Transition planning: standardization, mainstreaming & diversification

Year in and year out, transition remains at the center of regulatory, market and technological discussions. 2025 is not an exception.

The buzz around transition plans continues as regional and global frameworks come into place on what constitutes a credible and adequate transition plan. If 2024, was the year of planning and developing transition plans, 2025 is the year for implementation to kick-start. In Europe, EFRAG is finalizing its transition plan implementation guidance, with an uncertain timeline for publication given the Omnibus discussions and potential changes to disclosure regulation. The guidance focuses on decarbonization levers, funding and target compatibility with 1.5°C; though details on the later will be detailed by the EU Commission. While globally, the International Standards Sustainability Board (ISSB) has integrated the transition plan framework set forth by the Transition Plan Taskforce (TPT) into its climate-disclosure guidance. The framework is ready for voluntary use, and implementation by jurisdiction is connected to the roll out of the ISSB, beginning at scale in 2025.  Meanwhile, the European Banking Authority (EBA) released its final “Guidelines on the Management of Environmental, Social and Governance (ESG) Risks” early January 2025, which set prudential Transition Plan core elements (see our dedicated).

New thematics are also emerging within Transition Plans. Guidance on nature transition plan is being prepared by the Taskforce for Nature-related Disclosure (TNFD) as a complementary framework to climate. Entities are expected to set and disclose nature-related targets and describe levers to halt and reverse nature loss. Adaptation is another emerging theme together with just transition, with the TPT setting recommendations on how to integrate physical resilience and social considerations (e.g, workforce, re-skilling, training) into transition plans. In a similar vein, one notices the launch of the Taskforce on Inequality and Social-Related Financial Disclosures (TISFD).

Transition plans enable investors and supervisors to grasp entity-level commitments, performance and forward-looking trajectories. Such Plans can indeed be used to identify eligible activities for labelled debt or set key performance indicators (KPIs) and sustainability performance targets (SPTs). Transition finance is attracting a renewed interest and revives discussions on the need for a dedicated label, or dedicated market guidance to facilitate capital flows towards transitioning entities and supporting assets. In Asia Pacific, particularly Japan, transition bonds are becoming increasingly prevalent given the country’s emission profile and need to decarbonize hard-to-abate sectors. Following the issuance of corporate transition bonds, in 2024 Japan issued the first sovereign climate transition bond (cf. article here).

Debates around the eligibility and credibility of transition-related/labeled transactions continue to be discussed by market players within the Loan Market Association (LMA) and International Capital Market Association (ICMA). Though some believe that the transition label will scale transition finance, others believe that there is no need for a dedicated label for the transition theme. There is an understanding that there should be an agreement around criteria to assess transition (e.g., contextualization, technology, lock-in, timeframe). Investors have suggested that transition finance can be enabled without the additional label and rather be facilitated by entity-level transition strategies that are able to convey the potential to transition, and consequently information needed for investment decisions and due diligence.

A differentiated approach to transition is also being emphasized by different jurisdictions. While limiting global warming to 1.5°C is the common goal, the pathways to transition vary given geographical conditions, including technology development and deployment (e.g., CCS, hydrogen, next-generation nuclear). Testing and scaling low carbon solutions will continue throughout the years, with growing focus on building local supply chains to secure raw materials and technologies. Transition will also be incorporated into sustainable taxonomies to provide clarity on transition sectors, measures and activities. Taxonomies in Asia-Pacific, particularly, have included transition activities (amber) through a traffic-light approach. In 2024, ASEAN expanded its taxonomy to include Construction & Real Estate and Transportation & Storage, while Australia published consultation on its sustainable finance taxonomy, including a transition approach and enabling sectors as metals and mining. As other jurisdictions, as Hong Kong, expand and develop their taxonomies, transition activities and categories, should be further included.