Climate transition plans: Why they matter and what you can do
Following the recent publication of the United Kingdom’s Transition Plan Taskforce’s gold standard framework for private sector climate transition plans, Sustainability Consultant Lizzie Holmes shares her recommendations for companies at the start of their transition planning journey.
There are increasing expectations from stakeholders on companies and organisations moving towards net zero. It is no longer enough to just set a science-based target — companies need to demonstrate how they can decarbonise their operations with a climate transition plan.
Demand for robust and credible climate transition plans has increased as more organisations make public net zero commitments, highlighting the push towards transparent, achievable planning in the business ambition for limiting global warming to 1.5 degrees Celsius above pre-industrial levels.
Evidence-based climate transition plans are important because they give organisations the opportunity to enhance and demonstrate cost-effective transition planning to stakeholders, including investors, and their value chains.
They should also be viewed as an opportunity to add value and resilience to business planning and strategy by driving the internal shift towards low-carbon solutions.
In other words, robust, evidence-based climate transition plans guard against greenwashing claims and safeguard companies against falling short of net zero commitments.
Policy requirements are evolving across the globe
In the UK, climate transition plan (or net zero transition plan) requirements are currently in place for listed companies and large regulated asset owners and asset managers who must disclose this information as part of their disclosures aligned with the Task Force for Climate-Related Financial Disclosures (TCFD). The UK Sustainability Disclosure Standards (SDS), which is expected in July 2024, will require companies to disclose transition plans on a mandatory basis although it isn’t yet clear to whom this will apply.
More broadly, for EU-based companies, there are requirements around transition plans, for example as part of the Corporate Sustainability Reporting Directive (CSRD). These reporting requirements follow the European Sustainability Reporting Standards (ESRS).
Climate transition plans are also required in Brazil, Japan and New Zealand under various legislative tools, and under consideration or development in North America, India, Australasia and South Africa.
A major milestone for climate transition planning
In the UK, the Transition Plan Taskforce (TPT) has just published its final framework for mandatory climate transition plans for UK-listed companies. This is a major milestone as the framework is widely regarded as a gold standard for private sector climate transition plans.
The framework provides recommendations on what a company should include when disclosing its transition plan, including key foundations, implementation and engagement strategies, metrics and targets and governance related to climate transition planning.
Crucially, while the guidance is targeted at companies based in the UK, the recommendations can be adopted by companies who operate in other countries.
The three guiding principles of the TPT framework are ambition, action and accountability, and build on the transition planning foundations set by the Glasgow Financial Alliance for Net Zero (GFANZ) and existing and emerging guidance on climate-related risk disclosures provided by the TCFD and the International Sustainability Standards Board (ISSB).
The TPT will publish its final implementation guidance — including sector-specific recommendations — in the coming months.
Five practical considerations for those at the start of their climate transition planning journey
Based on our ESG Advisory work for global and UK-based clients, here are five high-level but practical considerations for those creating climate transition plans.
- A credible climate transition plan that prioritises emissions abatement looks across the value chain as well as your immediate organisation’s emissions. This takes time to create so start as soon as possible.
- While transition planning is relatively new, it is likely that your organisation will already have a foundation from which to start, as current levels of climate or carbon reporting will support transition planning and aligned disclosure.
- That said, the best climate transition plans have a strong evidence base. We often work with companies that have the high-level expertise but lack the internal capacity to gather detailed data. We are able to step in and help them overcome that barrier.
- Don’t view climate transition plans as a box-ticking exercise. A robust net zero transition plan should align to your wider business strategy, planning and governance, ultimately allowing you to make better decisions for your business as you manage climate risks.
- Remember that your initial climate transition plan does not have to be perfect. It just needs to be honest, transparent and effective.
Read about our work with South Western Railway, the first train operating company in the UK to publish a decarbonisation roadmap, setting an example for the wider rail industry to follow.