Part 2: Climate transition planning - what’s on the mind of sustainability practitioners?
(Part 2 of 2)
6 MINUTE READ | BY KATE JONES AND NICK WYVER | 8 OCT 2024
Practical insights from practitioners in the depths of transition planning (Part 2 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!).
In Part 1, we covered the current big picture themes defining the transition planning landscape. Here in Part 2, we have summarised the practical insights from sustainability practitioners in the depths of transition planning.
1. The TPT framework is a good vehicle to assess dependencies, sometimes for the first time.
Practitioners overwhelmingly mentioned the importance of the transparent disclosure of dependencies in any good transition plan – accompanied by the associated actions of the business to help mitigate them.
“Until we started work on a transition plan, we really hadn’t thought about our dependencies"
Quotes from recent, anonymised client conversations
Some businesses – as supported in this paper from The Smith School of Enterprise and the Environment - have found that understanding the scale of the dependencies helps to tailor the responses. Are they global, industry-wide, or specific to your company and value chain? Answering this question, using the tools from the TPT framework, allows you to choose your response strategy:
Acknowledge your limitations
A challenge may be too significant or relate to an entirely different sector, meaning acknowledging your limitations and advocating for broader action might be necessary.
For example, this could include the reliance on decarbonisation of the UK grid as a non-energy company.
Influence change
For dependencies within the company’s sphere of influence, targeted initiates – often in collaboration with peers and other industry partners – can be most effective.
But inter-industry collaboration and partnerships can be a challenging environment to create meaningful change. IP issues and anti-competitiveness can work against effective collaboration.
However, there are examples of success, especially where suppliers are common across a number of industry big players where working together can be very effective.
For example, earlier this year five large healthcare giants collaborated to sign an “industry-direct, multi-party renewable power agreement in China”, as reported here by the Sustainable Markets Initiative.
Take hands-on action
Sometimes direct intervention by a business is the best course of action.
This can often include working closely with suppliers to help them with data collection, target setting and emission reductions. Or sometimes it can be more creative, like the partnership between Apple and two of its major suppliers Rio Tinto and Alcoa to reduce emissions from aluminium smelting which represented a large portion of Apple’s emissions. The result, the new business ELYSIS, to which Apple acted as both an early investor and a scale customer, is now “ramping up towards full commercialisation”[1].
But practitioners also told us that the kind of pre-competitive action that could enable businesses to collaborate on really entrenched supply chain issues came with its own challenges - chiefly, legal risk:
“My lawyers are terrified every time I talk to one of our competitors.”
2. Cross-business ownership (functions and geographies) of the transition plan is critical, but the most suitable way will depend on the business.
Theoretically, building a transition plan from existing activities and progress made to date is not the hard bit. The critical part is ensuring stakeholders across the business understand their role sufficiently to co-develop and own the plans that they will be responsible for delivering – and practitioners told us this is where a lot of their time and energy was being spent.
“Our transition plan is never going to work if I’m the only person accountable for delivering it.”
The creation of the plan should connect bottom-up planning with top-down requirements. The sustainability team can play a valuable role coordinating this, but to be successful the implementation cannot sit there alone.
The shifting legislative agenda – new requirements like CSRD and CSDDD, for example – is requiring much greater collaboration between sustainability teams and functions like finance and legal. Transition planning, according to the practitioners we spoke to, requires more of this, but also much more collaboration across the commercial functions within the business. It means getting close to the commercial decisions being made and working out how to align commercial and sustainability priorities, and identifying ways for one to enhance the other. And sustainability teams and practitioners cannot do this on their own.
3. Intelligent incentivisation can help drive progress.
Incentivising those across the company who need to adopt new practices and behaviours to do so was an area of huge interest and debate in our conversations. We are seeing more and more companies choosing to link remuneration to emission reduction targets. This mechanism can be set up in different ways, and there are a few watch-outs for those who are considering it.
“The only reason we’re still on track for our Scope 1 and 2 targets and haven’t had our budgets cut is because they’re in the LTIP of our exec team.”
Linking remuneration to “hard” metrics will inevitably drive questions about data quality. In this instance, making sure the data to back up the targets and progress against them is robust will be absolutely critical. Having a high degree of confidence in the data is essential when there are remuneration consequences attached.
Additionally, employees in the business can sometimes feel disconnected to the progress against a target if their role and contribution is not properly explained or considered. It's therefore possible that incentivisation works best when it is role-specific and goes beyond just the senior management team, empowering employees to meaningfully influence progress on achieving company-wide targets.
4. Avoiding over-disclosure is often top of mind, most notably in financial planning, product and service innovation and implications for business models.
It is unlikely that some of the strategic insight obtained from undergoing the transition plan development process, particularly with regards to business model implications, product and service innovation and financial planning, will be disclosed in detail at least in the first couple of transition plan disclosure iterations.
“This feels important and exciting…. but scary”
In particular, an ongoing challenge with transition planning is allocating budgets for delivering plans, allocating CapEx and OpEx spend to business purchases/decisions which have sustainability consequences, and the manual nature of tracking CapEx and OpEx spend for this purpose. This is because of the level of discomfort over disclosing information where there is a level of uncertainty attached. However, it’s important to note that the TPT framework includes lots of caveats and carve outs.
With all of this, it’s important to remember that whilst regulatory requirements can secure buy-in from compliance-driven executives, caution should be taken with compliance-led approaches which may stifle innovation and asking big strategic questions.
“The TPT has been valuable in linking together everything we do on climate – suddenly it has made it all make sense for the business.”
A transition plan gives a business the chance to consolidate all their work on climate — ideally also nature and the just transition — from TCFD to double materiality, bringing it together in a cohesive, meaningful way. It should house not only all the technical detail for a decarbonisation plan, but also tell the story of the what the future of the business looks like in a low carbon economy. We hope that the insights from our conversations with practitioners help provide context and ideas for how to do this most effectively.
Find Part 1 of our Transition Planning Practitioner Insights here. This discusses the five trends defining the market landscape in transition planning right now – as heard from practitioners.
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
CSDDD: Corporate Sustainability Due Diligence Directive
Kate Jones
Sustainability Strategy Director
Nick Wyver
Consultancy Director
Get in touch
Find out how SB+CO’s sustainability experts can help your company.