Climate Transition Plans: Are Companies Developing Credible 1,5°C-Aligned Actions?
In the transition towards net zero, meaningful climate actions to reduce emissions are key, which drives the importance of credible climate transition plans. Those are indispensable for businesses aiming to thrive in a net-zero carbon economy and align with the imperative of limiting global warming to 1.5°C.
Find in the following on overview of how companies can use climate transition plan as strategic lever for transparency, collaboration and decarbonization along the supply chain.
Basics about Climate Transition Plans
According to the TCFD (Taskforce on Climate-Related Financial Disclosure), a company’s climate transition plan is a critical component of a broader business strategy, specifically addressing the imperative of transitioning towards a low-carbon economy. Such a plan identifies climate-related risks and opportunities, and transfers an overall climate target within a certain time horizon into actions.
5 Key Aspects of a Climate Transition Plan
1. Demonstrating Commitment
Climate transition plans serve as a tangible demonstration of an organization’s commitment to achieving a 1.5°C-pathway and ensuring the sustainability of its business model in a net-zero carbon economy. Such a plan provides a roadmap to pivot an organization’s operations, assets and overall business model in line with science-based climate targets and ambitious reduction efforts.
The disclosed information need to include:
- Current GHG emissions from Scope 1, Scope 2 and Scope 3 and overall Climate Performance along the dimensions: Strategy, Governance, Risks & Opportunities as well as Metrics & Targets.
- Impact of climate change on overall business, strategy, and financial planning from a low-carbon transition.
- Actions and activities to support the transition, including GHG emissions reduction targets and
planned changes to business model, value creation and strategy.
2. Driven by Reporting Standards
The critical importance of climate transition plans is underlined by frameworks such as TCFD – and made an essential part of sustainability reporting in line with CSRD (Corporate Sustainability Reporting Directive).
- The CSRD and its accompanying standards state that all listed companies (including SMEs) in the EU and all large companies operating in the EU need to disclose a transition plan aligned to 1.5°C warming in their annual reports – or explain why they have not.
- And if not, whether they plan to adopt a plan in future. With the CSRD now in force, we will begin to see most companies disclose their transition plans in 2025.
- However, transition plans remain a big hurdle and very few companies currently have credible plans in place. This gap highlights the need for organizations to proactively engage in developing robust plans that not only align with policy goals but also address the evolving expectations of stakeholders and capital markets.
3. Scope, Target and Action
A climate transition plan is an integral part of an organization’s overall business strategy, aiming to guide its shift towards a low-carbon economy. Its scope includes:
- A set of targets that guide the organization’s journey to a low-carbon economy, with a focus on science-based net-zero commitments.
- A substantial pathway to implement key actions that support significantly in reducting greenhouse gas emissions (not offsetting!).
- A strategy how to address identified climate-related risks and opportunities that affect the business.
Mastering Climate Transition Plans
Most companies struggle to meet all the criteria of credible climate transition plans. More than a third of disclosing organizations (CDP, 2022) focus on risks and opportunities elements, followed closely by governance and policy. However, financial planning, climate targets, and strategies for achieving net-zero are identified as the worst-performing aspects of credible climate transition plans.
Industry differences and global pressure
Industries such as power generation and infrastructure lead in credible climate transition plan disclosure, with around 2% of organizations in each sector meeting all 21 key indicators. On the flip side, the apparel, fossil fuels, and hospitality industries lag behind.
While no geography boasts an outstanding record, Japan stands out in the regional comparison.
The global shift towards policy regulation, increases the importance of climate transition plans – with entities like the SEC, ISSB, TCFD, and EU applying pressure on organizations and financial institutions to develop and disclose robust transition plans.
Transformative Actions within your Value Chain
One crucial aspect of fulfilling climate transition plans is collaborating closely with suppliers to obtain specific climate-related data, implement actions and reduce emissions.
The following supply chains actions are therefore required:
- Gather Detailed Climate Information: Gather comprehensive data to inform strategic decisions and catalyze meaningful change. Reach out to suppliers to collect specific climate-related data, including reduction targets, greenhouse gas emissions, energy usage, plans for phasing out fossil fuels and concrete decarbonization measures.
- Emissions Reduction Targets: Set up short-, medium-, and long-term absolute and intensity-based CO2e emissions reduction targets for your supply chain. Describe in detail where these reductions will take place in your value chain and track progress over time.
- Engagement in Value Chain: Commitments to change do not happen only within your own operations. Seek to influence positive climate action at a broader level, in your value chain. Collaborate with suppliers, build industry partnerships, and engagement with stakeholders and employees, to thrive towards our shared climate goal.
Disclosure of Key Transition-Focused Indicators
To master climate transition plan, consider the following best practices.
- Public Availability and Shareholder Feedback: Make your transition plan a publicly available document, with a well-defined mechanism for shareholder feedback. This way you proactively increase transparency, especially among your partners, customers and supply chain.
- Accelerate quantity and quality: Organizations that disclose their own climate transition plan, benefit from engaging with business partners and suppliers in order gather robust data, align climate commitment and take actions. This way, companies can accelerate a potential surge in quantity and quality of transition plans in the near future.
- Supply Chain Influence: While most companies acknowledged that climate issues influenced their own supply chain, only a fraction developes a climate transition plan that aligns the entire supply chain with the 1.5°C target. This points out a huge gap in how organizations demonstrate and plan net zero commitments versus actually mitigate and adapt to climate risks across their entire business strategy.
Conclusion: Moving from Commitment to Action requires Metrics and Accountability
Increasing reporting pressure leads towards a growing corporate awareness and global commitments to climate transition plans. However, the quality and completeness of these plans remain a challenge, with most organizations struggling to fully disclose to all key indicators – and miss to transfer those plans into actions. Companies that act now, increase transparency and accountability, while setting up a solid foundation for a robust supply chain, that is increasingly 1.5°C-aligned.
GETTING INTO CLIMATE ACTION ALONG THE SUPPLY CHAIN
Climate Transition Plans presents a unique chance for businesses to drive meaningful climate action across their supply chains. By aligning with international decarbonization requirements, companies can contribute to a more sustainable future while reducing risks and increasing opportunites.
With the help of our Climate Intelligence Platform, you can take the next step. Use the software tool to enhance transparency, collect data and drive collaboration with your suppliers, fostering a stronger commitment to climate-conscious practices. The Climate Intelligence Platform collects climate-relevant data from suppliers, provides specific Climate Scorecards and insides into climate risks, potentials and best practices to reduce emissions.