Transition Plans Are Essential

The simplifications introduced by the Omnibus package have reduced the granularity of some requirements, but they have not eliminated the need to disclose a complete, credible, and coherent plan.

By Sofia Santos, CEO of Systemic

In a context of increasingly demanding climate targets and growing pressure from banks to assess the climate alignment of their clients, Transition Plans now play a central role. They are no longer a reputational exercise but have become strategic instruments capable of linking long-term vision with day-to-day execution and translating commitments into measurable results.For large companies, particularly those covered by the CSRD, when climate is a material issue, ESRS E1 requires a clear explanation of how the business model will align with a trajectory compatible with 1.5°C — which implies concrete targets, processes, and responsibilities.

The simplifications introduced by the Omnibus package reduced the granularity of some requirements but did not eliminate the need to disclose a complete, credible, and coherent plan. The focus has shifted toward what truly matters: the emissions trajectory, strategic consistency, critical milestones, governance, and the investments required. For companies included in the CSRD, the obligation remains to present the plan or to robustly justify the reason for its absence and the timeline for its adoption.

The importance of these plans for banks is increasing. The financial sector needs to understand whether its clients have the capacity to adapt to the risks and opportunities of the climate transition, otherwise they may be exposed to misaligned portfolios, higher credit risk, and reputational risk. The absence of a reliable plan creates opacity, increases risk for banks, and may translate into more expensive financing, reduced credit availability, or additional capital requirements, especially as supervisors intensify prudential scrutiny.

The cost of not having a transition plan may indeed exist. Companies that are not yet green and cannot demonstrate credible transition pathways may face higher spreads, weaker ratings, and the loss of customers who need suppliers aligned with carbon neutrality. On the other hand, companies that develop a transition plan can convert risk into competitiveness and preferential access to capital.

For a Transition Plan to be effective, it should include at least:

1. Diagnosis and materiality: Mapping impacts, physical and transition risks, sector analysis, emissions baseline, and consistency with 1.5°C scenarios.

2. Carbon trajectory and targets: Annual and interim targets (2030/2040/2050), identifying reduction levers, priorities, and metrics.

3. Strategy and business model: Expected changes in product portfolios, value chains, innovation, and required investments.

4. Financial plan and climate investment: Opex/capex, green financing, capital needs, and integration into financial decision-making.

5. Risk management integration: Link to the risk matrix, credit policies, sector limits, stress tests, and early warning indicators.

6. Governance and incentives: Responsible teams, internal capabilities, and alignment of remuneration with execution.

7. Monitoring, metrics, and reporting: KPIs, internal/external auditing, periodic evaluation, and consistency between reports (CSRD, ESRS, financial and prudential reports).

Climate Adaptation Plans are also fundamental. The transition is not achieved only by reducing emissions. Physical risks — heatwaves, droughts, floods, and supply chain disruptions — are intensifying and already affecting operations, assets, and supply chains.

Companies therefore need Adaptation Plans that include:

• Assessment of physical vulnerabilities

• Medium- and long-term climate scenarios

• Operational resilience measures

• Infrastructure and logistics adaptation

• Business continuity in extreme events

• Coordination with insurance and critical asset management

Believing that the Omnibus package eliminates the expectation that companies should have a transition plan — or even an adaptation plan — is a mistake. Above all, these plans significantly improve corporate risk management, while also allowing organizations to transform climate risk into opportunities for improvement and investment.

Published on PT Green journal