AMF publishes an educational guide on companies’ climate transition plans prepared by its Climate and Sustainable Finance Commission

2024 represents a pivotal year in preparing for the implementation of the CSRD directive, which translates into a substantial strengthening of the information that companies must disclose on sustainability matters. Among these, climate transition plans hold great significance for investors and stakeholders. It will enable companies to embed long-term objectives within their strategy, and to ensure their management over short and medium-term time horizons, in line with their financial planning time horizons. In addition to transparency issues, its implementation requires in-depth examination by companies on the evolution of their business model and its compatibility with the objective of limiting global warming to 1.5°C by 2100 with no or limited overshoot (“1.5°C target”).

To help issuers in this exercise, the AMF's Climate and Sustainable Finance Commission (CCFD), chaired by Board Member Robert Ophèle, set up a working group to decipher, explain and contextualise regulatory provisions of the Climate Change Standard (ESRS E1) relating to climate transition plans. A questionnaire was sent to companies and investors, and interviews were carried out with some of them, as well as with a rating agency and an auditor. Mathieu Garnero, (Agency for Ecological Transition - ADEME), and Emilie Thiery, (L'Oréal), respectively members of the Climate and Sustainable Finance Commission and of the Issuers Commission of the AMF, have acted as co-rapporteurs for the working group. 

Following a regulatory overview on each subject, the guide analyses investors' expectations, practices and difficulties encountered by companies, opportunities offered by existing methodologies, and provides elements to enhance the quality and relevance of sustainability reports. 

Designed as a user manual for transition plans as set out in the European climate reporting standard, the guide looks in particular at: 

• the challenge of reporting on transition plans in relation to climate change mitigation: such report must provide an overall understanding of the company’s transformation efforts, including governance involvement, the evolution of the company’s strategy, the identification of decarbonisation levers, the mobilisation of dedicated funding for these action plans and the monitoring of the plan;

• the importance of short- and medium-term targets, with a sufficiently high level of ambition, given that achieving the 1.5°C target presupposes rapid action leading to a significant reduction in greenhouse gas emissions by 2030. Various methodologies presented in the guide assist companies in this endeavour;

• the presentation of decarbonisation levers, which is at the heart of the transition plan, with a qualitative and quantitative description of the levers and an implementation timeline standing out as key elements;

• the financial and human resources allocated to the transition plan, on which the credibility of the undertaking's decarbonisation plan depends; 

• transition plan governance and monitoring: investors expect strong involvement of company’s boards, and effective incentive mechanisms, such factors being also analysed by several transition plan evaluation methodologies. Transition plan monitoring also is also subject to close scrutiny. 

About the AMF
The AMF is an independent public authority responsible for ensuring that savings invested in financial products are protected and that investors are provided with adequate information. The AMF also supervises the orderly operations of markets. Visit our website https://www.amf-france.org/en