Transition plans becoming pivotal tools for market stakeholders

Transition plans are evolving beyond extensions of climate goals into key tools for engaging investors, lenders, and regulators on decarbonisation strategies, climate risk management, and long-term value creation.

Europe has the most explicit requirements, with stricter rules for financial institutions (FIs) than non-financial corporates. Under the EU’s revised Capital Requirements Directive (CRD) VI, EU credit institutions were required to have prudential transition plans from January 2026 (p.2). The European Banking Authority’s guidelines on managing ESG risks also applied from January 2026, with small and non-complex institutions required to comply from January 2027 (p.2). The Monetary Authority of Singapore announced similar requirements effective from September 2027 (p.2).

Major banks are assessing corporate clients’ transition strategies to gauge exposure to transition risks, which can affect corporates’ access to financing. Nearly 40 jurisdictions have aligned, or are aligning, with the ISSB’s IFRS S2 climate standard (p.2). In June 2025, the GRI launched its revised climate standard (effective from 2027) including a transition planning element (p.2).

A 2025 survey by thinktank E3G found 86% of 100 UK-based institutional investors said transition plans are useful in investment decision-making (p.2). A 2025 survey of 30 European investors overseeing EUR8.5 trillion in assets found all respondents expect investee companies to develop transition plans, while 85% actively use them to engage with portfolio companies (p.3).

New guidance for transition-labelled debt from ICMA and LMA/APLMA/LSTA (November 2025) requires entities to demonstrate a credible transition plan (p.3). Under the proposed SFDR 2.0 transition fund category, at least 70% of investment must contribute to transition objectives and demonstrate a credible transition plan (p.4).

Transition plans: Multiple uses, multiple guidance types

Transition plan requirements intersect with a patchwork of frameworks developed by industry bodies. Differences in guidance reflect whether plans are for general disclosure, prudential purposes, or labelled debt. EFRAG guidance supports double materiality, while ISSB guidance emphasises financial materiality (p.4).

Transition plan frameworks indicate consistent principles, nuanced details

Six mainstream frameworks were reviewed, identifying around 200 recommendations (p.5). While details vary, all align on three core pillars: transition ambition and objectives, implementation strategies, and governance and transparency. Governance-related recommendations account for around a third of all recommended line-item disclosures (p.5). Three frameworks recommend targets consistent with a 1.5°C warming scenario; others focus on Paris Agreement alignment (p.5). All six recommend disclosures relating to financial resources such as capex (p.5).

Investors should view transition plans as holistic narratives rather than directly comparable documents, though data points such as emissions targets and capex may allow more direct comparison (p.5).

Transition credibility: Insights from Sustainable Fitch transition assessments

Data from Sustainable Fitch’s Transition Assessments covers around 40 entities across power generation, oil and gas, cement, steel and mining (p.6). Most have adopted robust GHG emissions targets covering absolute Scope 1 and 2 emissions, aiming for net zero by 2050 (p.6). However, around a quarter do not include Scope 3 in their net-zero targets, and 40% have not set interim Scope 3 targets (p.7). For oil and gas entities, Scope 3 accounts for over 85% of the typical entity’s carbon footprint (p.7).

While none of the entities allocates zero investment to the transition, 26% provide insufficient detail to quantify the amount or allocate less than 1% of total capex plus opex (p.7). Five entities generate no revenue from transition-related activities — all oil and gas companies — while 11 generate between 1% and 10% of total revenue from such activities (p.7).