Part 1: Climate transition planning - what’s on the mind of sustainability practitioners? — SB+CO | SB+CO is a sustainability, ESG strategy and responsible business consultancy

(Part 1 of 2)

7 MINUTE READ | BY KATE JONES AND NICK WYVER | 1 OCT 2024

Big picture themes defining the transition planning landscape (Part 1 of 2)

Over the summer we’ve been speaking to sustainability leaders and practitioners in a mix of breakfast events, roundtables and direct conversations. We’ve heard about their experiences preparing for, creating, reporting and implementing their climate transition plans. Over and over again, we heard the same things crop up.

We know that there is no perspective more valuable than that of practitioners putting the theory to the test. To that end, we’ve tried to play back a summary of our conversations (and want to say a big thank you to everyone who’s spent time delving into this important topic with us!).

We’ve split this between the big picture themes defining the transition planning landscape right now– which you can find here in Part 1 – and the practical insights from practitioners which you’ll find in Part 2 published later this week.

1. EFRAG must align its transition plan guidance to the TPT framework

Once reserved for ‘good students’, transition plans are now becoming a regulatory necessity. Up until now what ‘good’ looks like has been shaped by voluntary frameworks and guidance from the likes of CDP, TCFD, GFANZ for financial institutions, and most recently the TPT framework.

“All of these frameworks say slightly different things so I have to manually piece them together, which is so time consuming – it doesn’t make sense.”

Quotes from recent, anonymised client conversations

With the levelling up of regulation requiring transition plans, talk of what a ’compliant’ transition plan looks like is on the rise. Luckily for practitioners, there has been some alignment so far, namely ISSB taking over responsibility for the TPT materials. But one crucial question remains- will EFRAG align its upcoming guidance with the TPT framework?

As our recent blog highlighted this alignment must happen to ensure practitioners can stay focussed on creating and implementing credible transition plans and avoid getting bogged down in differing regulatory requirements.

2. There remains a tension between growth & climate targets – but a transition plan can help connect the conversations

The tension between commercial growth and climate targets is a reality that is lurking round the corner for many businesses. As the urgency of climate change intensifies, companies must navigate how to balance business objectives with meeting public climate targets, and the contradictions that can often present. The process of developing a climate transition plan can help facilitate conversations needed for businesses to make that connection and start work on closing the gap.

This conversation and path forward will vary by business model, but whatever the specifics, this conversation needs to involve a consideration of the potential trade-offs involved between the two.

This was articulated well by Lindsay Hooper in her recent Financial Times article ‘ESG is dead. Long live ESG.’, where she writes: “Rather than asking “How much sustainability can we afford?” companies must ask “How do we accelerate, navigate and benefit from the transition?””

Practitioners universally played back to us that they were excited about using transition plans to have exactly this conversation, but also that balancing these trade-offs was likely to become harder the longer this conversation is avoided. And one thing that practitioners almost universally agreed on was the need to be more straightforward with Execs on the tensions inherent in achieving emissions reductions alongside commercial success.

Those who have been successful in doing this have used the commercial climate risk and opportunity language normalised by TCFD. The TPT framework can build on this framing either in terms of protecting business value through increasing resilience or capitalising on opportunities.

“Climate risk language is now well understood by the business from TCFD – but talking about decarbonisation in its own right doesn’t resonate in the same way”

Our key takeaway: Transition planning can be the key to navigating the tensions between commercial growth ambitions and emissions reduction plans. A well-designed transition plan – both in its process and its outputs – can be an invaluable strategic tool so long as it is closely enough linked to a business’ commercial strategy - and getting leadership and other important stakeholders on board from the start is critical for this. Our view, based on what we’ve heard, is that the only successful climate transition plans will be those that are firmly rooted in the commercial realities a business faces.

3. Target backtracking – a sign of changing business priorities or more responsible planning?

The last few months have seen a number of high-profile companies backtracking from ambitious climate targets, including Air New Zealand, Crocs, Morgan Stanley, Tractor Supply, Nike, Nestlé and Unilever. Some may say this indicates a lack of commitment and a re-routing of investment and resources into other areas of the business, stalling the ability to making progress needed to stay on track with 1.5 degrees. Others view this as a responsible target course correction based on improved data and detailed planning, reducing the likelihood of future backtracks.

“We set our target in the post COP-26 wave, and now we must decide if we stick with it or be more realistic about what we will achieve.”

Creating thoughtful, strategic and holistic plans could and should shield businesses against more target backtracking. Showing stakeholders both inside and outside the business not just what a business wants to do, but how it plans to do this, feels critical.

4. The proof is in the planning for investors

The increasing scrutiny from investors on climate transition plans is not a coincidence. The realisation that setting ambitious targets without detailed plans may result in backtracking, and potential reputation consequences, has in part contributed to investors wanting to see the ‘how’ behind the ‘what’. Specifically, investors are more and more interested in engaging with and voting on transition plans.

“We expect companies to set out credible transition plans, that include Paris-aligned targets and detailed strategies for achieving those goals…. We expect companies to provide their investors a vote on their plans at least every three years”.

From the CCLA Investment Management letter to the FTSE100

With only 20% of the FTSE 100 giving investors the opportunity to vote on their transition plan, this is likely to be a trend we see continue in the coming months and years.

5. Sustainability comms is a messy landscape at the moment, but climate transition plans could be the future of creative and strategic sustainability narratives

With an increasing amount of technical ESG regulatory disclosures, we are seeing an appetite among some practitioners to provide minimum disclosure requirements and redistribute time back into future-looking transition plan narratives (backed up by relevant targets and KPIs). This could involve moving technical detail to sit in an annex or on the website, for the purposes of being ‘scraped’ or for those stakeholders who are particular interested, leaving room for the general consumption of sustainability strategy to be redirected back to the sustainability report and transition plan.

“We need some sort of reset on all the reports and disclosure we are writing to get back to the core messages of what we’re doing and why we’re doing it.”

In a recent publication, we looked at the effect that CSRD is having on the sustainability communications and reporting landscape, and the potential scenarios for reporting going forward.

Part 2 of our Transition Planning Practitioner Insights will be published later this week - so check back then! This will discuss the key practical insights that practitioners in the depths of transition planning pointed to as being critical.

Selected glossary:

TPT: Transition Plan Taskforce
GFANZ: Glasgow Financial Alliance for Net Zero
TCFD: Taskforce for Climate-related Financial Disclosures
CDP: formerly known as the Carbon Disclosure Project
EFRAG: European Financial Reporting Advisory Group
CSRD: Corporate Sustainability Reporting Directive

Part 1: Climate transition planning - what’s on the mind of sustainability practitioners?