Several reporting standards and frameworks, like the CDP, EU CSRD, and the EU Corporate Sustainability Due Diligence Directive, require or ask companies to disclose their climate transition plans.
It is the forward-looking portion of a reporting disclosure. It moves beyond reporting and provides a roadmap of how your company plans to transition to a low-carbon economy, addressing physical and transitional risks it faces and capitalizing on opportunities.
In this article, we review key elements of a good transition plan.
What is a climate transition plan?
As described in the technical note on this topic, a climate transition plan is a time-bound action plan, that describes the actions that an organization will take to adapt its business model to limit global warming to 1.5°C aligned with ambitious climate science recommendations.
A transition plan documents how your business is moving beyond reporting and plans to move to a sustainable business model in line with the Paris Agreement goal of limiting global warming to 1.5° Celsius and climate neutrality by 2050. A transition plan incorporates your decarbonization roadmap and emissions reduction plan into your overall business strategy and has buy-in from leadership.
What are the key elements of a good plan?
Baseline: Scope 1,2,3 accounting and verification
The starting point of the plan is the baseline carbon footprint. The The Scope 1, 2, and 3 emissions data can be analyzed for the optimal action and expense strategy to reach the target. The emissions data, along with energy intensity and carbon intensity data for specific locations, assets, or processes, can be compared with benchmark data to identify opportunities for improvement.
Target: Time-bound near-term and long-term SBTi targets
Guidelines from the Science-based target initiative help compute near-term (5-10 years) and long-term (by the year 2050 or sooner) targets from the current and baseline emissions. SBTi provides tools and models that provide yearly reduction requirements to track progress toward the goals. Targets can be set using an Absolute Contraction Approach or a Sector Decarbonization Approach.
Climate risks and opportunities for the organization
Climate risks pertain to physical and transition risks related to climate change. Examples of physical risks are a disruption in the business from the severity of weather events and long-term change in weather patterns. Examples of transition risks are changes in policy and compliance requirements, emerging technologies or reputational risks.
Opportunities include the development of low-carbon goods and services leading to increased revenue and/or market share and cost savings from implementing energy-efficient operations.
Action plans to get to the target from the baseline
Once you understand the current baseline, the goals, and the risks and opportunities of climate change, you can plan actions that will help you reach your goals, plan for your risks and capitalize on opportunities.
- Actions available for Scope 1 and 2 emissions reductions include energy efficiency programs, phasing out high-impact HFC refrigerants, and electrification of heating and cooling systems along with onsite and offsite renewable energy. Most of these actions require upfront capital expenditure that will eventually lead to cost savings from energy efficiency measures. These expenditures can be optimized by using the data from baseline emissions and the targets required to stay within the 1.5°C SBTi goal.
- Deeper actions address climate change-related opportunities and involve investment in innovation and research and development to add low-carbon products and services to the company offerings.
- Broader actions involve the value chain, making purchase and supplier decisions based on the climate plans of suppliers. These include actions in all the Scope 3 categories, like upstream and downstream transportation and distribution, material and packaging choices that influence end-of-life product treatment, and waste management options. These actions can address climate-related risks and opportunities.
Board and Management commitment and oversight
Board and management commitment and oversight play a crucial role in the success of implementing the action plans. The commitment and oversight are demonstrated by how well the sustainability strategy is integrated into the overall business strategy and understood by all the employees. Another sign of support is in the role they play in providing financial support for the plan through budgets for capital expenditures and innovation, research, and development of low-carbon products and services offered by the company.
Finances related to the climate transition plan
A true commitment to the plan can be demonstrated by providing the necessary financial support for climate mitigation activities. Companies have used internal carbon pricing to generate funds for sustainability activities. Government rebates and incentive programs are other sources of funding, and some corporations are incentivizing suppliers with funding for climate mitigation actions like renewable energy.
A climate transition plan is a roadmap for an organization’s journey to operate sustainably. It helps organizations align business strategy with their climate ambitions. Having a good transition plan demonstrates to your investors, customers, and the world your commitment to fighting climate change.
