How can companies develop robust and credible climate transition plans?

What does a good climate transition plan look like?

It is a question that many a sustainability officer or green business leader will likely have asked themselves in recent years. However, as is often the case when it comes to planning to decarbonise and prepare businesses for escalating climate and transition risks, there is unfortunately no one-size-fits-all answer.

To help shine some light on this complex topic, BusinessGreen last week brought together several leading experts for its latest Spotlight webinar to provide advice on the climate transition planning process, the benefits and opportunities that can result, and how plans can be harnessed to deliver real business value. Hosted in partnership with Equans UK & Ireland, the full online discussion - ‘Spotlight on Transition Plans: How energy and climate transition plans can give your organisation an edge' - is available to watch back on demand now.

But starting with the basics, what is a climate transition plan in the first place?

James Rooke is managing director of Carbon Shift, Equans specialist end-to-end decarbonisation and net zero delivery service, which works with public and private sector clients to reduce emissions, optimise energy use, and integrate clean technologies. For Rooke, the emphasis when working with clients on developing climate transition plans has to be on "helping them understand the risks and opportunities around the clean energy transition".

"There's the potential transition or physical asset risk to consider, but with that comes new markets and technologies that create opportunities as well," he explained. "So we help build that value stack, and then importantly, an actionable plan behind that. So for me those are the components of a good plan: is it actionable and quantified, and is there a kind of finance model behind it?"

Yet beyond that, there is no set, global definition for what a climate transition plan is or should be - which is perhaps unsurprising given businesses and industries span so many different shapes, sizes, and regions, and the global economy is still in the foothills of its journey to net zero. James Vaccaro, CEO of Repattern, a consultancy providing advice on sustainable finance, corporate strategy, and regenerative agriculture, acknowledged that in theory a climate transition plan "could cover anything that a business is doing in service of decarbonising and being able to be climate resilient", adding that "you could write that all down, put 'transition plan' on the top, and underline it".

But he stressed that "the real challenge" with effective transition planning is being able to follow through on the targets and ambitions that are set, being ready to face the tough challenges and trade-offs this entails, monitoring progress, and remaining flexible as technologies and wider economic trends change. A climate transition plan should therefore be a wide-ranging and future-facing strategy for an entire business that details how it will contend with the vast economic and industrial changes that will result from the economy-wide net zero transition and grasp the opportunities it offers.

"In a sense I think everybody's got a version of a transition plan already - whether or not they've baked it into something which they've for as a formal document," Vaccaro said.

Still, moves have been made to try and clarify and formalise the development of such plans, led largely by financial regulators in the UK and Europe.

In the UK, the Transition Plan Taskforce (TPT) was first established by the Treasury in 2022 to develop a 'gold standard' framework for robust, credible corporate climate transition plans. Having completed that task with the publication of a draft framework at the end of its two-year mandate in late 2024, the TPT's work has now ceased with its recommendations subsumed into the International Financial Reporting Standards (IFRS) and the ongoing work of the International Sustainability Standards Board (ISSB).

The TPT guidance aimed to provide listed firms and investors with clear direction on how best to comply with new corporate sustainability reporting rules, which are expected to eventually require large UK companies to produce transition plans on an annual basis setting out how they intend to achieve net zero and respond to climate-related risks. As it stands, such plans are not yet a mandatory requirement in the UK, and although they are still widely expected to become so in the near future - in line with ISSB recommendations that the government has vowed to adopt - a timetable has still not been confirmed. Meanwhile, the UK's Financial Conduct Authority (FCA) is currently also developing a parallel framework for listed companies and other climate reporting measures.

Yet despite transition plans only being voluntary in the UK, the TPT guidelines remain highly influential, with CDP disclosure data showing thousands of businesses and investors worldwide have begun acting on them over the past two years with a view to publishing full climate transition plans in the near future. In the UK, many companies and investors are getting ahead of the curve and developing climate transition plans, further underscoring the importance of all businesses following suit or face falling behind.

"It's one of those things where everybody knows [mandatory climate transition plans] are coming, but it's kind of fuzzy as to the status [of when]," Vaccaro said. "Generally speaking, listed companies and financial institutions have already been taking things forward... it will ultimately become mandatory - I think the markets and other parties will demand it."

Across the English Channel, meanwhile, the European Union (EU) has also been a major driver behind the development of climate transition plans, most notably through the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and the European Sustainability Reporting Standards (ESRS). The subject of much wrangling in Brussels, these complex regulations have gone through several iterations which have seen them streamlined significantly since they were first announced several years ago. As a result, it was finally agreed this year that the rules will be phased in from 2027, starting with the largest companies with 5,000 or more staff and €1.5bn in annual turnover, before eventually expanding to cover firms with 1,000 or more employees and at least €450m in turnover by 2029.

The reach of the regulations is much more constrained that originally planned, but they still mean thousands of the world's largest businesses will produce detailed transition plans in the coming years. For companies falling within the scope of these regulations, digital reporting on sustainability and climate risk data will be mandatory. And while the legal requirement for corporates to also produce climate transition plans has been dropped, companies that already have climate transition plans in place are still expected to disclose them under the ESRS. Moreover, the rules require these plans must align with a 1.5C warming pathway, provide details on planned mitigation actions and supporting investments, and show how it is integrated into a firm's overall business strategy. If a company does not have a transition plan in place, meanwhile, it is expected to publicly state when it plans to adopt one.

These regulations, which are also designed to align with the ISSB's recommendations on sustainability reporting, demonstrate how larger companies of all shapes are increasingly facing pressure to expand on their climate transition planning, even if they are not always fully mandatory.

Meanwhile, wider financial regulations focused on pushing companies to consider material risks by assessing their dependencies on natural resources, power grids, and government policies are further bolstering the case for adopting transition plans as standard. And while tightening regulatory requirements have been and remain a major impetus for corporate climate transition planning, they are inevitably only a part of the wider trend that has seen growing number of businesses recognise that a formal plan for meeting their emissions targets and responding to evolving climate risks is a good idea in and of itself. "Regulation might tell you how you might structure [a transition plan], but the compliance cart shouldn't come before the strategy horse," argued Vaccaro, adding that ultimately the adoption of transition plans is "being driven by the fact that we have a massive climate challenge".

So, using the TPT and ISSB guidance as a starting point, what should forward thinking businesses look to focus on next to produce an industry-leading transition plan?

There's a lot to consider. Ideally they should encompass climate risk assessments supplemented by planned resilience measures against drought, flood risk, heat stress and more, and these should be linked with nature, biodiversity, and natural resource strategies. All that comes in addition to just transition considerations, plans for clean technology adoption, and wider policy and political considerations, and it all has to be backed up by a robust investment plan and financial case.

"There's a whole range of strategies that you need, which are all under the umbrella of transition plans," Vaccaro said. "One of the guiding bits of advice is: which type of strategies are relevant to you? If you are a sustainability solution provider, it's going to look very different to if you're a transitioning legacy industry."

In other words, clean technology and renewable energy firms are inevitably coming at the net zero transition from a very different angle to those heavily reliant on using or producing fossil fuels. Transition plans obviously need to reflect these differing starting points for firms, while also taking into account wider disruptive factors such as the artificial intelligence (AI) revolution, geopolitical conflicts, and worsening climate change impacts. Experts therefore tend to advise a broad brush approach, which allows companies to recognise how different parts of the decarbonisation agenda overlap and support each other, potentially opening up synergies, efficiencies and cost savings.

Developing a transition plan that encompasses a firm's entire operations, its supply chains, and all related risks and opportunities while navigating an inherently uncertain future sounds like a daunting task, but Rooke stresses that such a process is nothing new for the private sector.

"I think there's a certain amount of anxiety around what is perhaps going to be quite a profound transition and some uncertainty around the regulation and political context," he said. "But I'd take some philosophical comfort from the fact that actually - although for our generational cohort this is this is new - we've done this before. We've been through energy transitions in the past with coal, oil, the nuclear age, and the Industrial Revolution, and this is the fourth energy transition that we're now engaged in. Like all of those previous transitions, there's an opportunity here."

The scale of these macro trends mean it is crucial that flexibility is baked into any transition plan, according to Allianz UK's head of sustainability Bethany Thomas. After all, achieving net zero for any company - let alone the economy as a whole - is a complex task that will rapidly evolve as new technologies and policies emerge. 

"It is easy to mark out your initial steps," Thomas explained. "We found it very easy, almost, to set our course up to 2030. That then becomes harder and harder each year, as you get to those smaller adjustments that you need to make."

As one of the world's biggest insurers, Allianz is au fait with assessing risk, so it is perhaps natural that the firm has led the way in developing a robust transition plan, alongside its Science-Based Targets imitative-validated goals for 2030 and 2050. The process has not been straight forward, however, with Thomas highlighting data availability - particularly from supply chains - as a major challenge. "I don't think that should be an inhibitor," she added. "We've absolutely got to face into that, and the data will evolve as we go. But we have complex supply chains, and so that will take much longer to mature and really get to a place that we need it to be."

For those working in corporate sustainability roles, the need for a clear plan for their company to tackle the risks and grasp the opportunities of the transition may seem both urgent and obvious, from a pure business perspective as well as a climate perspective. But not all executives see things the same way, and financial teams will almost certainly want to see a clear business and financial case for developing an actionable and ambitious transition plan.

That is precisely what Equans' Carbon Shift was set up to help with, according to Rooke, who argued that the key is to use the transition planning process to identify fresh revenue streams and cost savings that can be unlocked through investments in decarbonisation, climate adaptation, and wider efficiencies. "If the transition plan is not investable, it won't happen," he said. "There is no single technology or silver bullet that can provide the solution - it is about a stack of technologies, but probably also the intelligent use of finance and understanding markets."

Adopting cheaper renewable energy rather than fossil fuels, switching out gas heating for electric and low carbon alternatives, and shifting over road fleets from petrol and diesel to electric vehicles (EVs) can unlock significant cost savings as well as boosting economic resilience, Thomas argued, and there are encouraging signs that investment case for such projects is strengthening all the time, as clean tech costs fall and the volatility associated with fossil fuel markets becomes painfully obvious.

But Thomas stressed that it is also important that companies recognise that there are costs associated with inaction in the face of escalating climate risks. "I think from an insurance industry perspective, climate-related catastrophes cause hundreds of billion pounds of losses every year," she explained. "So, to some extent, the business case is so evident in what we're dealing with in a day-to-day basis, and that's the argument for why you do this and why you need it."

That is why a climate transition plan is so much more than merely a set of net zero targets, which tend to focus largely within an organisation, argued Rooke. It should be a much broader and more detailed business strategy that needs buy-in and backers in every section of a business - not just sustainability teams - as well as engagement from suppliers, customers, and other stakeholders.

"It's about looking beyond [the core business] to the risks associated with your supply chain locally and internationally - such as weather, travel, infrastructure and more," he said. "Part of making this work is not about having an environmental strategy in majestic isolation. It's something that needs to be backed into existing leadership and management structures."

The development of credible, robust climate transition plans is, ultimately, a company-wide endeavour, which should then feed into a national mission to build a net zero and climate resilient economy. But the net result should also be a specific document that sets out a detailed and investible plan for an individual organisation. Get that right and the business case and commercial benefit should become increasingly obvious. "I think we're now at a stage where we need to do something a bit more reflective, so that we have an operating plan rather than just a vision or a strategy," said Rooke. "For me it is about monetisation. If you can monetise both risk and opportunity, what you're really doing is quantifying profit."

BusinessGreen's webinar - ‘Spotlight on Transition Plans: How energy and climate transition plans can give your organisation an edge' - is available to watch on demand now.