According to the world’s leading climate action disclosure platform, there are 8 crucial elements that companies should be including in plans to align themselves with a net zero world.
A detailed climate transition plan is becoming an increasingly vital pre-requisite for companies wanting to demonstrate their climate action and progress to stakeholders.
A full transition plan covers not just how a company is progressing with its climate commitments, but also how their business will continue to remain relevant and profitable in a net zero world.
8 core elements
Climate disclosure non-profit CDP, which collects disclosures from thousands of companies every year on behalf of investors and other stakeholders, says a credible transition plan should include 8 core elements:
- Governance: how the organisation ensures board-level oversight of climate-related issues and aligns management incentives with climate goals
- Scenario analysis: the use of mapping possible scenarios as a strategic planning tool to help the organisation understand how it might perform in different future states
- Financial planning: an understanding of how climate-related risks and opportunities influence financial planning (e.g. revenue, capex, opex plans) and how much of the organisation’s spending/revenue is aligned with climate goals
- Value chain engagement & low carbon initiatives: a formal supplier engagement strategy as well as separate revenue reporting for any low carbon products or services
- Policy engagement: how the organisation advocates for policies or laws that align with its climate ambitions and strategy
- Risks and opportunities: the climate-related risks and opportunities that have the potential to financially or strategically impact the organisation, and how it plans to manage them
- Targets: absolute near-term and long-term greenhouse gas emissions targets aligned with the latest and most ambitious climate science, and the progress made against these targets
- Verified scope 1,2,3 accounting: disclosure of the organisation’s greenhouse gas emissions across its direct (scope 1) and indirect (scopes 2 and 3) operations, which should be verified by a third party.
These core elements break down further into 21 key indicators, which are detailed in full on the CDP website.
Full disclosure low, but growing
In 2022, more than 4,000 global companies disclosed to CDP that they had a climate transition plan in place. However, only 81 demonstrated best practice by disclosing against all 21 key indicators. A lack of detail on financial planning, insufficient targets and limited supply chain engagement were among the common gaps.
“The need for companies to develop a credible climate transition plan is not an additional element but an essential part of any future planning,” explained CDP global director Amir Sokolowski. “Tracking corporate disclosure against transition related indicators is essential to ensure companies are kept accountable to the targets and plans they set.
“Whilst overall disclosure of credible climate transition plans is low, it is encouraging to see more companies recognising the relevance of a climate transition plan and start their journey towards developing one.”
