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Moving towards a holistic transition planning framework in the EU

Read the policy briefing “Moving towards a holistic transition planning framework in the EU”, written by ECCO and E3G

To ensure a holistic transition planning framework, climate resilience must be considered

The re-election of Ursula von der Leyen as European Commission President marked a significant shift in Europe’s political priorities, with Europe’s economic competitiveness, industrial policy, security and defence taking centre stage in her new mandate. The focus has moved from the European Green Deal to the newly outlined “Clean Industrial Deal”, as seen in the mission letters to the future commissioners. At the same time, the new 2024-29 Commission is expected to be an “Investment Commission” as stated in President von der Leyen’s political guidelines, and will have as one of its priorities, the scaling up and acceleration of investments for a sustainable future. This overarching goal will determine the success of the EU’s transition. This paper looks at how the EU can face such a pivotal moment for setting the direction of travel at EU and Member State level.

In addition, while the content of this briefing does not focus specifically on climate risk resilience, most of the elements of the EU sustainable finance agenda are deeply interconnected with broader EU resilience efforts. For having a whole-of-economy transition, resilience awareness and risk management practices must be embedded in EU requirements for corporate transition plans, as well as in ministries’ assessments when developing national and sectoral transition plans. The thematic and policy link between finance and resilience is expected to be developed under the leadership of the new Commission. This is further in line with the work G20 Brazilian Presidency has been doing on sustainable finance in 2024, where emphasis has been put on risks and dependencies, as well as contribution to whole-of-economy transition. 

This briefing, developed by ECCO and E3G, takes stock of the EU transition planning framework initiatives and calls for a simple and holistic transition planning framework that aligns various governance systems and policy tools within the EU, while ensuring consistency with international climate goals. A strategic, well-coordinated transition planning framework would mobilise public and private finance to meet the EU’s climate targets, while also supporting the EU’s simplification agenda for greater consistency as highlighted in the new Commission’s priorities.

The two main challenges ahead for moving towards a holistic transition planning framework in the EU

To meet the EU objectives of the Paris Agreement, all sectors of the economy must rapidly decarbonize while simultaneously strengthening their resilience to climate change. The importance of transition and decarbonization within the EU’s sustainable finance framework became evident around 2021, as the EU expanded its focus from “sustainable” and “green” finance to include “transition” finance. This shift, however, has led to some gaps in policy coherence, presenting new challenges. The goal now is to address and resolve these issues by moving toward a simple and holistic transition planning framework in the EU, where governance systems and policy tools align to ensure a smooth transition to the EU’s climate goals.

There are currently two key challenges in achieving this holistic framework.

The first challenge is ensuring coherence across various governance and policy tools at the EU level to facilitate transition finance. This coherence is critical not only for reducing the regulatory burden on entities but also for optimizing governance across different levels. This involves better alignment between the approaches of the EU and Member States to transition finance and plans, as well as with requirements for entity-based (i.e., corporate) transition plans. Harmonizing governance and policy tools must also account for international developments, such as G20 discussions on national transition plans and entity-based principles. Achieving interoperability across different governance layers is essential for establishing a simple, holistic, systemic, and coherent approach to transition finance.

The second challenge is consolidating the EU requirements for entity-based transition plans. Currently, these requirements are scattered across various policies, such as reporting obligations (CSRD), due diligence (CSDDD), and prudential requirements (CRD/S2). There are also overlaps with other plans under the Industrial Emissions Directive (IED).

Failing to address these challenges risks creating reporting burdens and inefficiencies, as well as not capitalizing on the potential of global and EU transition planning efforts to inform the investments and policy action needed to drive the transition. This could slow progress towards meeting the goals of the Paris Agreement and the EU’s 1.5°C climate objectives, with catastrophic consequences for people and societies everywhere, while also contradicting the EU Commission’s simplification agenda for regulation. 

This paper begins by providing a comprehensive overview of transition finance governance and policy tools shaping transition finance in the EU, addressing both public and private dimensions, before moving to a set of recommendations on how to move towards a simple and holistic transition planning framework.

Read the policy briefing

The policy briefing “Moving towards a holistic transition planning framework in the EU” has been authored by Pietro Cesaro, Policy Advisor Sustainable Finance, E3G, Daniele Ciatti, Researcher Sustainable Finance, E3G, Beatrice Moro, Senior Policy Advisor Sustainable Finance, ECCO, and Jurei Yada, Director, Head of EU Sustainable Finance, E3G

 

Photo by Tim van der Kuip

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