Are You Ready with Your Climate Transition Plan?
Introduction
The urgency of addressing climate change has never been more apparent. Governments, organizations, and individuals worldwide are recognizing the need to take meaningful action to mitigate the effects of global warming.
In this context, a well-defined Climate Transition Plan has become a critical component of corporate sustainability and accountability.
However, out of over 18,000 organizations reporting to the Carbon Disclosure Project (CDP) in 2022, only 0.4% had a credible transition plan (CDP report February 2023).
What is a Climate Transition Plan?
A climate transition plan is an action plan that clearly outlines how corporates will transform existing assets, operations, and business models to transition towards achieving net-zero by 2050.
Why is a Climate Transition Plan important?
Climate change poses unprecedented challenges to the world's ecosystems, economies, and societies. In response, businesses are being called upon to align their strategies with sustainability and climate action.
A robust Climate Transition Plan is essential for several reasons:
- Alignment with Global Goals: It ensures that an organization's strategy is in line with international climate goals, such as limiting global warming to 1.5°C as per the Paris Agreement and achieving climate neutrality by 2050.
- Transparency and Accountability: It enhances transparency by disclosing a company's past, current, and future mitigation efforts. This transparency fosters accountability for its impact on the environment.
- Risk Mitigation: It helps identify and address transition risks associated with Climate Change. This proactive approach minimizes potential financial and reputational risks.
- Adaptation and Mitigation: It outlines actions taken to adapt to climate change and mitigate greenhouse gas emissions, thereby contributing to a sustainable and resilient future.
EU CSRD Requirements
The EU CSRD and associated ESRS E1 mandate that large companies disclose their climate transition plans.
These requirements aim to ensure that companies have taken both the necessary actions to mitigate climate risks through emissions reduction (with the EU carbon neutrality target in 2050) and to ensure that they build a resilient business model ensuring a viable business in a low carbon economy.
In this respect, this is upmost important that climate risk is fully embedded in business strategy.
Strategy should consider short, medium and long term horizons. Long term is particularly relevant considering that resilient business model, adapted to lower resources availability and low carbon imperative, can take several years if not decades for some industries to transform. Indeed, required changes are not incremental but transformational, and companies that will start their transformation the sooner will take advantage of it.
Having an aligned vision on the purpose and ambition of the climate transition plan, as well as a credible narrative that supports and drives stakeholder endorsement will help ensure that it doesn't become a mere compliance exercise and is instead used as a driver for transformation internally and across the value chain.
ESRS E1, required key elements include:
- GHG emission reduction targets
- Climate mitigation actions
- Decarbonization strategies
- Funding plans (CAPEX)
- Transition risks and locked-in emissions
- Climate adaptation efforts
- Compliance with EU Taxonomy
- Capital investments in fossil fuel-related activities
- Alignment with EU Paris-aligned Benchmarks
- Integration with overall business strategy
- Approval by management bodies
- Progress tracking in implementation
The transition plan must cover own operations and upstream/ downstream value chain.
ESRS E1 requirements expressed transition plan requirements slightly differently but are aligned with the characteristics of a credible climate transition plan as defined by CDP.
Not sure that you have a credible transition plan? This is where the ACT Initiative can help you!
The ACT® methodology (ACT= Assessing Low Carbon Transition) developed by ADEME and CDP, assesses comprehensively, using both quantitative and qualitative indicators, a company's ability to align itself with and contribute to a low-carbon economy while being resilient to societal and economic changes in the future.
This analysis encompasses nine thematic modules composed of quantitative and qualitative sub-theme indicators.
It evaluates the company's ambition by comparing its emissions reduction objectives to a customized benchmark aligned with scientific standards. It also scrutinizes the strategy and robustness of actions implemented across various aspects (governance, suppliers, customers, the horizon and content of the transition plan), as well as its business model.
This in-depth analysis allows the company to strengthen its low-carbon transition plan in each module through:
- Identifying the company's strengths and areas for improvement.
- Incorporating best practices for qualitative indicators.
To conduct evaluation of the company's low-carbon transition plan, the ACT® methodology is based on five key questions:
What is the company planning to do?
What is the company doing at present?
What has the company done in the recent past?
How do all of these plans and actions fit together?
How is the company planning to get there?
The ACT assessment report serves multiple purposes:
- Providing data for climate reporting aligned with TCFD recommendations and the CSRD directive
- Engaging contributors in the success of companies' transition plan through this approach.
- Enhancing the credibility of a company's climate communication
- Providing actionable feedback to companies on how they could improve their transition plan towards a future-fit business model.
Conclusion
In a world increasingly impacted and concerned with climate change, a well-crafted Climate Transition Plan is not only essential for corporate sustainability but also for global environmental well-being.
It aligns businesses with international climate goals, ensures transparency and accountability, and helps mitigate risks associated with climate change, building resilient business.
By following CDP's principles and using frameworks like ACT, companies can develop credible plans that not only benefit their bottom line but also contribute to a more sustainable and resilient future while being compliant with ESRS E1 on Climate change.
So, are you ready with your climate transition plan?
If you would like to assess the quality of climate transition plan or if you need support to build it, reach with us.
The Green CFO, as ACT Assessor and advisor, we can help you in your preparation.