Five Reasons Your Company Needs A Climate Transition Action Plan
We Mean Business Coalition
Companies are under increasing pressure to take immediate, demonstrable climate action. A climate transition action plan should be your first step.
Countries are starting to bend the curve of global greenhouse emissions downwards, according to the UN, and the latest International Energy Agency data suggests global emissions from energy may be starting to plateau. The transition to a net zero economy is underway but – as the UN Intergovernmental Panel on Climate Change warns – far greater efforts are needed from governments and business to limit global warming to 1.5°C and avoid the most disastrous impacts of climate change.
That is why companies should take concrete steps to cut their emissions now. Importantly, that action must not simply pay lip service to sustainability. The 4 A’s of Climate Leadership guides companies to credible climate action, from using the Science-Based Targets initiative (SBTi) to set emissions targets, to disclosing through through CDP. An essential step along this journey is creating a climate transition action plan (CTAP) – also known as a transition plan.
A CTAP clearly states the key actions and steps a company is taking to align with a 1.5°C trajectory. It is not the same as corporate climate disclosure, which, among other things, is primarily backwards-looking and focused on disclosing emissions. Instead, a transition plan is forward-looking and focuses on specific, near-term actions a company is taking to reduce emissions and ensure a just transition. It shares all of that information in a non-technical and easily digestible way. Here are five reasons why your company should create one now:
1. Investors want to see it
Investors increasingly want to see clear climate strategies from businesses, not only to cut emissions but also to ensure long-term business resilience. To that end, climate transition action plans are becoming increasingly important to investors.
Investment managers representing nearly $40 trillion in assets last year issued a collective call for governments to strengthen climate disclosure across the financial system, including through mandatory transition plans for corporates. The asset manager Aviva Investors, meanwhile, recently called on the companies within its own portfolio to deliver robust and viable CTAPs, a trend which is likely to continue. Developing a CTAP with clear targets and timelines is a way of signaling to investors that your business is taking action to cut emissions and ready itself for the net zero economy.
We Mean Business Coalition, CDP, Ceres and the Environmental Defense Fund (EDF) have developed consolidated CTAP guidance to help your business produce a plan that includes decision-useful information for investors. A credible plan covers four core components: emissions reduction strategy, public policy, governance and business strategy integration, and just transition.
Sharing your plan will give investors, the public, and other stakeholders clarity on how your company is moving from setting goals to taking near-term action to achieve those goals in line with a 1.5°C pathway.
2. It may soon be required by law
In addition to the environmental imperative to develop a CTAP, companies may soon have a legal obligation to do so. The UK government, for example, has announced proposals to make transition plan disclosures mandatory across the private sector, and established the Transition Plan Taskforce to develop the “gold standard” for climate transition action plans. The EU is also currently working on new regulations that would require the mandatory disclosure of CTAPs from companies.
The message for business? Acting now to put your plan in place will help you get ahead of legal requirements – and avoid the risk of penalties.
3. Other companies have already taken the lead
With pressure from climate science, from investors and looming regulation, many companies have already recognized the importance of having a climate transition action plan in place.
Companies such as Microsoft, Natura & Co, Nike and Unilever have been vocal about how they have developed their plans, providing a useful signal to investors and other stakeholders of their direction on climate action. Those companies, alongside EDF, are founding members of “Transform to Net Zero,” an initiative which encourages the world’s 1,000 biggest companies to establish net zero targets and publish transition plans by 2025.
CTAPs aren’t just for the largest corporations though. According to CDP, more than 4,000 companies — just over 20% of companies they surveyed in 2022 — disclosed that they had a climate transition action plan in place. However, only 0.4% of companies demonstrated best practice by disclosing all 21 indicators that illustrate a credible plan. This is where our consolidated guidance and templates can help.
4. It builds credibility
As climate change becomes an ever-more prominent subject, accusations of greenwashing are becoming more common. In fact, 1 in 5 companies say they have been called out because their environmental and sustainability actions do not match their claims, or are perceived not to.
In February, the UN Secretary-General stated that any company with a 2050 net zero pledge should have their climate transition action plan in place by September 2023 and that it should contain “credible and ambitious targets for 2025 and 2030” that align with the standards set out by the UN’s High-Level Expert Group on Net Zero. Sharing a climate transition action plan helps to build accountability, which will become increasingly important for companies.
5. It will help keep the world on track to limit warming to 1.5°C
The urgency of the climate crisis cannot be overstated. Emissions continue to rise despite the latest reports showing they need to be cut by 43% by 2030. This puts the world at risk of missing the goal set out in the Paris Agreement of limiting temperature rise to 1.5°C above pre-industrial levels.
Failure to do so makes it likely ‘climate tipping points’ will be triggered, including the melting of the West Antarctic and Greenland ice sheets. This will worsen suffering and disruption across societies and economies, with the most vulnerable suffering the worst impacts.
If companies raise their ambition, and share their plan for turning that ambition into action, it will not only help to cut their own emissions, it will also give governments the confidence to take the bold action necessary to get us on track to meet our collective climate goals.
Climate transition action plans make business sense and they make climate sense. All that remains is for your company to create one. Download We Mean Business Coalition, CDP, Ceres and EDF climate transition action plan guidance here.