Climate transition plans: Critical to keep companies accountable for net-zero

As we enter the second week of the most critical post-Paris COP, the need for increased corporate ambition alongside clear accountability mechanisms is clear. That is why it is encouraging to see 2,000 companies committing to setting a Science-Based Target in the run-up to COP26, with more signing up every day. But of course, this is not enough – we need to halve emissions by 2030, meaning all companies need to commit to these targets and they need to be met.

As such, there is significant pressure for greater transparency around how companies plan to transition their business model to one that aligns with a net-zero economy. Investors, customers, media, and employees increasingly need to know how companies are planning to tackle the climate crisis, in the same way, they are scrutinizing governments during these negotiations, and they are looking to CDP for this information.

A climate transition plan is a time-bound action plan that clearly outlines how an organization will achieve its strategy to pivot its existing assets, operations, and entire business model towards a trajectory that aligns with the latest and most ambitious climate science recommendations. They are a vital mechanism for corporates to demonstrate to investors and other stakeholders that not only have they developed a strategy that will keep their business on the pathway to 1.5C, but that their business model will remain relevant and profitable upon transitioning. That is why CDP is a partner of the Say on Climate campaign, the campaign requests disclosure of transition plans, along with accountability mechanisms such as an annual shareholder vote where appropriate.

As an initial step in gathering consensus behind transition plans, CDP has produced a discussion paper on climate transition plans. This publication aims to offer a definition for climate transition plans, principles to factor in whilst establishing a plan, and some of the key metrics to include. As part of this discussion paper, it’s important to note that CDP has drawn from the thinking of other groups who are contributing to this emerging field, including the Science-based Targets Initiative, Assessing the Low Carbon Transition (ACT) framework and CA100+.

In 2021, over 4,000 companies have reportedly developed a low-carbon transition plan. Whilst this is a positive step, a large majority of these companies’ transition plans will not be science-based, nor effectively tracked in a manner that would allow stakeholders to assess progress for use as an accountability mechanism.

Former Governor of the Bank of England, Mark Carney, highlights the importance of accountability mechanisms for transition plans. He states, “as an increasing number of firms disclose their assessment of climate risks, investors should have the opportunity to opine on the quality of these disclosures and so called ‘transition plans’. As with ‘say on pay’ there are growing calls for investors to have a ‘say on transition’: a vote on the adequacy of a company’s preparedness for the transition to a net-zero world. This mechanism would embed the critical link between responsibility and accountability.”  

The good news is nearly 900 companies reported in 2021 that their low-carbon transition plan is a resolution item at their AGMs, while close to 700 companies intend to do so within the next two years. This means in two years we would hope to see over 1,500 companies with transition plans being a feature at their AGMs.  

For over 20 years, CDP has been a global leader in environmental disclosure and reporting, utilizing its disclosure platform to track and report on environmental performance for investors, companies, cities, states, and regions. In line with its mission to focus investors, companies, cities, and governments on building a sustainable economy by measuring and acting on their environmental impact, CDP is working to incentivize company disclosure of the relevant climate transition plan metrics, and to make the appropriate data available to stakeholders.   

In the most recent iteration, CDP’s climate change questionnaire collects data on all current climate transition plan elements. Going forward, CDP will expand the tracking and reporting of this data to account for increased reporting accuracy and sector-specific nuance. CDP will support companies via webinars, blogs and information on the CDP website.   

It’s also important to recognize that with transition plans being an emerging field in a rapidly evolving space, the quality and completeness of these transition plans will need to be independently assessed. It is expected that whilst first attempts are valuable, many of these plans will fall short of stakeholder expectations. 

CDP believes transition plans are fundamental to reach a sustainable economy and are therefore at the heart of CDP’s 2021-2025 strategy. We will continue to support corporates, to create credible transition plans that are underpinned by science-based targets and continue to define and develop guidance on transition plans and measure performance against them. 

As the world watches as COP26 enters its second week, the demand for accountable transition plans is clearer than ever. Corporates will play a pivotal role in reaching a net-zero future and accountable transition plans are an essential vehicle to get us there.

Nicolette Bartlett, Chief Impact Officer, CDP