Guidance on company transition plans is formalising and proliferating, and Sustainable Fitch expects “minimum standards” on what constitutes a robust transition plan to emerge in 2025.
Transition plan disclosures are typically integrated with broader sustainability-related disclosures, which are becoming mandatory, especially for listed companies in several jurisdictions, notes the ratings agency in its Sustainable Finance Outlook 2025, released Dec 12.
In the European Union (EU), transition plans are required to be disclosed — if such a plan exists. The EU is due to release final guidance on what they should include in 2Q2025, following the release of the initial draft in November.
Meanwhile, the International Sustainability Standards Board (ISSB) has taken over responsibility for the Transition Planning Taskforce’s (TPT) disclosure framework and related guidance, and is planning to issue further supporting materials in 2025.
In a further example of transition plan information coming under regulatory attention, the Swiss Federal Council opened a consultation in December seeking to establish minimum requirements for net-zero 2050 roadmaps, or transition plans, specifically related to financial flows and financial companies in Switzerland.
Sustainable Fitch notes that guidance on transition plans has been at the forefront since the Task Force on Climate-Related Financial Disclosures (TCFD) first released guidance in 2021.
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That European Sustainability Reporting Standards (ESRS) guidance in 2025 and the expected ISSB guidance (though without a fixed timeframe) have the potential to “mark a new wave of standardisation”, says Sustainable Fitch, given the large number of jurisdictions due to mandate these disclosure standards.
Mandatory reporting under the Corporate Sustainability Reporting Directive (CSRD) and ESRS began in January, and in January 2025 large European companies not previously subject to the Non-Financial Reporting Directive (NFRD) have to start collecting data to report in 2026.
Another key legislation that will mandate climate transition plans disclosure is the EU’s Corporate Sustainability Due Diligence Directive (CS3D), which began a five-year phasing in July.
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While the ISSB leaves assurance requirements to each jurisdiction, some, such as Australia, Brazil and Singapore, have announced plans for assurance of sustainability information, which will extend to information about transition plans.
Sustainable Fitch expects greater clarity on decarbonisation levers that companies can deploy. While decarbonisation levers vary by industry and commercially viable technologies, they include:
- The phasing-out of coal-fired power in the case of utilities, with the deployment of more renewables capacity
- Measures to capture emissions in the case of heavy industry
- Energy-efficiency initiatives
- Prioritising suppliers for purchased goods and services with ambitious transition plans
- Emissions reductions targets for companies operating in the services sectors
Cornerstone for transition finance
Robust transition plans include interim and long-term targets aligned with a low-carbon pathway and clear decarbonisation levers, says Sustainable Fitch. They form a “backbone” for the development of transition finance.
Transition finance remains a “nebulous” term, but Sustainable Fitch considers it to be finance that seeks to mobilise capital towards decarbonisation and channel sustainable finance to hard-to-abate sectors.
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Transition bonds are an avenue for a use-of-proceeds instrument to achieve this. Japan, in particular, has tied use-of-proceeds to their sovereign transition guidelines.
Japan issued its inaugural US$11 billion ($14.94 billion) transition bond in February; the 10-year transition bonds were issued to fund low-cost wind power generators and aeroplanes that use alternative fuels. The Japanese government issued another US$2 billion transition bond in 3Q2024.
Outside of Japan, however, these bonds have yet to find much momentum, notes Sustainable Fitch.
Sustainable-linked bonds (SLBs) are a more established label, though one that has lost investor appeal. Global SLB volume totalled US$25 billion in 9M2024, falling well below the US$53 billion issued over the same period last year.
Some SLBs have been criticised for lacking ambition and transparency. Sustainable Fitch thinks SLBs may benefit from “more robust and increasingly comparable” transition plans being made available. “This is because they can form a strong anchor for such instruments, especially for issuers in higher-emitting sectors.”
Next year will be a “milestone” for SLBs, with more than 100 such bonds worth a total of US$70 billion due to report on their sustainability performance targets, most towards the end of the year, according to Sustainable Fitch. “This heightened examination will show how they perform against their targets and how the market reacts to these assessments.”
Evaluations of transition plans are likely to play a growing role in investor assessments of entities’ climate-related risks, particularly those in hard-to-abate industries, says Sustainable Fitch. This will also potentially impact those entities’ access to capital.
Investment managers, lenders and insurers already apply climate risk approaches to assessing counterparties long-term risk profiles. Issuers and borrowers that can demonstrate ambitious and comprehensive plans for mitigating transition risks by decarbonising — particularly when those plans are validated by an independent third party — are less likely to be subject to risk-related negative screening, adds the ratings agency.
“They would also be in a stronger position to assuage the concerns of investors and lenders that have set their own targets to reduce financed emissions or prioritise financing for entities with science-based targets,” adds Sustainable Fitch.
Charts: Sustainable Fitch
