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A climate transition plan is a comprehensive document that outlines a company’s response to the challenge of reaching global net zero. It should show the specific steps which the company will take to adapt and, if necessary, transform its business to be able to thrive in the low carbon economy. A transition plan is an output of a process of transition planning inside the company and must contain all relevant details to prove its effectiveness in execution.
If net zero (perhaps defined as a science-based target) is the destination, then a transition plan is not just a roadmap. It should encompass all aspects of your journey, including the steps required to reach your goal, the milestones to be achieved on the way, the timeline, and the approach to addressing unforeseen challenges that may arise during the process.
Turning climate plans into action
When companies decide to make a commitment to climate action, they frequently choose (or are firmly requested) to set a net zero target aligned with the Science Based Targets Initiative standard. Initial enthusiasm for tackling climate change head-on often fades into something approaching underwhelm, as figuring out the numbers can feel far removed from the realities of the business. Climate transition planning offers an opportunity to bridge the gap between setting targets and achieving them. If executed properly, it can lead to immediate reductions in emissions and create new business opportunities for the future.
The plan should set out, in increasing levels of detail, the choices the company will make to move from aspiration to action. The initial formation of a science-based target should include dialogue with company leadership and ensure that they are reassured with the answer to the question, “Is the target feasible if the right technologies and operational changes are deployed?” Climate transition planning will develop this line of questioning further, answering the “what”, “how” and “when” of getting to net zero. Initial planning may identify no-regrets actions which can be taken straight to implementation with little further analysis or decision-making needed. In this case, there is no need to wait for further rounds of planning to start cutting emissions; take action immediately.
Many companies will be able to make immediate cuts to their GHG inventory by shifting to green electricity tariffs at some sites or making simple changes to eliminate wasted energy. For larger changes and transformations to the strategic orientation of the company to take advantage of new opportunities, a more considered and detailed approach is needed. This could involve multiple rounds of strategy formation and project planning over years for significantly larger projects such as retrofitting large buildings or designing innovative low carbon industrial processes.
Why set a climate transition plan?
A strong transition plan should reassure your stakeholders that you have a thoroughly planned long-term strategy in place to leverage the opportunities that the transition to the low carbon economy will present while minimising the risks.
More investors are striving to decarbonise their investment portfolio to achieve net zero targets. Therefore, they are demanding climate transition plans from companies particularly exposed to climate transition risks, for example, those in large, heavily emitting industries. The Say on Climate campaign has also seen investors requesting exposed companies publish transition plans and put them to a vote at AGM. In March 2023, the Institutional Investors Group on Climate Change published its own “Investor Expectations of Corporate Transition Plans” to encourage companies to report the necessary information to evaluate progress towards net zero, stating;
….investors typically hold hundreds, if not thousands, of companies within their portfolios. Making progress on climate change will require these companies to take action, too. Investors will need to measure the alignment of emissions targets set by these companies and assess the credibility of their transition plans to deliver and track progress.
Companies that face potential risks or opportunities related to the shift towards a low carbon economy should consider developing and publishing a voluntary transition plan. However, there are also compliance requirements for the publication of transition plans emerging.
- In the UK, a requirement for listed companies, asset owners and asset managers to publish a climate transition plan from FY 2023-24 is proposed and will be consulted on by Financial Conduct Authority (FCA). This will follow the final recommendations of the UK Transition Plan Taskforce.
- The EU Corporate Sustainability Reporting Directive (CSRD) makes specific reference to companies publishing a transition plan. The European Sustainability Reporting Standards (ESRS) E1 on climate change requires companies to disclose their transition plan and details what information should be included.
- The proposed draft US Securities and Exchange Commission (SEC) disclosure requirements include publishing climate transition plans.
- The draft International Sustainability Standards Board (ISSB) disclosure standard, which will inform regulatory disclosures in many jurisdictions, has a requirement to publish a transition plan.
What do you need to include in a climate transition plan?
Several frameworks have been published that provide detailed guidance on the essential components to incorporate in a transition plan. Publishing organisations include the UK Transition Plan Taskforce, CDP, GFANZ, ISSB and IIGCC. These frameworks, although numerous, reference each other and are intended to be complementary with each other and other reporting frameworks like TCFD.
All of these include elements within the themes of:
- Governance and strategy
- Risks and risk mitigation
- GHG inventory and reduction targets
- Opportunities and investment
- Partnerships: brand, alliances, customers, value chain, government, and policy
How can Anthesis help?
Ultimately, the success of companies in achieving net zero will depend on their ability to follow through on their planned transition, rather than just the planning stage. It is important for transition plans to go beyond simply meeting compliance requirements and become practical documents that address the realities of transforming a business for the long term.
At Anthesis, we prioritise developing long-term partnerships with our clients. This is especially important when it comes to transition planning, where plans and their implementation should be viewed as a multi-year iterative process.
We excel in assisting companies to evaluate and implement innovative solutions to improve their environmental and climate impact. This gives us a unique position to advise on transition plans with the goal of real-world emissions reductions at their heart, with a focus on making impactful steps towards net zero.
In addition to evaluating and implementing emissions reduction opportunities, we also bring together a range of deep subject matter expertise which is key for transition planning. This includes expertise in climate strategy, governance, GHG accounting and target setting, change management, energy, supply chain engagement, water, and biodiversity.