News & events

The first climate transition plans in compliance with the Corporate Sustainability Reporting Directive (CSRD) / European Sustainability Reporting Standards (ESRS) regulatory requirements are expected during 2025.

This paper presents thematic insights about what to look out for in bank and asset manager transition plans in accordance with these CSRD/ESRS regulatory requirements. It is informed by our qualitative review of the most recent disclosures from a sample of banks and asset managers and identifies where disclosures should be closely monitored to ensure compliance with the CSRD/ESRS regulatory requirements.

The main thematic insights from this paper are:

• Despite the influence of the net-zero financial alliances, currently there are a significant number of financial market participants who are not disclosing a transition plan but who will nevertheless be required to do so during 2025. These transition plans must be included in the sustainability statement and will therefore be subject to the audit requirement. But it remains to be seen how market practice will develop in relation to the quality of these transition plans.
• Interpreting the current CSRD/ESRS reporting requirements in a finance sector context is often not clear. Perhaps even worse, some of these reporting requirements are articulated in a way which does not make sense in the finance sector context.
• Even among financial market participants who are members of a net-zero financial alliance and are already disclosing a transition plan, it is difficult to ascertain the credibility of these transition plans. There is a concern that these transition plans cherry pick information to showcase the positive activities of the institutions and key problem areas to monitor relate to where CSRD/ESRS reporting requirements cover information which is not disclosed by any financial market participant currently – most critically exposure to coal, oil and gas activities.
• Comparability across disclosures from different financial market participants is likely to be limited. Given the flexibility in relation to the structure of the sustainability statement and the difficulties in interpreting the reporting requirements in the finance sector context, there is a significant risk of the current heterogeneity continuing among financial market participants.
• There are concerns about whether the likely oversight will be sufficient to effectively monitor compliance with the CSRD/ESRS reporting requirements. There have been various statements from the Commission alluding to a light touch approach to regulatory oversight, and shareholder oversight is weakened because shareholder approval of the transition plan is included in the standard shareholder vote on approval of the annual report as a whole.

The paper demonstrates that delaying development and implementation of sector specific standards is a grave mistake in the finance sector context. The CSRD/ESRS reporting requirements coming into effect will mean that a significant proportion of financial market participants must disclose a transition plan during 2025. But the articulation of the CSRD/ESRS reporting requirements in the finance sector context is not clear and there is a risk of highly variable market practice.

Considering the recent announcements in relation to proposed omnibus legislation to simplify the Taxonomy Regulation, CSRD and Corporate Sustainability Due Diligence Directive, it is difficult to see how this political direction of travel is compatible with speeding up or finalising the sector specific standards. But without the sector specific standards the CSRD/ESRS regulatory requirements may be somewhat redundant in the finance sector context as the very policy objective of translating the international decarbonisation challenge into the financial institution’s operational roadmap is undermined. This argumentation becomes even more critical in the context of the net-zero financial alliances either suspending activities or suffering a significant number of financial institutions withdrawing their membership.