What happens to climate transition plans in the wake of the EU omnibus?

Key takeaways

• The EU omnibus removed legal requirements for companies to adopt climate transition plans. However, experts say these plans are important for risk management and are still mandatory for financial institutions under other regulations.
• It is also seen as reducing company transparency and could increase the risk of greenwashing and data fragmentation across the European finance sector.
• The focus has shifted to whether companies are being consistent with their stated transition goals. And transition data can still be sourced from publicly available information such as asset-level data and satellite imagery.

The EU omnibus removed the obligation for companies to adopt a climate transition plan. But that does not mean banks no longer need transition plans, experts say.

“Just because you delete the word implementation, it doesn’t mean that now companies can have transition plans and not implement them,” said Agnieszka Smolenska, head of prudential policy at the LSE Centre for Economic Transition Expertise (CETEx).

Under the revisions to the corporate sustainability due diligence directive (CSDDD), companies subject to the legislation are no longer legally obligated to adopt a climate transition plan. However, companies still need to submit a transition plan under the corporate sustainability reporting directive (CSRD), and some sector regulations still require such plans.

Since 10 January, banks have been required under article 6 of the capital requirements directive to consider short-, medium- and long-term ESG risks. Green bonds also require transition plans, while low-carbon benchmarks often require alignment with the Paris Agreement.

While many have approached the CSRD and CSDDD as building blocks, in reality, the EU’s green deal has always been a system with different supporting, but sometimes overlapping, objectives and tools, said Smolenska.

The EU regulatory system is complex, but that doesn’t mean you can’t make sense of it, she added. In the end, “transition plans are about strategy, and they are about risk”, she said.

Clarification of climate transition plans needed

While many agree that simplification of the CSRD and CSDDD was needed, the transition plans are seen as a huge loss in company transparency. Not only were the obligations for transition plans removed from the final text of the omnibus, but so too was a plan for the European Commission to clarify what a transition plan should be.

This clarification is surely needed as banks have already submitted transition plans, leading to different approaches, said Vincent Vandeloise, senior research and advocacy officer at research group Finance Watch.

“If you let the market practice develop itself without trying to at least guide the requirements, it may also be more difficult for them to accept any change, and also even more costly for them to change it,” he said.

A study by Finance Watch found that only 41% of banks had submitted their transition plans in 2024.

It is also important for investors to understand what a credible transition plan is, especially at a portfolio level. Not having some degree of harmonisation makes it difficult to see all of the information and compare across the sector, Vandeloise said.

While some flexibility should be allowed, “if they start having bad data at the beginning, they will have bad data at the end. So it’s a bit garbage in, garbage out. If you cannot really have something which is trusted and also well organised so that you can use it in the proper way, you’re going to have bad data as well in the end.”

The removal of transition plans could also increase greenwashing risks and lead to implementation gaps, said Andreas Rasche, a business professor and associate dean at the Copenhagen Business School.

The obligation removal “gives companies flexibility to simply leave out things”.

“For financial institutions, there’s certainly a risk here that you will see more fragmentation in terms of how these plans look like. And of course, they will themselves also face more data gaps [and] will need to estimate much more,” he said.

A question of data

That data gap has led to many central bankers, investors and asset managers alike lamenting the reduction in scope of the CSDDD and CSRD and continued lack of data.

“We are moving to a world of increased fragmentation and reduced accountability for transition plans, because obviously, if you don’t have access to the data, then this is problematic from a financial service provider side,” said Rasche.

But for Moritz Baer, co-founder of transition consultancy Forward Analytics and an associate at the Institute for New Economic Thinking at the University of Oxford, the changes to the omnibus did so much create an absence of information, as much as “change how transition credibility is accessed”.

“As prescriptive requirements under the CSDDD are weakened, it becomes less about whether companies have formally implemented transition plans, and more about whether their actions are consistent with them,” he said.

Much of the information needed to analyse company transition plans already exists outside of corporate disclosures, thanks to investment decisions, expansions and technology that can be tracked through publicly available sources, satellite imagery and asset-level data, Baer said.

In other words, data hasn’t disappeared because the disclosure requirements were narrowed.

An analysis by Forward Analytics shared with Green Central Banking shows that it is possible to use publicly available sources to understand how far a sector is from its emission reductions goals.

Looking at various sectors in the EU, Forward Analytics was able to demonstrate that many – such as fossil fuels, aluminium, and agriculture – are far from reaching their reduction goals. Meanwhile, the power and utilities sector is very close to reaching a 1.5ºC target, even as it remains heavily carbon-intensive. The sector has already reached a structural transition in the EU, Baer explained, due to both regulation and sharp declines in technology like solar and battery, where renewables are often cheaper than other assets like coal.

“As a result, a large share of the sector’s emissions intensity reduction has already occurred. What remains are more system-level, capital-intensive challenges: grids, storage, flexibility and permitting,” Baer said.

“We do however observe in the data that still a lot of larger utility companies and state-owned enterprises remain very carbon intensive, which poses significant risk of stranded assets.”

“If banks, investors or supervisors want to understand what companies are actually doing, it is now very much possible to do so,” said Baer. “The challenge is therefore not whether information exists but how effectively this fragmented evidence is identified, curated and translated into decision-useful formats for financial institutions. A role that specialised data providers will likely start filing.”

What happens next

The sustainable omnibus package was just the first, with other omnibus packages aimed at streamlining and reducing regulatory burdens on businesses introduced by the European Commission.

Meanwhile, the European Financial Reporting Advisory Group released its proposed revision of the European Sustainability Reporting Standards, reducing the amount of information companies are required to report by 70%. The proposed changes are expected to be accepted by the commission by mid-2026.

For central banks and financial institutions, it is important for them to play their advocacy cards and make it clear to companies that reporting is wanted, said Rasche.

“We need a little bit more public framing around these requests … and also [for banks to] talk more openly about this,” he said.

Banks have a large role in setting the terms of financing for the green transition, said Smolenska. A lack of data does not mean they can ignore the issue, and instead they need to take a more cautious approach.

“This is precisely what risk management and prudential rules are for, because we don’t know everything. We have to take precautions,” she said.

Without more information, investments might be riskier, requiring more capital to be set aside. But it doesn’t mean that banks cannot develop their own transition plans.

“Its purpose is not to decarbonise itself. Its purpose is to manage the risk that it’s exposed to, and if it doesn’t have the information to assess the risk, that means that it has to make more provisions,” she said.

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