9 regulatory framework. As explained above, it is important to determine explicitly what robust targets and transition plans are. A shared EU vocabulary is necessary to ensure a rigorous development of targets and transition plans. The lack of common understanding and consistency of targets and transition plans in different EU regulations would risk producing gaps and/or duplication, create confusion and unnecessary burden, and slow down corporate transitions and related transition finance at a moment we need to accelerate them to avoid a disorderly transition. We, therefore, 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 (CSRD and forthcoming ESRS): CSRD and ESRS should form the EU cornerstone to define corporate targets and transition plans for four reasons: 1. They bring a clear double materiality approach and include all sustainability issues, making them fully appropriate to be referred to in any other file that focuses on financial materiality, or environmental and social materiality, or both; 2. Their scope includes both non-financial and financial companies , hence can appropriately be referred to in files focusing either on non-financial companies, or financial companies, or both. It should be noted that transition plans’ disclosure requirements for financial institutions and for non-financial companies should be tailored to each sector’s specific role. We expect that this is what the ESRS, with forthcoming sector-specific standards, will ensure; 3. Content-wise the ESRS, building on EFRAG technical work, will provide the necessary level of granularity to properly structure and specify targets and transition plans, articulate the links between them, and ensure their meaningfulness and comparability across comparable companies; 4. Time-wise, the CSRD is already finalised and the first Delegated Act establishing the ESRS will be published by the Commission by 30 June 2023 21 , so they are quite timely for all other relevant files still under negotiation. • Second layer: Consistency of the EU policy mix, fixing the CSRD ‘comply or explain’ flaw The most appropriate way forward to set a consistent EU regulatory framework on corporate targets and transition plans is to build on the CSRD and ESRS and refer to it in other files. However, five other files are critical to fixing the ‘comply or explain’ flaw of the CSRD by requiring companies to set targets and plans at corporate level, not only to disclose them: CSDDD, CRD, Solvency II, the EU-GBS and the 21 Article 29b (1) CSRD. The second Delegated Act (for sector-specific issues notably) will be published by 30 June 2024. Benchmark Regulation (on Climate Benchmarks). These files could also require the verification of targets and plans by an independent third party to bring more robustness. In a complementary way, where relevant, the EU Taxonomy should feed targets and transition plans at activity level with further granularity, and the EU ETS and IED should feed targets and transition plans at site level. Once the EU ETS and IED reviews are over, and then once the Taxonomy Regulation is revised in favour of an extended taxonomy, the ESRS should be updated accordingly to ensure consistency. • Third layer: Supervision Measurement, Reporting and Verification (MRV) are crucial to assess the credibility of targets and transition plans. See more details on each legislative file in Section 4, and on supervision in Section 5. 1.2. The utmost importance of science-based environmental targets An important starting point for any sustainability transition plan is to set sustainability targets in accordance with a safe operating space for humanity. As we know, crossing certain biophysical thresholds known as planetary boundaries 17 could have disastrous consequences for humanity. A transition plan toward a state that does not consider scientific targets is unlikely to achieve an adequate transition. For climate change, the IPCC Special Report on Global Warming of 1.5°C stresses that limiting global warming to 1.5°C requires rapid and far-reaching transitions in land, energy, industry, buildings, transport, and cities. Global net human-caused emissions of carbon dioxide (CO2) need to fall by about 45% from 2010 levels by 2030, reaching net zero around 2050. According to the IPCC, transition means “ the process of changing from one state or condition to another in a given period ” 18 . In the report, the state or condition is the limitation of temperature rise to 1.5°C. This transition can be in individuals, firms, cities, regions, and nations, and can be based on incremental or transformational change. In this context, the word ‘transition’ is inextricably linked with the 1.5°C-aligned emission reduction goal. The CSRD also explicitly requires a corporate plan to ensure that the company’s business model and strategy are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris Agreement. Therefore, corporate climate targets and transition plans should be aligned with the limiting of global warming to 1.5°C. For nature, the First Draft of the Post-2020 Global Biodiversity Framework (2021) states: “By 2050, biodiversity is valued, conserved, restored and wisely used, maintaining ecosystem services, sustaining a healthy planet and delivering benefits essential for all people” and “to take urgent action across society to conserve and sustainably use biodiversity and ensure the fair and equitable sharing of benefits from the use of genetics resources, to put biodiversity on a path to recovery by 2030 for the benefit of planet and people” 19 . As a consequence, biodiversity and ecosystem targets are no net loss by 2030, net gain from 2030, and full recovery by 2050 20 . 1.3. Mandatory science-based targets and transition plans are a win-win As described in the EY study on directors’ duties commissioned by the European Commission, “In 17 https://www.stockholmresilience.org/research/planetary-boundaries.html. 18 https://www.ipcc.ch/sr15/chapter/glossary/. 19 https://www.cbd.int/doc/c/abb5/591f/2e46096d3f0330b08ce87a45/wg2020-03-03-en.pdf. WWF has more ambitious short-term demands: no net loss by 2025, net gain from 2030 compared to a 2020 baseline, full recovery by 2050. 20 https://www.efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FSiteAssets%2FED_ESRS_E4.pdf. absence of EU intervention, the adoption, disclosure and implementation of a forward-looking sustainability strategy, encompassing measurable sustainability targets, will remain a voluntary practice. Therefore, the current situation, whereby only certain companies voluntarily commit themselves to greater sustainability by adopting a sustainability strategy with science-based targets and KPIs aligned with global goals, while the majority do not, will not substantially change”. Requiring corporate targets and transition plans is critical to contribute to the achievement of EU sustainability goals: • It is positive for companies to adopt targets and transition plans, as it enables market participants to assess the credibility of organisations’ commitments related to climate change and nature. More generally, setting a corporate target and a transition plan helps relevant stakeholders to understand the natural, human and financial resources needed by the company to timely achieve its transition. • Corporate targets and transition plans are a suitable tool to enable all proactive companies to attract financing for their own transition, beyond those issuing debt labelled as green, transition, or sustainability-linked. They substantially clarify transition finance. • Several existing initiatives create robust precedents to build on (see Section 2); however, voluntary initiatives won’t be able to deliver in a timely manner: they lack scale, speed and quality, and can’t deal with laggards (see Section 3). • A framework is needed that enables stakeholders, notably financial institutions and policy makers, to assess the integrity of corporate targets and transition plans, irrespective of the sector and jurisdiction. As a consequence, mandatory reporting on targets and transition plans is necessary but not sufficient as these plans need to be assessed to allow a judgement on their quality and credibility. Mandatory corporate targets and transition plans are, therefore, a win-win for companies, governments, societies, and our planet. 1.4. The need to ensure consistency in EU regulatory requirements on corporate targets and transition plans The figure below represents how corporate targets and transition plans could be integrated and articulated into the relevant EU regulations, creating a consistent EU