For the EU to achieve a prosperous, competitive and sustainable future, all sectors of the economy must rapidly decarbonise while simultaneously strengthening their resilience to climate change. The importance of transition and decarbonisation within the EU’s sustainable finance framework has grown over the past few years as the focus expanded from ‘sustainable’ and ‘green’ finance to include ‘transition’ finance. This shift, however, has led to some gaps in policy coherence, presenting new challenges. The goal now is to address and resolve these issues by moving toward a simple and holistic transition planning framework in the EU. This framework aims to align governance systems and policy tools to ensure a smooth transition to the EU’s climate goals while also keeping in line with international developments.
This briefing, co-written by E3G and ECCO, provides a comprehensive overview of transition finance governance and policy tools shaping transition finance in the EU, addressing both public and private dimensions. It looks at:
- Relevant international approaches, such as those from the UNFCCC and G20.
- The role of the EU Climate Law in delivering sectoral roadmaps for the EU, which could become a powerful tool for supporting Member States’ transitions.
- The impact of EU governance on national transition strategies and EU legislation’s role in guiding entity-based transition plans.
The paper provides three over-arching recommendations on how to move towards a simple and holistic transition planning framework:
- Recommendation 1: The European Commission should establish a ‘Transition Committee’ to set out a unified economic direction for the EU’s transition. This Committee would be tasked with facilitating alignment and coherence across international-, Member-State- and entity-level transition planning requirements.
- Recommendation 2: Policymakers should ensure coherence of EU regulation at various governance levels to facilitate transition finance. This entails achieving vertical alignment of transition planning regulation, starting from EU-wide requirements, through Member States ones, down to entity level.
- Recommendation 3: Policymakers should advance the development of an EU Single Transition Plan regulatory framework. Doing so requires taking normative steps to achieve greater horizontal coherence within the EU framework for entity-level transition plan requirements.
Additionally, the briefing looks at three case studies from Member States – Italy, Germany, and France – highlighting the pros and cons of different approaches to transition planning.
Quotes:
Jurei Yada, Director, Head of EU Sustainable Finance, E3G
“Achieving the EU’s climate goals requires a systemic approach to transition planning, linking international climate commitments with decarbonisation strategies at the EU, Member State, and entity levels. Establishing a Transition Committee at the outset of the new European Commission’s term could provide the strategic guidance needed to align economic competitiveness and industrial policy, while also achieving a simple and holistic framework for transition planning.”
Pietro Cesaro, Policy Advisor, EU Sustainable Finance, E3G
“Next year will present two major opportunities for ambitious EU governance in transition planning: the review of the EU Governance Regulation and the update of the EU’s Nationally Determined Contribution (NDC) for COP30. These processes can promote coherence and alignment across governance levels, linking international developments – such as G20 discussions on transition plans – with EU transition planning regulation. The EU, by establishing a Transition Committee, should prioritise this strategic alignment process, connecting international approaches to EU-wide requirements, through Member States, down to individual entities.”
Daniele Ciatti, Researcher, EU Sustainable Finance, E3G
“Entity-level transition plans are essential tools for promoting effective risk management and attracting both green and transition finance. While the EU has integrated various aspects of transition planning into its regulatory landscape, these elements remain dispersed across multiple policies. Establishing an EU Single Transition Plan regulatory framework would enhance regulatory clarity, streamline compliance, and ultimately unlock private and public investments for sustainable long-term economic planning.”
