Investors expect ‘high involvement’ from boards in transition plans, says AMF

French financial watchdog publishes climate transition planning CSRD guidance for local companies.

Investors want company boards to demonstrate deep involvement in the implementation of company transition plans, according to the AMF, France’s financial regulator.

The watchdog last week published a climate transition plan guide to support in-scope companies with their reporting obligations for the EU’s Corporate Sustainability Reporting Directive (CSRD).

The guidance, proposed by the AMF’s climate and sustainable finance commission, was based on responses to a questionnaire sent to 24 companies and 38 investors, and a series of nine interviews on practices, expectations and challenges.

As part of the European Sustainability Reporting Standards (ESRS), companies are required to produce a transition plan for climate change mitigation in line with the Paris Agreement, if this is deemed a material disclosure.

The plan should outline how they will reach climate neutrality by 2050 and, where relevant, their efforts to reduce exposure to coal, oil and gas-related activities.

The AMF said the application of the ESRS for climate transition plans should not be interpreted as a transparency exercise, but as a reflection of the company’s climate strategy and “continuous improvement process”.

In the report, the regulator stressed that monitoring and reporting on the implementation of transition plans is key for good governance. It added that companies should provide “detailed explanations” on any observed progress or deviations from the plan, and that these should inform the plan’s ongoing implementation.

This would involve tracking the evolution of a company’s greenhouse gas (GHG) emissions, the implementation of decarbonisation levers and the mobilisation of financing dedicated to the plans, the AMF said.

The regulator said investors will expect companies to demonstrate that the board of directors has the relevant skills for defining and deploying the transition plan, and that companies should indicate how climate-related considerations have been factored into remuneration policies.

Net-zero transparency

Separately, the Dutch financial regulator AFM last week published a report on transparency around net-zero targets.

The regulator said such transparency is “vital” to avoid greenwashing and “green-wishing”, which it defined as assuming new technology will solve all future problems. It will also reduce “information asymmetry” between companies, AFM added.

The research analysed 27 companies that reported on net-zero targets in their 2022 management reports, and found that many are still vague about how they will achieve their goals by 2050.

Under CSRD reporting, the AFM expects companies to be transparent about any uncertainties or challenges they experience with reporting, given that the new rules will demand more transparency around sustainability information.

The Dutch regulator has also asked reporting entities to disclose their the use of carbon capture and storage, offset projects and carbon credits.

The AFM has previously expressed concerns about the integrity of such claims and the risk of greenwashing, and in April came out in support of regulating voluntary carbon markets.

It argued that VCM credits should be excluded from net-zero carbon frameworks, so that companies focus on carbon reduction rather than carbon offsets.