How states can overcome the challenges in regulating corporate climate transition plans
As part of a new commentary series focused on translating science into corporate climate obligations, Eoin Jackson, Adrien Rose and Harro van Asselt highlight the urgent need to overcome scientific and practical challenges in implementing and enforcing corporate transitions aligned with a pathway to 1.5°C of warming.
In December 2025, theEuropean Parliament put the final nail in the coffin of what was a groundbreaking requirement of the EU’s Corporate Sustainability Due Diligence Directive (CSDDD): that a wide range of multinational companies needed to adopt and implement climate transition plans. The loss of this requirement was one of the most notable victims of the recent ‘Omnibus’ process, an initiative to ‘simplify’ EU regulation purportedly to boost the bloc’s competitiveness.
Whether the EU will achieve this aim is doubtful. The removal of the requirement that multinational companies plan for a 1.5°C-aligned economy means that these companies now face a more uncertain and fragmented regulatory environment. Litigation risks for companies may even increase.
While the Omnibus process illustrates the challenges of enforcing corporate climate accountability, the broader issue of how to regulate corporate climate impacts extends far beyond Europe. This regulatory backsliding seems at odds with affirmations by international courts that states have a duty to regulate companies to achieve climate goals. To meet their international legal obligations, all states should develop, disclose and enforce regulations requiring companies to decarbonise their activities in alignment with the 1.5°C goal. However, as we outline below, there are significant challenges to overcome.
Clarifying the international duty on states to regulate corporate climate impacts
In its seminal Advisory Opinion on climate change from July 2025, the International Court of Justice (ICJ) clarified that states have a duty to regulate the climate impacts of companies within their jurisdiction or effective control. The ICJ added that such regulation needs to be effectively enforced and monitored. Failing to do so may mean that a state can be held responsible under international law.
While the ICJ did not specify what such regulation should look like, it did offer guidance on states’ obligations that informs the content of the duty to regulate private actors:
- First, the ICJ emphasised the primacy of the 1.5°C goal of the Paris Agreement (para. 224), meaning that the conduct of private actors should be aligned with this goal.
- Second, the ICJ singled out state support for fossil fuel production as a potentially internationally wrongful act, suggesting that states should regulate companies involved in fossil fuel production (para. 427).
Just a few weeks before the ICJ issued its Advisory Opinion, the Inter-American Court of Human Rights also shed light on the contents of the duty to regulate in its own Advisory Opinion. The Court set out a package of regulatory measures that states are expected to implement. These measures include:
- Calling upon companies to take effective measures to combat climate change
- Enacting human rights and climate due diligence legislation
- Requiring disclosure of greenhouse gas emissions throughout corporate value chains
- Discouraging greenwashing and lobbying (paras. 347-350).
No international court has yet ruled on whether a state has breached this duty to regulate in a climate context. However, the European Court of Human Rights (Fadayeva v. Russia, Jugheli v. Georgia, Cannavacciuolo v. Italy), Inter-American Court of Human Rights (Miskito Divers v. Honduras, La Oroya v. Peru), and African Court on Human and Peoples’ Rights (LIDHO v. Republic of Cote d’Ivoire) have all confirmed in the past that states may face legal consequences for a failure to regulate the polluting and/or dangerous activities of third parties. In addition, the forthcoming Advisory Opinion on human rights and climate change requested before the African Court offers a further opportunity to clarify the duty to regulate.
Mandatory corporate climate transition plans: information and accountability gaps
Companies use climate transition plans to set out how their strategies align with the shift towards a low-carbon and climate-resilient economy. For companies, transition planning functions as an internal risk-management tool, helping management to identify climate-related risks and opportunities, assess dependencies, and embed decarbonisation and resilience into core business planning.
However, these transition plans are mainly voluntary, which creates information and accountability gaps. Information reported in the plans is often difficult to compare with information reported by other firms. Companies disclose information selectively, emphasising long-term targets and offering little information on short-term actions or capital expenditure. The level of ambition within plans frequently falls short of what is needed to align corporate strategies with national decarbonisation and global pathways consistent with 1.5°C. There is also little accountability for missing or abandoning targets.
Introducing a mandatory requirement for corporate transition plans as part of a state’s duty to regulate can address these information and accountability gaps. It would ensure more companies develop transition plans and improve the consistency, comparability and usefulness of information disclosed. It could strengthen accountability, particularly where it includes an obligation to implement plans and explain any deviations from them. It would also help states to monitor and supervise transition plans, enabling them to comply with their international legal obligations.
However, as we have seen with the EU’s scrapping of the CSDDD requirement, states have struggled to implement their international legal obligations. Despite this, countries like the UK appear to be forging ahead with introducing mandatory transition plans. But in doing so, states will need to overcome several practical challenges.
Challenges in mandating climate transition plans
There is increasing consensus on what information climate transition plans should contain, driven by emerging regulations and standards such as the Transition Plan Taskforce Framework, International Financial Reporting Standards (IFRS) S1 and S2, and the EU’s Corporate Sustainability Reporting Directive. However, significant uncertainty remains on what benchmarks these plans should align with and how this should be assessed. These difficulties were illustrated by the 2024 Court of Appeal’s decision in the Dutch case of Milieudefensie v. Shell (2024). The Court agreed with the Intergovernmental Panel on Climate Change (IPCC) that to limit global warming to 1.5°C, emissions must reduce by a net 45% by the end of 2030, relative to 2019, and be net zero by 2050. However, it held that this global target could not be directly translated into an obligation on an individual company or sector (para. 7.73). This highlights how difficult it is to translate climate science into legal standards judiciaries are capable of implementing, and the need for greater understanding of the opportunities and limitations to this science when requiring companies to develop climate transition plans aligned to 1.5°C.
Regulators are better positioned than courts to define corporate transition pathways. Many governments have already developed economy-wide and sector-specific pathways to support the achievement of their nationally determined contributions (NDCs) under the Paris Agreement. National transition roadmaps for individual sectors might be more relevant benchmarks than global pathways as they allow policymakers to avoid a one-size-fits-all approach. However, national ambitions do not add up to a global trajectory that aligns with limiting global warming to 1.5°C. In addition, accounting for fairness and equity in companies’ individual responsibility to decarbonise remains challenging.
Challenges of implementation
Mandating and assessing the implementation of plans presents further challenges. Without appropriate implementation requirements, a requirement for transition plan obligations risks becoming a tick-box exercise, perpetuating the gap between stated commitments and real-world action. Introducing an obligation to implement plans, however, raises legitimate concerns about cost and feasibility. In particular, requiring the implementation of transition plans aligned to 1.5°C may compel companies to pursue objectives that are difficult to achieve and that depend partly on external conditions beyond firms’ direct control, such as infrastructure availability and policy support. Moreover, assessing alignment and implementation poses practical challenges for regulators and auditors, as transition plans rely heavily on forward-looking assumptions and metrics. These lack the historical depth and verification frameworks characteristic of financial auditing.
Flexible implementation could help address these challenges. Requirements could be phased in, initially focusing on large companies in sectors with the highest carbon emissions and/or ‘hard to abate’ sectors (i.e. those in which reducing emissions is particularly challenging), such as energy or industry, where data is available and methods for transition are in place, before gradually expanding the scope to other businesses. Framing corporate obligations in terms of taking credible steps to deliver climate transition plans, rather than strict outcome guarantees, would also help make plans feasible while maintaining their ambition. Regular reviews can ensure that expectations evolve in line with the best available science and technological progress. Targeted capacity-building efforts can support firms and regulators in developing the skills, data and tools needed to implement and assess transition plans effectively.
Finally, further litigation could move away from demanding specific rates of emission reduction to requesting a duty of care that identifies reasonable steps a company should take to address climate change. This could include a requirement for companies to develop and implement emissions pathways based on credible methodologies aligned with the 1.5°C goal. A less prescriptive approach to corporate duties could allow a company to consider the best available science and their evolving circumstances. The articulation of minimum standards could, in turn, complement regulatory efforts and help to close the corporate climate accountability gap.
Developing credible pathways for corporate climate transitions
Recent developments in international law confirm that states must regulate the climate impacts of the private sector. Mandatory corporate transition plans could play a central role in this. However, there remain significant scientific and practical hurdles with implementing and enforcing transition plans, as illustrated in recent EU and judicial struggles to implement mandatory corporate climate action. Overcoming these hurdles requires further research and regulatory flexibility. We need to develop credible pathways for corporate climate transitions, which are grounded in the best science and can respond to the complex, sector-specific realities of corporate climate activity.
The authors thank Margherita Cornaglia at Landmark Chambers for her helpful review comments on this commentary.
This commentary is part of a series coordinated by the Grantham Research Institute’s climate law and governance team exploring corporate climate litigation and the boundaries and interactions between science, the law and policy. The series contains contributions from legal scholars, economists and other social scientists, reviewed by practising lawyers. It is co-hosted with the Global School of Sustainability at LSE.
Other commentaries in the series: