The path to Net Zero: Developing a data-driven climate transition plan

October 31, 2024

Climate transition plans are taking center stage as businesses work to meet increasing regulatory requirements (e.g., CSRD and CSDDD), investor demands, and decarbonization goals. Ahead of COP29, CEOs from 100 global companies called for accelerated climate action, including the critical need for climate transition plans. Additionally, over 500 investors managing more than USD 29 trillion in assets urged corporate disclosure policies for “1.5°C pathway-aligned, science-based, and independently verifiable climate transition plans.”

A climate transition plan, which sets a roadmap to align business operations with climate goals, is essential for reducing carbon emissions, managing climate-related risks, and sustaining long-term business value creation.

This blog explores best practices for climate transition plans from the Transition Plan Taskforce (TPT), highlights leading business examples, reviews the regulatory landscape, and offers guidance on developing data-driven, actionable plans.

What is a climate transition plan?

A climate transition plan, also known as a climate transition action plan (CTAP), is a strategic roadmap that outlines how an organization will adjust its operations and business model to reduce greenhouse gas (GHG) emissions and transition to a low-carbon economy. It includes specific actions, targets, and resources to achieve climate goals, such as limiting global warming to 1.5 °C, while ensuring long-term sustainability and transparency for stakeholders.


Key principles and components of a climate transition plan

Three principles

The Transition Plan Taskforce (TPT) framework, developed by the UK HM Treasury in alignment with ISSB and GFANZ, establishes best practices for climate transition plan disclosures. The guiding principles include:

  • Ambition: Reflects the urgency of climate action, aligning with global commitments like the Paris Agreement while considering broader sustainability goals.
  • Action: Translates ambitions into concrete steps, focusing on direct emissions reductions (Scope 1, 2, and 3) and long-term climate resilience.
  • Accountability: Ensures strong governance and transparent reporting, with clear roles, business strategy integration, and regular progress reviews.
Key principles and components of a credible climate transition plan
Key principles and components of a credible climate transition plan (Adapted from TPT, UA EPA, and CDP frameworks)

Key components

Organizations like the TPT, US EPA, and CDP all provide guidance on the critical components of data-driven, credible transition plans. Common elements include:

  • GHG emissions targets: Clearly defined, measurable near- and long-term GHG reduction targets aligned with the latest climate science and timelines.
  • Decarbonization strategies: Specific actions and pathways to reduce emissions, such as energy efficiency, electrification, and renewable energy initiatives.
  • Value chain engagement: Engagement strategies with suppliers, customers, and industry partners to reduce Scope 3 emissions and support the broader low-carbon transition.
  • Risk and opportunities: Scenario analysis to assess climate-related physical and transition risks and opportunities, with plans to address them.
  • Financial planning: Detailed financial plans, including CAPEX, OPEX, and capital allocation strategies to support decarbonization efforts.
  • Governance: Board-level oversight and governance structure to ensure effective transition plan implementation.
  • Progress reporting: Mechanisms for monitoring and reporting progress annually with quantitative metrics and third-party verification.

Leading examples

Danone sets an example of best practices for climate transition plans, aligning with the key components discussed above. Its plan covers:

  • Science-based targets to reduce 34.7% of total Scope 1, 2, and 3 GHG emissions by 2030 and achieve net zero by 2050.
  • Eight strategic programs focusing on areas such as direct operations, milk, ingredients, packaging, and value chain engagement, supported by a structured financing plan.
  • Scenario analysis to assess physical and transition risks and opportunities, along with corresponding business strategies.
  • Governance structures, executive remuneration, and day-to-day processes to ensure effectiveness.

Other leading examples across various industries include Unilever, General Mills, Levi Strauss, and Intel.

Danone climate transition plan
Danone climate transition plan executive summary (source: Danone)


Regulatory requirements for transition plans

CSDDD

Approved on April 24, 2024, the Corporate Sustainability Due Diligence Directive (CSDDD) establishes mandatory corporate responsibility for addressing negative impacts on human rights and the environment. It mandates climate transition plan disclosure aligned with the Paris Agreement’s 1.5°C goal with the most stringent regulatory requirements:

  • Time-bound, science-based climate targets for 2030, with five-year milestones leading up to 2050.
  • Absolute GHG emission reduction targets for each significant category across Scope 1, 2 and 3.
  • Key decarbonization actions, including product/service changes and new technologies.
  • Investment details and funding for the transition.
  • Role of the administrative, management, and supervisory bodies.

Companies may disclose their transition plan under CSRD following CSDDD requirements to avoid duplicate reporting, but the plan must be updated annually to track progress toward targets.

CSRD-ESRS

Effective January 2023, the Corporate Sustainability Reporting Directive (CSRD) requires companies to disclose comprehensive ESG data to ensure greater transparency and accountability in sustainability practices. The European Sustainability Reporting Standards (ESRS) serve as the implementation guidance and mandate companies to disclose transition plans if available, or explain when such plans will be adopted. The transition plan should include:

  • Alignment of GHG reduction targets with the Paris Agreement’s 1.5°C goal
  • Key decarbonization levers and actions, including product/service changes and new technologies
  • Investments and funding details, including taxonomy-aligned CapEx
  • Assessment of locked-in GHG emissions and impacts on targets and transition risks
  • Integration of the transition plan with the company’s business strategy and financial planning
  • Approval by administrative, management, and supervisory bodies
  • Progress on transition plan implementation

Companies must submit their CSRD reports every year as part of their annual management report.

SEC

On March 6, 2024, the SEC released final rules to standardize climate-related disclosures by public companies, aiming to enhance transparency and accountability in financial reporting. Although implementation has been suspended due to legal challenges, investors continue to expect such disclosures.

If a registrant has adopted a transition plan to manage material transition risks, they must disclose the plan, including:

  • Actions taken during the year
  • Impacts on business, operations, or financial condition
  • Material expenditures incurred
  • Financial impacts and assumptions related to the actions

Under SEC rules, companies must submit climate-related disclosures in registration statements and annual reports.

ISSB Standards

The ISSB standards provide a global baseline for consistent and comparable sustainability reporting, primarily tailored to investor needs. Since the IFRS S1 and S2 standards launch in June 2023, over 20 jurisdictions, including the European Union, China, the United Kingdom, Australia, Japan, and Canada, are adopting or aligning with the standards.

ISSB standards require companies to disclose climate-related transition plans if available, including key assumptions and dependencies, along with:

  • Current and future changes to the business model, such as resource allocation, managing carbon-intensive operations, and supply chain adjustments
  • Direct and indirect mitigation/adaptation efforts, such as production changes, facility relocations, and collaboration with customers and supply chains
  • Plans to achieve climate-related targets, including GHG emissions goals
  • How activities are resourced
  • Quantitative and qualitative progress on previous plans

To streamline and consolidate transition plan reporting, the IFRS Foundation will take over disclosure materials from the TPT and develop educational guidance to support IFRS S2 implementation.

ISSB reports should be included in a company’s general purpose financial reports, typically within management commentary or similar reports.


State of transition plan disclosure

CDP’s 2023 Climate Transition Plan Disclosure report highlights the readiness of companies in disclosing credible climate transition plans.

In 2024, CDP evaluated over 23,200 companies from 14 industries and 129 countries against its 21 credibility indicators. Nearly 6,000 companies (~25%) reported having a 1.5°C-aligned climate transition plan. Of these, around 2,329 companies (~40%) disclosed on more than two-thirds of the indicators, but only 140 companies (~2%) fully disclosed on all 21.

Strategy to achieve net zero, target setting, and financial planning are the least disclosed elements among companies.


Four steps for data-driven transition planning

A robust, credible transition plan is crucial for businesses to meet regulatory requirements and address the growing urgency of climate action. The TPT Transition Planning Cycle provides a four-step guide to help companies shift to a net zero economy.

Data-driven Climate Transition Planning
Data-driven Climate Transition Planning (Adapted from TPT framework)

1. Assess GHG emissions, risks, and opportunities

  • Conduct a full assessment of Scope 1-3 GHG emissions and climate-related risks/opportunities using scenario analysis.
  • Identify high-impact areas for decarbonization and transition levers.
  • Secure board and cross-functional support and engage with key stakeholders throughout the process.

2. Set strategic ambitions

  • Define strategic objectives and priorities that align with global standards, such as the Paris Agreement, while considering your company’s unique context, industry, and resources.
  • Identify key assumptions, external factors, and uncertainties, such as future emissions, societal preferences, and actions by governments and other entities.
  • Assess potential changes to your business model and value chain to meet these objectives, considering short-, medium-, and long-term climate impacts.

3. Develop an action plan and targets

  • Create implementation steps for transitioning business operations, products, and services.
  • Review policies and governance structures to support the transition.
  • Test the resilience of the implementation strategy against key assumptions and climate risks, and adjust the plan to mitigate vulnerabilities.
  • Assess the financial implications of your transition plan, including resourcing needs and its impact on financial performance.
  • Establish clear, measurable targets and metrics covering science-based GHG emissions, governance, engagement, business, operations, and finance to drive and monitor progress.

4. Implement the plan and monitor progress

  • Implement your plan using established governance structures and metrics to monitor progress.
  • Disclose your transition plan and material updates in line with TPT and other climate frameworks.
  • Continuously assess performance and refine strategies, leveraging lessons learned and stakeholder feedback to ensure the plan remains relevant and effective.


About Aligned Incentives, a Bureau Veritas company

Aligned Incentives offers an AI-powered enterprise sustainability planning solution, distinguished by the depth and speed of its Scope 3 analytical capabilities. Combined with Bureau Veritas’ long-standing expertise in testing, inspection, and certification, we provide a market-defining solution that enables organizations to create data-driven transition plans and a reliable process to accelerate their net zero path.

Request a demo to learn more 🡲

Author:
Aligned Incentives, a Bureau Veritas company

AI-powered enterprise sustainability planning trusted by the world’s largest organizations.

chevron-down