DELOITTE DIVE IN: Transition Plans Episode 4: Connecting the Dots

To guide us through these insights, we are joined by two of Deloitte’s experts: 

Jarno Miettunen, IFRS Advisory Leader, who brings deep expertise in financial reporting, and 

Anu Servo, ESG Assurance Leader, specialising in sustainability and climate-related disclosures. 

Let’s dive into their perspectives on where we stand today with transition plans and what lies ahead. 

Where are we now with transition plans from your viewpoint? Have financial reporting teams engaged with Climate Transition Plans and addressed their connectivity? 

Jarno: Financial reporting teams have certainly reviewed Climate Transition Plans. However, when we examine the outcomes and the connectivity between CSRD reports and the 2024 financial statements, I expect to see ongoing development and improvement in how these elements are linked. 

From a financial reporting perspective, understanding the big picture of entity’s Climate Transition Plan is essential. What does the plan include? Does it provide new information that the financial reporting team has not previously considered? The larger and more complex the organisation, the greater the risk that some operational aspects may not be fully visible to those responsible for financial reporting. 

My approach is to assess the impact of the Climate Transition Plan’s actions on current financial reporting. I recommend focusing on the risks, impacts, actions, and timespans discussed in the plan, as all are relevant when considering disclosures in the financial statements. 

Anu, how have you been addressing Climate Transition Plans with your clients this year? 

Anu: Many clients are still developing or revising their transition plans. A significant number are in the process of setting and validating their greenhouse gas (GHG) emission reduction targets—often through initiatives like the Science Based Targets initiative (SBTi). Until targets are set, it’s usually premature to finalise a transition plan. 

An interesting development is that companies are increasingly considering emissions from an industry-specific perspective. For example, emissions related to forestry, land use, and agriculture (FLAG) are gaining more attention. This shift enhances transparency across the value chain and broadens understanding of emissions, which is crucial for driving meaningful change. 

Another important discussion relates to what the European Sustainability Reporting Standards (ESRS) define as a “transition plan.” ESRS sets specific criteria that must be met—without which a company cannot simply claim to have a transition plan in its sustainability statement. 

Jarno, you mentioned focus areas earlier. How do you approach these in your assessments?

Jarno: When it comes to risks and impacts, materiality is key. Those with higher likelihood and greater magnitude deserve more attention. 

Actions within Climate Transition Plans vary widely. Some may affect capital employed, requiring investments in new assets and potentially rendering existing ones obsolete. Others might influence revenue and cost structures, impacting profitability. Often, changes will involve a combination of these effects.

Timespan is also critical for financial disclosures. Actions already taken and commitments made influence current-year financial figures. Looking ahead, how do you account for commitments to future investments or operational changes in the financial statements? This requires management judgement. As planned actions approach their execution dates, they become increasingly material for investors and other users of financial reports. 

From a sustainability perspective, what are the hot topics in this area?

Anu: Two themes stand out: governance and credibility. 

Credibility of emission reduction targets and transition plans has been a hot topic recently. Key questions include: What proportion of total emissions are targeted for reduction? Are scope 3 emissions—those from the value chain—covered? Has the company set achievable targets and committed the necessary resources to meet them?

Governance ties directly into credibility and ESRS requirements. For a transition plan to be credible, it must be embedded in the company’s strategy, with those charged with governance approving and monitoring progress. Without commitment from decision-makers, it’s difficult to ensure the resources and focus needed to achieve emission reduction targets. 

How do you expect these developments to impact financial reporting? 

Jarno: Once Climate Transition Plans are validated and integrated into official governance processes, the actions they contain will become more concrete. This will allow companies to demonstrate stronger commitment for financial reporting purposes. 

The impact will vary by sector. For example, the energy sector is already investing heavily to replace CO₂-intensive generation, reflecting this transformation in their asset base and financial statements. Other sectors will need to follow suit, and as focus on scope 3 emissions intensifies, companies will need to take concrete actions—often with financial implications that must be disclosed. 

Looking ahead, what future issues or next steps do you foresee in this domain? 

Anu: The conversation around credibility and strategic alignment will continue. Additionally, there will be increased scrutiny on how companies are progressing along their emissions reduction paths. Do they have the resources, and decision-making will to realise their plans? Many companies will face difficult choices as they strive to meet near-term targets. 

Jarno: I expect to see bolder, more concrete action plans as Climate Transition Plans become official and validated. It will be interesting to observe how companies invest once the ‘low-hanging fruit’ has been addressed. Also, as target dates approach, companies will need to manage any deviations from their planned paths and communicate these adjustments clearly. This underscores the growing importance of connectivity between ESG and financial reporting—not as a one-off exercise but as an ongoing consideration at every reporting date. I anticipate that interim financial reports will increasingly include updates on progress against material actions in Climate Transition Plans. 

Read the other episodes of the DELOITTE DIVE IN –  
Transition Plans blog series: 

The first episode: The Whats and Whys

The second episode: Credible transition plans

The third episode: Climate Transition Plans and their Connectivity with Financial Statements