At a Glance
- Setting emissions reduction targets and developing a climate transition plan depends on various factors, including local and global climate policies, financial incentives and constraints, market dynamics, stakeholder expectations, and technological advances.
- When creating the climate transition plan, it is essential to set clear, time-bound goals, with short- and medium-term targets to track progress towards long-term objectives.
- A climate transition plan should be overseen by the highest governing body of a company, with support from senior management, as it involves multiple internal and external stakeholders.
The long-term goals of the Paris Agreement are to strengthen global climate action and limit temperature rise to 1.5 degrees Celsius. It calls for Nationally Determined Contributions (NDCs) from all parties and encourages low-carbon development plans.
As sustainability and climate action become necessities, commitments and actions from policymakers, international organisations, and businesses are critical to closing the climate action gap and accelerating climate transition towards net zero emissions.
For companies intending to set emission reduction targets and develop a climate transition plan, it depends on various factors, including local and global climate policies, financial incentives and constraints, market dynamics, stakeholder expectations, and technological advances.
When creating the climate transition plan, it is not only essential to consider external factors but also to set clear, time-bound goals. Companies need to outline the short- and medium-term targets to track their progress towards long-term objectives. This will help assess the alignment of current assets and business model with the desired climate-related goals.
Building a climate transition plan
This article outlines some of the key elements to build a credible climate transition plan.
1. Building a GHG inventory
A comprehensive understanding of a company’s carbon footprint is essential when starting a climate transition journey. A complete GHG inventory provides the basis for developing effective short- and medium-term targets, which should be in line with the Paris Agreement global temperature goal.
To accurately compute GHG emissions, companies can adopt the globally recognised GHG Protocol Corporate Standard as a framework. This methodology categorises emissions into three scopes.
- Scope 1: Direct emissions from owned or controlled sources
- Scope 2: Indirect emissions from purchased energy sources
- Scope 3: Indirect emissions from the supply chain  
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2. Setting science-based targets
Science-based targets began to gain traction among companies with the launch of the Science Based Targets initiative (SBTi) in 2015. A record-breaking 4,205 companies had their science-based targets validated by SBTi in 2023.
As pressure from regulators, consumers, and investors intensifies, these targets provide a clear pathway to reduce GHG emissions in line with global climate goals. For companies embarking on their sustainability journey, establishing a climate action plan with ambitious and actionable emissions reduction targets is the first step. The SBTi provides a framework to guide these companies in setting emission reduction targets. The companies’ public commitments to cutting GHG emissions can be tracked on the SBTi website. It has outlined a five-step process to support companies in setting and validating near- and long-term targets.
The essential components of a climate transition plan are clear climate commitments, targets, as well as regular progress reports. Internationally recognised frameworks can improve the credibility of a transition plan.
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3. Conducting climate-scenario analysis
- What are the potential costs of climate change to your business?
- What is the financial impact of climate change on your industry and business?
- How can my company develop appropriate adaptation and mitigation measures for climate-related risks?
Based on historical climate data, climate change is inevitable. Companies need to understand potential future climate impacts and develop strategies to build resilience through climate-scenario analysis. This approach should be a part of the climate transition journey.
Companies can create a robust climate-scenario analysis by using internationally recognised, science-based pathways as it lends credibility to their transition plan. By evaluating transition risks under different climate scenarios, companies can assess the likelihood of success of their plan. Establishing a corrective action framework can help address potential challenges and ensure that the plan remains on track to meet desired climate goals.
It’s all about governance and leadership
A climate transition journey is not isolated but interconnected with the broader business ecosystem. The steps discussed above must be fully integrated into the company’s overall strategy in order to effectively identify and allocate capital and operating costs that may be required to meet climate goals.
Given the involvement of multiple external stakeholders and internal business units across multiple geographies, the climate transition plan should be overseen by the company’s highest governing body, with support from senior management. This will ensure alignment and minimise deviations from climate targets, allowing for timely escalation or corrective action.
One significant challenge in developing a credible climate transition plan is the availability of the expertise. As a result, companies may put a climate transition plan on hold, but delaying it can lead to increased costs as the window for effective organisational manoeuvring narrows over time.
Does your organisation lack the expertise to create an achievable climate transition plan that works?
