g. through the omnibus) have been weakened, the pressure to actually implement them remains high, driven by financing partners, customer expectations, reputational risks and market dynamics. Companies are therefore well advised to see transformation plans not just as a reporting obligation, but as a strategic management tool that combines economic success and climate responsibility.
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