Organisations are expected to become more sustainable. This starts with setting sustainable ambitions, but of course it does not stop there. This also requires a good plan: a climate transition plan. More and more stakeholders are demanding that companies have such a plan available and legislation such as the CSRD and the CSDDD also oblige large companies to develop a transition strategy. What exactly does a climate transition plan entail and what should you as an organisation take into account when drawing up such a plan?
What exactly is a climate transition plan?
With a climate transition plan, you define as an organisation how you are going to realize sustainable ambitions. It is an action plan that describes in detail how you as an organisation align your activities with the climate objectives and the net-zero economy. The CSRD defines a climate transition plan as follows:
A part of a company’s overall strategy that describes the goals, actions and means for the transition to a low-carbon economy. This includes measures such as reducing greenhouse gas emissions with the aim of limiting global warming to 1.5°C and achieving climate neutrality.
It is therefore important that the transition plan is an integral part of an organisation’s long-term strategy and is aimed, among other things, at limiting CO2 emissions. In addition, the plan describes how the organisation deals with the risks of climate change (think of flooding and crop failures, as we are now seeing in Spain), how this is done fairly, and how the plan is integrated and implemented into current business operations.
The components of a climate transition plan
A climate transition plan includes at least the following four components:
- Mapping the current impact
This concerns both the opportunities and risks of the organisation for the climate and the opportunities and risks of climate change for the organisation. In addition to determining the CO2 footprint (and that of the value chain), the impact of these emissions and how different climate scenarios influence business operations at a strategic level must be described here.
2. Ambition definition
In this section, you define a climate ambition in line with the Paris Agreement (max. 1.5°C warming). Indicate whether the organisation falls under the EU Paris-related benchmarks, and have targets approved by governance and supervisory bodies.
3. Practical action plan for implementing targets
Here, the organisation develops an action plan, including a clear and concrete explanation and quantification of investments and financing (CapEx and OpEx). It also describes how the transition plan is integrated into the business strategy and financial planning.
4. Periodic monitoring and reporting on progress
The final part of the plan is a climate transition monitoring system, so that regular reporting on progress can be done in line with relevant regulations, such as the CSRD, CSDDD, and the EU Taxonomy. Together, these components form a roadmap that the organisation uses both internally and externally to communicate how the sustainable goals are achieved. Remember that the plan is never ‘finished’: the periodic monitoring, together with changing circumstances, new insights and new legislation, will lead to the plan being constantly adjusted. But that is precisely why a good foundation is so important.
Opportunities of a good transition plan
Drawing up a good climate transition plan is certainly not easy and is sometimes seen as a time- and money-consuming exercise. That is a shame, because with a good, organisation-wide transition plan you not only meet legal requirements. A sound plan offers, among other things, these opportunities that you do not want to miss:
• Maintaining access to capital and investor confidence: investors are increasingly attaching importance to climate performance and objectives. A sound transition plan shows proactive leadership, which gives you access to capital and maintains the confidence of stakeholders.
• Creating clarity and opportunities: integrating climate goals into the strategy creates clarity about impact, goals and resources. This strengthens core values, increases the resilience of the organisation, and offers employees the space to develop in a future-proof organisation.
• Be credible towards stakeholders: consumers, suppliers and employees expect organisations to take responsibility for their climate impact. A credible transition plan strengthens the bond with stakeholders and shows that the organisation takes climate action seriously.
• Prepare for future regulations: regulations such as the CSRD (now) and CSDDD (in a few years) place high demands on climate reporting. A good transition plan helps companies to meet these obligations and to structurally anchor sustainability. With a good plan, you are prepared as an organisation for future, more strict, legislation.
Avoid these pitfalls when drawing up a climate transition plan
Is your organisation also busy drawing up a transition plan because of new legislation? Then we recommend that you guard against an approach that is too driven by compliance. Certainly, the plan must comply with legislation, but by focusing too one-sidedly on laws and regulations, it quickly becomes a fill-in exercise, which makes it feel like a ‘must’, while there are so many opportunities. Therefore, focus on the benefits and opportunities in the long term and use the plan as a springboard to a sustainable future for your company. This will also reduce resistance within the organisation.
A second pitfall that you often see is that companies formulate nice-sounding goals and ambitions, but that these are not SMART enough to serve as a basis for a good transition plan. The result is that goals are unrealistic or far too easy, or that it is not possible to check whether goals are achieved. So always formulate goals SMART: specific, measurable, acceptable (not too easy), realistic (not too difficult) and time-bound.
A plan to make an impact
Is your organisation ready to take steps towards a sustainable future? A strong climate transition plan is the key to not only complying with regulations, but to really making an impact, reducing your emissions and becoming resilient. So start today rather than tomorrow. And do you need help with drawing up a good plan to really make an impact? Then just get in touch.