5 To achieve this EU framework, we recommend the five following steps: Step 1: Ensure mandatory standardised disclosure of targets and transition plans; Step 2: Articulate site-level, economic activity-level and company-level targets and transition plans; Step 3: Build EU 1.5°C sectoral decarbonisation pathways as benchmarks; Step 4: Assess the consistency of targets and transition plans; Step 5: Ensure remediation and penalties where necessary. Policy-wise, we make five recommendations to EU policy-makers to ensure consistency: • A mandatory requirement for the establishment of corporate targets and transition plans in the CSDDD, CRD, Solvency II, EU Green Bond Standard (GBS), and the Benchmark Regulation, with an explicit reference both to the CSRD and, when available, to the ESRS E1 and E4 templates in order to ensure comparable, consistent, granular transition plans and avoid duplication. As long as ESRS E1 and E4 are not legally available, the five laws mentioned above should integrate the key elements of the draft EFRAG ESRS E1 and E4 for transition plans, which are summarised in Section 1.5. These laws could also require the verification of targets and plans by an independent third party (as proposed by the European Parliament for the EU GBS). • A requirement for supervision of these targets and transition plans by the competent authorities, in each of the above-mentioned EU laws (as proposed by the Commission to some extent in the CRD). • A requirement for remediation and penalties for companies which do not comply, in each of the above- mentioned laws. 4 Methodology standardisation may be provided by the European Committee for Standardization (CEN) and the European Committee for Electrotechnical Standardization (CENELEC • Complementarily, the development of an extended environmental Taxonomy as recommended by the EU Platform on Sustainable Finance to create new categories (green, amber, red) and help companies shape their entire transition at a granular activity level where it is taxonomy- relevant. This should then be integrated into a revised ESRS in a few years. • In parallel, the Commission should build EU 1.5° decarbonisation pathways for the relevant sectors, with technical advice from the European Scientific Advisory Board on Climate Change, amongst others, in order to help companies set targets and transition plans and enable competent authorities to assess the robustness of the targets and transition plans of supervised companies. 4 Without this consistent regulatory framework on corporate targets and transition plans, the achievement of EU environmental objectives risks failing as no robust accountability framework will ensure companies’ transition in a timely way - which would put an orderly transition at great risk. EXECUTIVE SUMMARY This briefing provides analysis and issues recommendations for an EU regulatory framework that sets harmonised rules on corporate sustainability targets and transition plans. More specifically, given its objectives and expertise, WWF focuses primarily on environmental issues as part of a broader sustainability approach. 1 https://finance.ec.europa.eu/publications/strategy-financing-transition-sustainable-economy_en. 2 For more see E3G (2022), Achieving a transition finance framework in the EU. 3 https://www.oecd-ilibrary.org/sites/702bf065-en/index.html?itemId=/content/component/702bf065-en. Concretely, WWF recommends that the EU build a consistent regulatory framework requiring corporate climate and environmental science-based targets and implementing transition plans, to ensure that companies meaningfully contribute to the EU Strategy for Financing the Transition to a Sustainable Economy 1 , the European Green Deal, and EU environmental goals. Companies’ targets and transition plans are essential to ensure that their business model becomes compatible, in a timely way, with a sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris Agreement (Section 1). The plans are necessary to give real clarity to corporate transitions and ‘transition finance’. Today, there is a huge opportunity to embed them consistently into the EU regulatory framework, given that several relevant regulations are currently being negotiated. The transition of the economy, and the transition finance that is needed to help achieve it, are not yet clear enough 2 . The OECD provides the following definition: “Transition finance focuses on the dynamic process of becoming sustainable, rather than providing a point-in-time assessment of what is already sustainable, to provide solutions for a whole- of-economy decarbonisation, and to decarbonise the most polluting and hard-to-abate industries today.” 3 It therefore applies not only to green activities but to ‘greening’ activities: with such a large scope, defining the trajectory and speed of the transition is critical. At corporate level, this mainly relies on targets and transition plans. Many initiatives have started to frame corporate climate and nature targets and transition plans: we provide ten examples (Section 2). However, they face several limitations in terms of lack of scale, of speed, and of quality checks (Section 3). This briefing thus recommends that the EU designs a complete and consistent EU regulatory framework on corporate climate and environmental targets and transition plans, to help achieve EU climate and environmental goals, reduce the risks of a disorderly transition and avoid transition-washing (Section 4). Targets and transition plans should not be a simple pledge or procedure of information that may or may not deliver operational outcomes. Companies should be accountable for the implementation of their plan and the achievement of their targets. This is why supervision of these targets and transition plans is necessary, with competent authorities being mandated to assess their robustness by using sectoral decarbonisation pathways as benchmarks (Section 5). We propose three layers to ensure a consistent EU regulatory framework on corporate targets and transition plans: • First layer: Disclosure policy setting the granular, comparable template for targets and transition plans (Corporate Sustainability Reporting Directive and forthcoming European Sustainability Reporting Standards). The CSRD and ESRS should form the EU’s cornerstone to define corporate targets and transition plans; • Second layer: Consistency of the EU policy mix, fixing the CSRD ‘comply or explain’ flaw. Several other relevant laws should build on CSRD and ESRS and refer to them, while improving CSRD by requiring companies to set targets and transition plans at corporate level, rather than simply disclose them. These laws could also require the verification of targets and plans to bring more robustness. In a complementary way, the EU Taxonomy and other files such as EU Emission Trading System (ETS) and Industrial Emissions Directive (IED) should strengthen targets and transition plans at activity level and site level with further granularity. • Third layer: Supervision. It is crucial to assess the credibility of targets and transition plans. Glossary: Benchmark: Benchmark Regulation (on Climate Benchmarks) CRD: Capital Requirements Directive CSRD: Corporate Sustainability Reporting Directive CSDDD: Corporate Sustainability Due Diligence Directive ESRS: European Sustainability Reporting Standard EU ETS: EU Emissions Trading System EU GBS: EU Green Bond Standard IED: Industrial Emissions Directive SFDR: Sustainable Finance Disclosure Regulation Figure 1: Ensuring consistency in EU regulatory requirements on corporate targets and transition plans