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In brief

In a major shakeup to businesses’ obligations relating to human rights, environmental standards, and climate change, the Corporate Sustainability Due Diligence Directive (CS3D) is set to become law.

In this article, we focus on the climate-related obligations enshrined in the CS3D: the obligation imposed on companies to adopt and put into effect climate transition plans. 


  1. Introduction
  2. Who must adopt a Climate Transition Plan?
  3. The obligations to “adopt” and “put into effect” a ‘Climate Transition Plan’
  4. Upcoming Guidance on Climate Transition Plan
  5. Interaction of the CS3D’s climate obligations with other EU legislation
  6. Enforcement and compliance
  7. Next steps and recommendations


Representatives of the Governments of the Member States to the European Union (COREPER) in March 2024 and has just been approved by the European Parliament. An overview of this text is available here. The final text of the CS3D is now pending formal adoption by the Council of Ministers before being finally and formally enacted.

The CS3D forms part of the EU’s “Green Deal” and encompasses elements aimed at climate protection, going beyond the protection of human rights or environmental interests in supply chains. In accordance with the CS3D, companies will have to adopt and put into effect a transition plan for climate change mitigation which aims to ensure the compatibility of their business model and strategy with the transition to a sustainable economy and with the limiting of global warming to 1.5 °C in line with the Paris Agreement. Companies’ transition plans will have to encompass precise climate targets and planned key actions and investments to reach these, as further explained below.

In this article, we provide an overview of the specific requirements and implications of the obligation of companies to adopt a climate transition plan under the CS3D, as well as a few recommendations for what companies should do to prepare.

Who must adopt a Climate Transition Plan?

Generally, all companies in scope of the CS3D will have to adopt a climate transition plan, i.e., mainly EU-companies employing more than 1000 employees and having a net worldwide turnover of more than EUR 450 million as well as non-EU companies with a net turnover of more than EUR 450 million in the Union. For a more detailed explanation of the scope of application of the CS3D, please see our previous article here.

However, some companies may be exempted from the obligation to adopt a climate transition plan, pursuant to two possible exemptions.

  • The first possible exemption applies to subsidiaries: Parent companies may adopt climate transition plans on behalf of their subsidiaries in scope of the CS3D. However, even in a such case, the subsidiaries still need to comply with the substantive obligations relating to climate change in accordance with the parent company’s climate transition plan and specific targets laid down therein. 
  • A second possible exemption applies to holding companies: Where the ultimate parent company has as its main activity the holding of shares in operational subsidiaries and does not engage in taking management, operational or financial decisions affecting the group or the subsidiaries, it may be exempted from the obligations under the CS3D generally, including the adoption and implementation of the climate transition plan, provided that one of the ultimate parent company’s subsidiaries established in the EU is designated to fulfil the obligations, including the adoption of a climate transition plan. 

The obligations to “adopt” and “put into effect” a ‘Climate Transition Plan’

Article 15 of the CS3D is the key provision in relation to climate change. It requires that Member States ensure that covered companies “adopt and put into effect a transition plan for climate change mitigation (…)”, thereby imposing in effect two separate obligations on companies.

First, companies will have to adopt a “transition plan for climate change mitigation” (“Climate Transition Plan”). The design of the Climate Transition Plan is subject to a number of ambitious requirements.

  • In terms of objectives, the Climate Transition Plan must aim “to ensure, through best efforts, that the business model and strategy of the company” are compatible with:
    • The transition to a sustainable economy.
    • The limiting of global warming to 1.5 °C in line with the Paris Agreement.
    • The objective of achieving climate neutrality as established in the European Climate Law (Regulation (EU) 2021/1119), including the latter’s:
      • 2050 climate neutrality targets
      • Intermediate (i.e., 2030 and 2040) targets 

It is noteworthy that achieving compatibility with these objectives represents a higher level of ambition than that of many current climate transition plans, as the latter often rely on the Paris Agreement’s 2°C target (rather than the 1.5°C target) as an objective. The requirements of compatibility with the EU’s 2050 target and intermediate climate targets and with the “transition to a sustainable economy” will also deserve careful attention to determine whether and how they require the adaptation of the ambition and objective of existing plans.

  • In terms of content, the Climate Transition Plan must contain:
    • Time-bound targets related to climate change for 2030, 2035, 2040, 2045 and 2050, based on “conclusive scientific evidence” and including, “where appropriate, absolute emission reduction targets for greenhouse gas for scope 1, scope 2 and scope 3 greenhouse gas emissions for each significant category”.
    • A description of (i) the “decarbonisation levers identified” and (ii) the “key actions planned” in order to reach such targets, including “where appropriate changes in the (…) product and service portfolio and the adoption of new technologies”.
    • An “explanation and quantification of the investments and funding” that will serve to support the implementation of the Climate Transition Plan.
    • A description of the role of the administrative, management and supervisory bodies with regard to the Climate Transition Plan.

Given the abundant use of the wording “where appropriate”, it is clear that companies have a margin of appreciation in designing their Climate Transition Plan in a way that is meaningful for their sector, business, and specific circumstances. Such appreciation will, however, be subject to regulatory oversight and scrutiny (see below).

The Climate Transition Plan must be updated every 12 months and contain a description of the progress the company has made towards achieving its targets.

The CS3D also provides that companies that report a transition plan in accordance with the Corporate Sustainability Reporting Directive (CSRD) “shall be deemed to have complied with the adoption obligation”. In other words, while the content requirements of the CS3D themselves are quite open-ended, it provides an incentive to companies to comply with the – much more detailed – content requirements of the CSRD’s climate plan provisions by providing a sort of ‘safe harbour’ provision for those that report in accordance with that framework.

Second, having designed and adopted their Climate Transition Plan, companies are required to “put [them] into effect”.

Recital 50 is clear that this should “be understood as an obligation of means and not of results” and that “[w]hile companies should strive to achieve the GHG emission reduction targets contained in their plans, specific circumstances may lead to companies not being able to reach these targets, where this is no longer reasonable”. It is clear that, where a company fails to achieve the targets sets in its Climate Transition Plan, the question of whether it has actually ‘made its best efforts’ in compliance with its obligation of means will be a subject of scrutiny and debate. The precise standard that will apply in such cases, however, remains to be established.

Upcoming Guidance on Climate Transition Plan

To support companies with their Climate Transition Plans, the European Commission – in consultation with Member States and other relevant stakeholders – is tasked with issuing practical guidance on those plans. Such guidance must be made available 36 months after the entry into force of the CS3D, i.e., likely in 2027.

In preparing its guidance, it is reasonable to expect that the European Commission will assess current market practice, taking into account, among others, how companies have designed their existing plans until now by relying on voluntary sustainability standards and frameworks. In this regard two recent developments are noteworthy.

  • First, the EFRAG – the organization advising the European Commission in the adoption and implementation of the CSRD – has communicated that it is currently drafting implementation guidance on the Climate Transition Plans to be disclosed thereunder. Given that companies reporting a Climate Transition Plan in accordance with the CSRD are deemed to have complied with the CS3D’s adoption obligation, the EFRAG’s guidance may well influence the European Commission in drafting the CS3D-specific guidance.
  • Second, it remains to be seen what will be the treatment of carbon offsets in those plans and guidance. Indeed, recent attempts to extend the use of carbon offsets by the Science Based Targets initiative (SBTi) have caused significant controversy within the SBTi’s Board of Trustees. Since SBTi is one of the key voluntary frameworks for the design of climate transition plans, this debate on the use of carbon offsets within such plans should be closely monitored. 

Interaction of the CS3D’s climate obligations with other EU legislation

The CS3D is not the only new EU law that has key provisions relating to climate transition plans.

One of the most critical points of interaction between these CS3D requirements for Climate Transition Plans and other EU legislation is likely to arise with respect to Directive (EU) 2024/825 on “empowering consumers for the green transition” (“ECGT Directive“). This Directive, which entered into force on 26 March 2024, introduces significant changes to the Unfair Commercial Practices Directive (2005/29/EC) that will apply from 27 September 2026 to any company engaged in business-to-consumer commercial practices.

In particular, under the ECGT Directive, a commercial practice will be considered misleading if it involves a claim made about future environmental performance (e.g., ‘climate neutral by 2050’) without clear, objective, publicly available and verifiable commitments. Any company that is subject to both CS3D and the ECGT Directive will need to ensure that all claims made in its Climate Transition Plan concerning the company’s future climate performance constitute clear and objective commitments. The ECGT Directive requires that these commitments are set out in a detailed and realistic implementation plan, with measurable and time-bound targets and other relevant elements necessary to support the plan’s implementation (such as sufficient allocation of resources). Notably, the plan must be regularly verified by an independent third-party expert whose findings are made available to consumers.

This interaction between CS3D and the ECGT Directive brings an even greater level of rigor to the contents of Climate Transition Plans as well as the additional requirement that future performance claims within these plans must be independently verified. There is also heightened enforcement risk, with Climate Transition Plans being exposed to potential “misleading commercial practice” claims if the requirements of the ECGT Directive are not met.

Enforcement and compliance

The CS3D requires each Member State to designate one or more supervisory authorities to supervise compliance with the obligations laid down in national provisions adopted pursuant to CS3D – including those relating to climate transition plans.

  • For EU companies, the competent supervisory authority is the supervisory authority of the Member State in which the company has its registered office.
  • For non-EU companies, the competent supervisory authority depends on a number of factors.
    • If the non-EU company only has one branch, the competent supervisory authority is that of the Member State in which the company has this branch.
    • If the non-EU company does not have a branch in any Member State or has branches in different Member States, the competent supervisory authority will be the supervisory authority of the Member State in which the company generated most of its net turnover in the EU in the financial year preceding the last financial year.

As a result, this means that non-EU companies can, at least to some extent, “forum shop” the national supervising authority competent for them by establishing a branch in a specific Member State based on suitability criteria due to the priority of the branch over the largest net turnover in the EU provided for in the CS3D.

To create a level playing field for EU supervision of CS3D standards, Member States must ensure that their national supervisory authorities have adequate powers and resources to supervise the adoption and design of the Climate Transition Plans in line with CS3D requirements. Finally, Member States must ensure that their supervisory authorities publish an annual report on their CS3D activities and make it available online on a website to ensure uniform and effective enforcement of CS3D standards by national supervisory authorities within the Union.

The sanctions of a supervisory authorities in the event of an inadequate climate change plan under CS3D must be effective, proportionate, and dissuasive. The maximum fine – including in the case of an inadequate climate transition plan – is, depending on the degree of culpability of the company for the breach of the CS3D standard, at least 5% of the relevant company’s global net turnover in the financial year preceding the decision to impose the fine. Such sanctions also damage the reputation of the companies concerned and their brands, because the decisions of the national supervisory authorities containing sanctions in connection with infringements of the national regulations adopted to implement the CS3D – such as an inadequate climate transition plan – must be made publicly available for at least five years as part of the naming and shaming practice under the CS3D.

Next steps and recommendations

Following the final approval of the CS3D by the EU’s co-legislator, Member States will be required to adopt regulations and administrative provisions necessary to align national laws to CS3D’s provisions.

The final version of the CS3D contains a number of changes to the previous compromise, and the compromises that have been agreed during those complex negotiations have scaled down the ambition of the CS3D. Member States which supported the initial version of the CS3D could try and introduce stricter obligations and more rigid provisions possibly along the lines of the original text of the CS3D, also with reference to those provisions that have been dropped in the approved CS3D, such as (i) the scope of the obligation to adopt the Climate Transition Plan, (ii) the requirement to offer financial incentives to managers for climate transition, and (iii) the imposition of directors’ duties on to take into account the consequences of their decisions also on climate change.

The national regulations, together with all other EU legislative acts, will be transmitted to and reviewed by the Commission, which shall also submit a report to the Parliament and the Council on the necessity to lay down additional sustainability due diligence requirements tailored to regulated financial undertakings with respect to the provision of financial services and investment activities, and the options for such due diligence requirements as well as their impacts also on climate change, since the financial sector’s companies are obliged to adopt a Climate Transition Plan.

Regardless of how Member States choose to transpose and implement the CS3D principles, in-scope businesses should promptly and carefully prepare to meet the requirements and to adopt their Climate Transition Plans.

  • Consider your existing climate neutrality plan, to determine potential gaps: The first step in such a preparation will of course be to determine how your company’s current climate transition plan (if any) compares with the requirements of the CS3D.
  • Consider the impact on your value chain and procurement function, as well as the need to adapt your processes and contracts: Many Climate Transition Plans will have to include also targets for Scope 3 emissions for 2030, and in subsequent five-year internals to 2050 with progress made to meet the relevant targets. Scope 3 includes all (other) indirect emissions that occur in the upstream and downstream activities of the business. Most businesses have already adopted due diligence processes to select and qualify suppliers and partners, and those policies are well incorporated into their business models. It will be crucial to review and adapt existing policies and models so to enhance alignment with the upcoming obligations under the CS3D and the Climate Transition Plan, including data sharing and collection throughout the value chain. Other businesses, which – for any reason – have not yet implement any supplier qualification process, will need to start from scratch. In any event, all businesses shall make sure coherence and coordination throughout their entire internal system and policies.
  • Align strategic planning and communication: Businesses should ensure robust communication and coordination among functions and departments in charge of collecting data, ensuring compliance and making external communication (especially on climate-related matters). Indeed, it is of the essence that all public claims, announcements, and reporting, are aligned and consistent (or however not in contradiction) in order to reduce the risk of misunderstanding or misinterpretation of the data and information. This alignment is crucial also to meet the growing demand of transparency and clarity from stakeholders, including NGOs and regulators. All climate-related initiatives (e.g., CSRD, CBAM) could be envisioned as a puzzle, where each piece must be meticulously connected to create a clear overall picture. Businesses should put together their commitments, strategies, and actions to achieve effective and useful policies also on climate change.

In parallel, in-scope businesses could try and increase awareness and sensitivity through their value chain, which is composed also of SMEs that will not be directly subject to CS3D obligations and that will not be required to adopt any climate transition plan, but whose cooperation will be critical to meet the emissions reduction target for Scope 3 in accordance with the Climate Transition Plan that will be adopted by the in-scope business. Those SMEs may lack the resources or expertise to implement the actions necessary to meet the emissions reduction targets and somehow imposed to them by the in-scope businesses that needs to meet their Scope 3 targets. Supporting – without delay – SMEs through specific training or by providing appropriate tools could be helpful, since their commitment would be increased by raising their awareness of the upcoming requirements and expectations, and by onboarding them on such a complex climate transition journey that includes emissions reduction targets also for Scope 3.


Thomas Gilles has more than 20 years of experience representing German and international clients in mergers and acquisitions, corporate restructurings and general corporate law matters. He is the Chairman of the EMEA-China Group of Baker McKenzie.


Graham Stuart is a partner in Baker McKenzie's London office specialising in product regulation and environmental, health and safety law.


Anahita Thoms heads Baker McKenzie's International Trade Practice in Germany and is a member of our EMEA Steering Committee for Compliance & Investigations. Anahita is Global Lead Sustainability Partner for our Industrials, Manufacturing and Transportation Industry Group. She serves as an Advisory Board Member in profit and non-profit organizations, such as Atlantik-Brücke, and is an elected National Committee Member at UNICEF Germany. She has served for three consecutive terms as the ABA Co-chair of the Export Controls and Economic Sanctions Committee and as the ABA Vice-Chair of the International Human Rights Committee. Anahita has also been an Advisory Board Member (Beirätin) of the Sustainable Finance Advisory Council of the German Government.

Anahita has won various accolades for her work, including 100 Most Influential Women in German Business (manager magazin), Top Lawyer (Wirtschaftswoche), Winner of the Strive Awards in the category Sustainability, Pioneer in the area of sustainability (Juve), International Trade Lawyer of the Year (Germany) 2020 ILO Client Choice Awards, Young Global Leader of the World Economic Forum, Capital 40 under 40, International Trade Lawyer of the Year (New York) 2016 ILO Client Choice Awards. In 2023, Handelsblatt recognized her as one of Germany’s Dealmaker and “most sought after advisors of the country” in the field of sustainability.


Mario is a counsel in Baker McKenzie's Italian office specializing in environmental, healthcare, energy, food, and regulatory matters.
He has been nominated by Legal500 EMEA for three consecutive years (since 2020 to 2022) as a Rising Star in the Healthcare and Life Sciences Industry, and has been commended for his work in public and administrative law. In 2022, he was shortlisted as Best Lawyer of the Year for his work in both the oil and gas sector and sustainability. He has extensively contributed to Baker McKenzie Italy's award for Best Law Firm of the Year for Sustainability in 2022.
Mario has spoken in many events, symposia and training organized for or by clients and/or private organizations. He is co-editor of the Italian monthly newsletter on Energy and Sustainability, and author of several publications on sustainability and healthcare matters.


Maritje is a legal consultant in the European Competition and Regulatory Affairs Practice Group in the Brussels office. She joined Baker McKenzie in March 2023.


William-James Kettlewell is a senior associate in the EU Competition and Regulatory Affairs Practice Group of the Brussels’s office.


Dr. Alexander Ehrle is a member of the Firm's International Trade Practice in Baker McKenzie's Berlin office. Alexander studied law at the Universities of Heidelberg, Montpellier (France), Mainz, Munich and New York (NYU) specializing in Public International and European Law. He worked as advisor and member of a delegation of a developing country at the United Nations before qualifying for the German bar. He spent his clerkship with the Higher Regional Court in Berlin, the German Ministry of Foreign Affairs in Berlin and Tokyo as well as an international law firm in Frankfurt and Milan. He wrote his doctoral dissertation on the structural changes of public international law and their conceptualization in academic discourse basing his research on the governance of areas beyond national jurisdiction. Alexander is admitted to practice in Germany and New York. 

Alexander co-chairs the Business & Human Rights Committee of the American Bar Association’s International Law Section and has been recognized as one of 40 under 40 lawyers worldwide for foreign investment control by the Global Competition Review.


Franz D. Kaps is a member of the firm's German dispute resolution practice group. Having worked for law firms in Frankfurt and New York, he has gained a wide range of experience in advising on dispute resolution matters, with a particular focus on large-volume and complex litigation and arbitration proceedings, as well as compliance issues. He frequently publishes articles and speaks at conferences and events on arbitration and compliance related topics.

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