Organizations are expected to become more sustainable. This starts with setting sustainable ambitions, but obviously does not stop there. This also requires a good plan: a climate transition plan. More and more stakeholders require companies to have such a plan in place, and legislation such as the CSRD and the CSDDD also requires large companies to develop transition strategies. What exactly does a climate transition plan entail and what should you consider as an organization when preparing such a plan?
What exactly is a climate transition plan?
With a climate transition plan, you establish as an organization, how you will realize sustainable ambitions. It is an action plan that describes in detail how you as an organization will align your activities with climate goals and the net-zero economy. In the CSRD, climate transition plan is defined as follows: A component of a company’s overall strategy that describes the goals, actions and means for transitioning to a low-carbon economy. This includes measures such as reducing greenhouse gas emissions with the goal of limiting global warming to 1.5°C and achieving climate neutrality.
So, important in this is that the transition plan is an integral part of an organization’s long-term strategy and aims, among other things, to reduce carbon emissions. In addition, the plan defines how the organization will deal with the risks of climate change (think flooding and crop failures, as we are now seeing in Spain), how this will be done equitably, and how the plan will be integrated and implemented into current operations.
The components of a climate transition plan
A climate transition plan includes at least the following four components:
- Mapping the current impact: This involves both the organization’s opportunities and risks for the climate and the opportunities and risks of climate change for the organization. Thus, in addition to determining the carbon footprint (and that of the value chain), this is where the impact of these emissions must be described and how different climate scenarios affect the business at the strategic level.
- Ambition setting: In this section, define a climate ambition in line with the Paris Agreement (max 1.5°C warming). Indicate whether the organization falls under EU Paris-related benchmarks, and have targets approved by governing and supervisory bodies.
- Practical action plan for implementing goals: Here the organization develops an action plan, including a clear and concrete explanation and quantification of investments and financing (CapEx and OpEx for fossil fuels). This also describes how the transition plan will be integrated into the business strategy and financial planning.
- Periodic monitoring and reporting on progress: The final component of the plan is a monitoring system for climate transition 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 organization uses both internally and externally to communicate how the sustainable goals will be achieved. Keep in mind that the plan is never ‘finished’: periodic monitoring, together with changing circumstances, new insights and new legislation, will cause the plan to be constantly fine-tuned. But this is precisely why a good foundation is so important.
Opportunities of a good transition plan
So drafting a good climate transition plan is certainly not easy and is sometimes seen as a time- and money-consuming exercise. That’s a shame, because with a good, organization-wide transition plan, you don’t just meet legal requirements. Among other things, a solid plan offers these opportunities you don’t want to miss:
- Maintain access to capital and investor confidence: investors are placing increasing importance on climate performance and targets. A solid transition plan demonstrates proactive leadership, allowing you to access capital and maintain stakeholder trust.
- Create clarity and opportunities: integrating climate goals into strategy creates clarity about impact, goals and resources. This reinforces core values, increases organizational resilience, and gives employees room to develop in a future-proof organization.
- Be credible to stakeholders: consumers, suppliers and employees expect organizations to take responsibility for their climate impacts. A credible transition plan strengthens the connection with stakeholders and shows that the organization takes climate action seriously.
- Prepare for future regulations: regulations such as the CSRD (already in place) and CSDD (within a few years) place high demands on climate reporting. A good transition plan helps companies meet these obligations and structurally embed sustainability. With a good plan, your organization is prepared for future, more stringent legislation.
Avoid these pitfalls when creating a climate transition plan
Is your organization also preparing a transition plan due to new legislation? Then we advise you to watch out for a too compliance-driven approach. Certainly, the plan must comply with legislation, but by focusing too narrowly on laws and regulations, it quickly becomes an exercise in filling in the blanks, making it feel like a ‘must do’, while there are so many opportunities. Therefore, focus on the long-term benefits and opportunities and use the plan as a springboard to a sustainable future for your company. This will also reduce resistance within the organization.
A second pitfall that you often see is that companies formulate nice-sounding goals and ambitions, but these are not SMART enough to serve as the basis for a good transition plan. As a result, goals may be unrealistic or far too easy, or it may not be possible to check at all whether goals are being 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 organization ready to take steps toward a sustainable future? A strong climate transition plan is key to not only complying with regulations, but to making a real impact, reducing your emissions and becoming resilient. So get started on it sooner rather than later. And do you need help creating a good plan the really make impact? Then just get in touch or visit www.sdu.nl/jes