Will Climate Transition Plans take sustainability out of its silo?
At a recent edie Roundtable in London, sustainability professionals examined the impact that climate transition plans could have on corporate efforts to reach net-zero emissions and how they can transform the internal structure of businesses in the long run.
The net-zero movement has been unwavering since businesses and governments started responding to the Intergovernmental Panel on Climate Change’s (IPCC) warnings that net-zero emissions needed to be achieved globally by the 2050s.
But the booming popularity of net-zero has seen many firms commit to transformational targets, but have little idea as to how they will reach net-zero over the next 20 or 30 years. It is here where transition plans can help improve clarity, transparency and accountability against corporate climate targets.
Climate Transition Plans are the latest, sweeping tasks facing sustainability professionals. Many UK businesses will soon be subjected to a mandate on climate transition plan publications in the coming months. Indeed, the UK has set up the Transition Plan Task Force to shape a ‘gold standard’ for these plans.
The Task Force has recommended that corporates publish plans this year, then an update in 2026. In 2024 and 2025, information material to the plan should be included in financial reporting. Advice has also been provided on what, exactly, the plans should cover.
But just how far along are businesses in their efforts to set out transition plans? At a recent edie roundtable held in London, held in assistance from supporting partners Accenture, sustainability professionals representing businesses from a variety of sectors discussed how transition plans can be implemented and what benefits and changes they can bring for organisations.
One thing that was made abundantly clear at the roundtable is that business as usual is no longer an option.
Thousands of businesses have set net-zero targets, but as was discussed during the roundtable, a business needs to know exactly what it is aiming for. Net-zero emissions may seem like the obvious answer, but as participants explained, many businesses are still operating in the mindset that generating growth for investors and shareholders is the direction of travel. Transition plans could help change this mindset and shift the focus from short-term returns to long-term value creation that respects planetary boundaries.
It is easy to view transition plans as the measures that will change how a business looks and operates externally, depending on market shifts and physical responses to the climate emergency. However, a key point made during the roundtable discussions was that transition plans would also transform organisational structures internally.
It was agreed that a transition plan cannot be delivered in the silo that some sustainability teams are used to operating in. Rather, transition plans provide an opportunity to drive new structural changes through the traditional business. This will involve rewriting job specifications, attaching climate-focused KPIs to remuneration and structuring new rewards and incentives that make transition plans and the wider response to the climate emergency embedded into the boardroom.
With three in four sustainability officers in FTSE 250 industrial companies having been in the role for less than two years, there is an opportunity for chief sustainability officers (CSO) who aren’t yet too hamstrung by a “how things are done here” mantra to ignite real change.
There is an argument to say that the very role of a CSO needs to change from an activist that was an expert in science and climate to also becoming an activator that can influence the C-suite and sculpt new strategies and ways of working.
Through the lens of transition plans, CSOs are crucial to setting up the internal structures and cultural changes that will stop businesses from always looking backward at the data they’re collecting and looking forward to see how a business will fundamentally change in the future, uncovering new potential areas of growth and respond to new physical, economical and reputational challenges.
”It is evident that the role of the CSO is changing. Having accurate and reliable data is still at the heart of every organisations’ sustainability strategy. But this is increasingly becoming a digital solution, managed within functional areas, with disclosure often now sitting under the CFO,” Robin Mar, management consulting principal director at Accenture says.
“A sustainable organisation is one that understands the impact that climate, nature and communities have across the whole of its operations. At the roundtable, we heard how the role of the CSO is now far more about influence and engagement – both within and outside of the organisation. It’s about ensuring sustainability is embedded within an organisation’s strategic thinking. At times, this means letting go of past responsibilities and learning new skills and approaches; forging new partnerships to become the catalyst for change.’’
Currently, businesses seem unprepared for the forthcoming legislation on transition plans. Just four FTSE100 companies have net-zero transition plans that would meet the ‘gold standard’ requirements of the UK’s forthcoming reporting mandate, according to CDP.
While the majority (60%) of the companies have targets to reduce emissions, less than 1% are producing transition plans to net-zero that CDP regards as credible. Key facets of a good transition plan include interim emissions targets, financial planning to deliver decarbonisation and assessment of climate-related risks.
Roundtable participants explored what frameworks and steps can be utilised to help set up a corporate culture that can successfully enable transition plans to be introduced.
Science-based targets were listed as a pre-requisite to businesses attempting to reach net-zero and would therefore create viable pathways for any transition plans. Surveys have found that around 72% of businesses have stated that their emissions reduction goals are with the Science-Based Targets Initiative (SBTi). However, one in four (26%) of the companies who had applied to the SBTi had not published information about the new targets on their own websites or reports.
These targets should act as the “North Stars” for transition plans toward net-zero emissions, but other frameworks can also be utilised to help drive progress.
One crucial framework listed by participants was that of the Task Force on Climate-Related Financial Disclosures (TCFD). The UK Government mandated TCFD-aligned annual reporting for around 1,300 large organisations back in April 2022, in a global first.
Last year, the Financial Reporting Council (FRC) and Financial Conduct Authority (FCA) assessed the climate risk reporting approach taken by almost 200 large firms subject to the UK Government’s new disclosure mandate.
The most common reporting gap within the TCFD framework was found to be “scenario analysis”. This is a process whereby companies are asked to forecast the risks and opportunities to their operations and value chains at a range of global temperature increase trajectories. Most companies were also not ready to unveil the metrics they were using to measure risks and, therefore, specific targets to reduce them.
Without scenario analysis, metrics and targets, the FCA and FRC are warning, businesses are not equipped to provide information on how risks and opportunities will differ between different parts of their business and different geographies in the value chain.
TCFD was described by participants as a huge transformer for sustainability functions, not just in terms of the extra reporting requirements, but also by how it can embed climate thinking across the business.
It can also lead to discussions about how to bring climate adaptation into plans, namely through scenario analysis, which is an aspect of the net-zero journey that has remained largely unexplored by corporates.
Participants discussed how this can be embedded into corporate thinking and suggested that risk and finance teams needed “upskilling” to take into account the softer CSR numbers alongside financial data. There is a need, participants noted, to scrutinise climate data in the same way that corporates do with finance.
Another key piece of advice listed during the roundtable discussions was to explore multiple scenarios, rather than being funneled into solely measurable aspects of the transition. There is scope to analysis not just the economic impacts of action and inaction as markets evolve on the road to net-zero, but also how physical and reputational risks, which right now are far harder to quantify, can change the perceived performance of a business.
Hope was expressed that more businesses will be able to kickstart their journey on transition plans as more legislative frameworks come in. The Corporate Sustainability Reporting Directive (CSRD) from the European Commission, for example, widens the net on which companies are mandated to report, with almost a fivefold increase in the number of businesses affected, to 50,000+. It sets stricter requirements on the range of issues and quality of data which companies must disclose. A key focus here is Scope 3 emissions, which typically account for the majority of climate impact for a large business.
© Faversham House Ltd 2023 edie news articles may be copied or forwarded for individual use only. No other reproduction or distribution is permitted without prior written consent.