"Transparency in climate transition plans is essential for aligning corporate strategies with global sustainability goals and building stakeholder trust."

EFRAG's guide covers a broad legal framework that companies must consider when creating their transition plans. The EU's sustainability goals are supported by various legal regulations, which directly impact companies' reporting processes. Key regulations such as the European Climate Law, the Corporate Sustainability Due Diligence Directive (CSDDD), and the EU Taxonomy stand out as the primary regulations forming the basis of transition plans.

The role of companies in combating climate change is steadily increasing. In line with the European Union's goal of achieving climate neutrality by 2050, the Implementation Guidance for the Transition Plan for Climate Change Mitigation, published by the European Financial Reporting Advisory Group (EFRAG), guides companies in making their transition plans more transparent and consistent. This guide facilitates legal compliance for companies within the framework of the European Sustainability Reporting Standards (ESRS) and helps them achieve their strategic sustainability goals.

The details presented in the guide are concentrated on three main focuses: the European regulatory framework, targets and action plans, and the integration of social and ecological impacts.

European Regulatory Framework: The Legal Foundation for Sustainability

The EU Taxonomy defines sustainable investments, enabling companies to transparently report the financing and investments in their transition plans. For example, a company's investments in renewable energy projects are evaluated under the EU Taxonomy, and the progress of transition plans can be monitored through these projects. On the other hand, the CSDDD requires companies to adopt sustainable and responsible practices not only in their own operations but throughout their entire supply chain. This directive ensures that companies take the necessary transformation steps to achieve their climate targets.

Regulations applicable to banks and insurance companies, such as the Capital Requirements Directive (CRD) and Solvency II, strengthen risk management by integrating climate risks into the financial structure. This legal framework mandates that companies consider both operational and financial sustainability when preparing their transition plans.

Targets and Action Plans: Concrete and Transparent Steps

The EFRAG guide requires companies to set transparent, concrete, and science-based targets when creating their transition plans. These targets must be aligned with the Paris Agreement's 1.5°C goal and integrated with the company's strategic plans. Companies are asked to define their short-, medium-, and long-term targets and to detail the action plans they will follow to achieve them.

Greenhouse gas emission reduction stands out as a priority area in setting targets. Companies are expected to disclose decarbonization methods such as operational improvements, changes in their product portfolio, and sustainability practices in the supply chain. Examples of decarbonization methods include a manufacturing company switching to renewable energy in its factories to increase energy efficiency or starting to use electric vehicles in its logistics processes to reduce carbon emissions.

These actions are not limited to operational changes; they must also be supported by investment and financing strategies. Companies are required to disclose their EU Taxonomy-aligned capital expenditures (CapEx) necessary to implement their transition plans and the financing sources for these expenditures. In this process, progress toward achieving the targets must be regularly reported and presented transparently to stakeholders.

It is critically important for the governance structure to adopt and support these targets. Boards of directors and senior executives must oversee the implementation of transition plans and monitor progress. This strengthens the company's commitment to its sustainability goals while also increasing accountability.

Integration of Social and Ecological Impacts: A Just and Inclusive Transformation

The EFRAG guide emphasizes that social and ecological impacts should not be ignored while combating climate change. The Just Transition principle prioritizes the protection of employees, communities, and ecosystems during the transformation process. Companies must assess the potential negative impacts on these groups when implementing their transition plans and take measures to mitigate these effects.

Creating social support programs for communities ensures that the transformation process is fair. This aims to prevent the deepening of social inequalities while achieving climate goals.

In addition, the impacts of transition plans on biodiversity is a topic that cannot be overlooked. Renewable energy projects or transformations in industrial facilities can have negative effects on ecosystems. Companies must develop ecosystem protection strategies to minimize these impacts and achieve emission reductions without harming nature. For example, an energy company should pay attention to protecting agricultural lands or natural habitats when installing solar panels.

EFRAG's Transition Plan Guide in the Turkish Context

EFRAG's Guidance for the Transition Plan for Climate Change Mitigation is also of great importance for companies in Turkey. It is becoming critical for Turkish companies, especially those trading with the EU, operating in the European market, or integrated into the global value chain, to comply with the criteria presented in this guide to maintain their competitive advantage.

The European Union, Turkey's largest trading partner, is implementing strict regulations to achieve its sustainability goals. At the forefront of these regulations is the Carbon Border Adjustment Mechanism (CBAM). CBAM foresees the application of an additional tax on high-carbon emission products imported into the EU. To avoid losing their competitiveness, particularly in carbon-intensive sectors like iron-steel, cement, aluminum, and chemicals, Turkish companies need to create their transition plans and reduce their carbon emissions.

Turkey's Green Deal Action Plan is another important step taken to support this process. Within the scope of this action plan, companies are encouraged to improve their sustainability reporting processes, calculate their carbon footprints, and adopt circular economy practices. EFRAG's guide offers a concrete roadmap for Turkish companies during this transformation process.

Preparing transition plans in compliance with the EU Taxonomy and ESRS standards can not only fulfill legal obligations for Turkish companies but also facilitate their access to sustainable finance. Green bonds and sustainable financing instruments, in particular, constitute important resources for investments during the transformation process. In this way, Turkish companies can protect their competitiveness by enhancing their sustainability performance in both domestic and international markets.

Furthermore, considering the social and ecological impacts of transition plans can make the industrial transformation in Turkey more inclusive. In line with the just transition principle, practices such as retraining employees, supporting communities, and protecting ecosystems will contribute to Turkey's achievement of its sustainable development goals.

EFRAG's guide serves as an important manual in Turkey's sustainability journey and will help companies both comply with EU regulations and contribute to global sustainability goals.