Carbonsink - CSRD and Climate Transition Plans: from compliance to opportunity

The CSRD is the European Union’s Corporate Sustainability Reporting Directive, part of the European Green Deal programme. The CSRD requires companies with business in the EU to collect and report their sustainability data in a standardised and verifiable way. This is intended to achieve a step change in corporate sustainability disclosures and performance assessment, facilitating transparency, and making it easier for investors and other stakeholders to evaluate a company's ESG, risks and opportunities.

Building on the Sustainable Finance Disclosure Regulations (SFDR) and linking to the EU Taxonomy, the CSRD requires companies to disclose how their operations impact people and the environment, as well as how they are likely to be impacted by climate change and other social and environmental challenges. Over 50.000 companies will be required to report under the CSRD, representing 75% of all EU companies’ total revenue.

The CSRD was released in November 2022 but the new rules will start kicking in over the coming years:

• 1st of January 2024: for all companies subject to the Non-Financial Report Directive (NFRD) (reporting in 2025 on 2024 data)
• 1 of January 2025: all large companies not subjected to the NFRD (reporting in 2026 on 2025 data)
• 1st of January 2026: all listed SMEs (except for micro undertakings). SMEs can still choose to opt-out until January 2028

Beyond compliance, the CSRD has the potential to drive transformative change, encouraging companies to embed sustainability into their core business models and operations. However, a 2023 survey found  that 88% of major Western European companies said they do not yet feel ready to meet the expectations of the CSRD, and with the first round of mandatory disclosures approaching in early 2025, many companies are still struggling to turn this potential into meaningful progress, with main challenges being data availability, data quality, and technical complexities.

As annual reporting has shifted from optional sustainability disclosures to a mandatory requirement, Climate Transition Plans are essential for compliance, helping companies avoid penalties and investor scrutiny. Under the CSRD, a Climate Transition Plan is a forward-looking strategy outlining how a company intends to meet its climate goals, with a specific focus on reducing greenhouse gas emissions.

A credible climate transition plan is aligned with the Paris Agreement’s 1.5°C goal, data-driven, integrated into business strategy to strengthen the company’s ability to thrive in a low-carbon world, backed by adequate financial resources signalling a commitment to long-term value creation. Finally, it must be dynamic, regularly monitored, and adjusted as necessary.

As the risk of crossing critical climate tipping points increases, the urgency for businesses to act has never been greater. To avoid the worst impacts of climate change and achieve a low-carbon economy, companies must embrace transformation — "business as usual" is no longer viable. By embracing this challenge, forward-thinking companies view the CSRD not just as a regulatory requirement, but as an opportunity to reassess their business models and embed sustainability at the heart of their strategy. A  CSRD-compliant Climate Transition Plan is an effective way to demonstrate this commitment.

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