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.
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.
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:
Organizations like the TPT, US EPA, and CDP all provide guidance on the critical components of data-driven, credible transition plans. Common elements include:
Danone sets an example of best practices for climate transition plans, aligning with the key components discussed above. Its plan covers:
Other leading examples across various industries include Unilever, General Mills, Levi Strauss, and Intel.
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:
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.
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:
Companies must submit their CSRD reports every year as part of their annual management report.
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:
Under SEC rules, companies must submit climate-related disclosures in registration statements and annual reports.
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:
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.
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.
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.
1. Assess GHG emissions, risks, and opportunities
2. Set strategic ambitions
3. Develop an action plan and targets
4. Implement the plan and monitor progress
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.