Global Sustainability Agenda #38: How do climate transition plans differ from decarbonization targets?

Climate transition plans are evolving from mere recommendations to mandatory ones. Current and upcoming regulations now require companies to produce credible plans that require significant effort to develop and implement.

What is a Climate Transition Plan?

Climate transition plans detail how a company will adapt to operate within a climate-constrained economy. These plans outline the necessary changes to a company’s business model and operations to achieve decarbonization goals, placing the impacts, risks, and opportunities of climate change at the core of the company’s strategy.

How Do Climate Transition Plans Differ from Decarbonization Targets

Climate transition plans and decarbonization targets are related but distinct concepts, each playing a unique role in addressing climate change.

While many companies have net-zero targets or decarbonization roadmaps, these are typically managed by sustainability teams and focus on risks deemed financially relevant. In contrast, climate transition plans are more comprehensive and integrated into the business model, requiring continuous evolution. They necessitate buy-in from multiple stakeholders across the organization:

·       Finance teams must budget for anticipated operational changes.

·       Managers need to adapt processes to accommodate these changes.

·       R&D departments must develop new, sustainable products and services.

·       Sustainability teams play a crucial role in coordinating actions and collecting data on progress.

Here are the key differences:

Climate Transition Plans

1. Scope and Detail:

1. Climate transition plans are comprehensive strategies that outline how an organization, city, or country intends to transition toward a lower-carbon future. They encompass a broad range of actions, policies, and initiatives.
2. These plans typically cover various sectors and include measures for adaptation, resilience, and sustainability, in addition to reducing carbon emissions.

2. Components:

1. They may include policy frameworks, regulatory changes, technological innovations, financial mechanisms, and behavioral changes needed to achieve long-term sustainability goals.
2. They often detail steps for increasing energy efficiency, transitioning to renewable energy, improving transportation systems, and enhancing natural carbon sinks (e.g., forests and wetlands).

3. Timeframe:

1. Climate transition plans generally have a long-term perspective, often looking decades into the future (e.g., plans for 2030, 2050).

4. Holistic Approach:

1. These plans take a holistic approach, considering social, economic, and environmental impacts and aiming for a just transition that minimizes negative consequences for communities and workers.

Decarbonization Targets

1. Specificity:

1. Decarbonization targets are specific goals for reducing greenhouse gas emissions within a certain timeframe. They are often expressed as a percentage reduction from a baseline year (e.g., a 40% reduction in emissions by 2030 compared to 1990 levels).

2. Measurability:

1. These targets are quantifiable and measurable, providing clear benchmarks for progress. They are often used to track and report on the effectiveness of climate policies and actions.

3. Focus:

1. The primary focus of decarbonization targets is on reducing carbon emissions from specific sources such as energy production, transportation, industry, and agriculture.
2. Targets can be set at various levels (e.g., national, regional, corporate) and can apply to entire sectors or individual entities.

4. Short to Medium Term:

1. While some decarbonization targets are long-term (e.g., net-zero emissions by 2050), many are set for the short to medium term to provide interim milestones (e.g., 2025, 2030).

Key Differences

• Breadth vs. Specificity: Climate transition plans are broad and comprehensive, encompassing a wide range of actions and policies, while decarbonization targets are specific and focused solely on emission reductions.
• Holistic Approach vs. Quantifiable Goals: Transition plans consider multiple dimensions of sustainability and just transition, whereas decarbonization targets provide clear, measurable goals.
• Implementation: Transition plans outline how to achieve broader sustainability, including decarbonization targets as one component. Decarbonization targets, in turn, are milestones within these broader plans.

Both are crucial for effectively combating climate change: climate transition plans provide the strategic roadmap, and decarbonization targets offer concrete benchmarks to measure progress.

Regulations and Frameworks Requiring Climate Transition Plans

Major economies are starting to mandate viable transition plans. Key climate-related reporting frameworks also include these plans as a standard requirement. This growing regulatory pressure underscores the need for preparedness.

·       The Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB) mandate disclosure of a transition plan if one exists.

·       Regulations like the Corporate Sustainability Due Diligence Directive (CSDDD) and the UK’s upcoming Sustainability Disclosure Requirements require companies to have a transition plan.

Are Companies Prepared?

Developing credible climate transition plans is a significant undertaking, and many companies need to accelerate their efforts. The Carbon Disclosure Project (CDP) reported that in 2023, only 0.6% of the over 23,000 companies that disclosed through its platform had a ‘credible’ transition plan, including all 21 recommended indicators. Just over 10% provided a plan with more than two-thirds of the required indicators.

What Should a Climate Transition Plan Contain?

Most frameworks are not specific about the content of a transition plan. However, the EU’s CSRD and CSDDD outline four broad elements:

1.     The objective of achieving net zero by 2050.

2.     Compatibility with the transition to a sustainable economy.

3.     Alignment with limiting global temperature rise to 1.5°C, per the Paris Agreement.

4.     Transparency about exposure to fossil fuel-related activities.

The European Financial Reporting Advisory Group (EFRAG) plans to publish advice on transition plans to guide companies on reporting requirements. The UK’s Transition Plan Taskforce (TPT), launched after COP26, provides best practices for creating and submitting transition plans. It emphasizes a strategic and holistic approach, addressing three key interconnected pillars:

1.     Decarbonizing the company’s operations.

2.     Responding to climate-related risks and opportunities.

3.     Contributing to the broader transition to a low-carbon economy.

What Makes an Effective Climate Transition Plan?

As investors and consumers focus more on corporate climate risks, simply announcing a net-zero target is no longer sufficient. Companies of all sizes now need robust action plans to support their public climate commitments. These plans, known as climate transition plans or climate action transition plans, vary depending on the regulations, frameworks, or standards to which a company reports. Despite these variations, there are key universal elements that all climate transition plans must have to be considered credible and effective.

This is crucial because stakeholders, especially investors, are becoming more adept at distinguishing between genuine climate efforts and greenwashing. Here are four key elements identified from major frameworks and standards that make a corporate climate transition plan credible and effective:

Key Elements of a Credible Climate Transition Plan

1. Embedded in Business Strategy with Effective Climate GovernanceThe plan should be integrated into the company’s overall business strategy, ensuring that climate considerations are part of core decision-making processes. It should include provisions for effective climate governance involving leadership and management at all levels.
2. Data-Driven and Metrics-BasedThe plan must be based on reliable data and driven by clear metrics to track progress and make informed adjustments. Using good data helps in setting realistic and achievable goals while providing transparency to stakeholders.
3. Realistic Short-Term, Mid-Term, and Long-Term GoalsThe plan should propose realistic goals across different timeframes to ensure continuous progress. Short-term goals set the foundation, mid-term goals build momentum, and long-term goals align with broader climate objectives.
4. Provisions for Reporting, Monitoring, and Accountability Effective climate transition plans must include mechanisms for regular reporting and monitoring. There should also be clear accountability measures to ensure that the company remains on track and that stakeholders can hold it accountable for its commitments.

Time to Take Action?

The emphasis on transition plans by international reporting institutions and regulatory bodies is only expected to grow. Investor and societal demand for climate-related information will also increase. Proactively developing transition plans can provide a competitive advantage as these plans become mandatory. However, creating the plan is just the first step—implementing and delivering it will be the true measure of accountability to internal and external stakeholders.

By implementing comprehensive measures, companies can transition from simply calculating their carbon footprint to actively reducing their emissions and contributing to global decarbonization efforts. SuRe Strategy’s solutions enable businesses to measure, mitigate, and communicate their carbon footprint, ensuring a holistic approach to sustainability. Leveraging SuRe Strategy’s advanced tools, companies can identify gaps in climate disclosure and management practices, efficiently address GHG emissions, comply with ESG regulations, and transparently share their progress, paving the way to achieving net-zero emissions.

Join the fight against climate change by reducing your carbon footprint and accelerating your decarbonization journey today!