Climate transition plans: another reporting burden or a credible roadmap to drive progress?
- Post Date
- 23 April 2024
- Author
- Amy Brimmicombe
- Author
- Brianna Betts
- Read Time
- 5 minutes
- ESG advisory
In a world eager for sustainability progress, how companies talk about their journey towards a Net-Zero future matters more than ever. It's not just about making promises; it's about showing actionable steps and real progress.
Over the past few years, the topic of climate transition plans has been building momentum. With emerging reporting requirements, it’s now at the top of many companies' ESG reporting agendas. The overall ambition for transition plans is to help stakeholders understand how companies are enabling the climate transition. The purpose of a climate transition plan is not just about ticking disclosure boxes; it's about developing a story of change, challenge, and, ultimately, transformation.
But what is a transition plan?
A climate transition plan should capture the following three key elements and be supported by robust targets, governance structures and engagement processes:
- High-level strategic ambition to build resilience, mitigate climate risks and support the wider economy-wide transition.
- Actionable decarbonisation plan to achieve greenhouse gas (GHG) reduction targets and supporting business and financial planning.
- Impacts beyond carbon – how actions will support a just and equitable transition and have a wider impact on society and nature.
For further guidance on what makes a credible Transition Plan see our recent article – Successful transition plans are about both the ‘why’ and the ‘how’.
Navigating the reporting landscape
Recognising the pivotal role of accurate and comprehensive reporting in achieving a sustainable future, several emerging standards have been introduced, aiming to unify and elevate corporate reporting. Among them, the International Sustainability Standards Board's (ISSB) IFRS S1 and S2, and the European Union's Corporate Sustainability Reporting Directive (CSRD), stand out for their rigorous requirements.
Regulatory reporting requirements - Sustainability Disclosure Standards
ISSB IFRS S1 & S2 (voluntary)
The International Sustainability Standards Board (ISSB) IFRS-S1 (general sustainability) and S2 (climate) are global sustainability reporting guidelines for an investor audience. The mandatory reporting requirements for IFRS S1 and S2 are emerging and will vary by jurisdiction.
The standards ask companies to share how they're managing environmental challenges and their impact on the world. They build on the existing Taskforce for Climate-related Financial Disclosure (TCFD) framework and require a detailed account of how a company's operations and strategy are impacted by sustainability issues and how these companies, in turn, affect the environment and society.
IFRS-S2 requires an entity to disclose “[any] climate-related transition plan [it] has”. Outlining the strategies, actions, and, crucially, companies' progress towards their Net-Zero goals [1].
CSRD (mandatory)
The CSRD extends the scope of sustainability reporting within the EU, requiring a more significant number of companies to disclose detailed information on how sustainability issues affect their business and vice versa.
The Directive pushes for a higher level of detail in reporting and requires all listed companies (including SMEs) in the EU and all large companies operating in the EU to disclose a transition plan to ensure that company business models and strategies are compatible with the goals of the Paris Agreement and the EU's 2050 climate target. This will help stakeholders have a clear view of the path ahead and the milestones achieved [2].
Real stories, real impact
Consider a clothing manufacturer that has decided to reduce its carbon footprint. Instead of simply saying, "We are reducing emissions”, they share their entire journey. They talk about shifting to renewable energy sources in their factories, using recycled materials, and even innovating with eco-friendly dyes. They use the reporting guidelines like ISSB IFRS S1 & S2 and CSRD as a framework to tell this story, making it easy for everyone to see their commitment and progress. This inspires trust and encourages other companies to take similar steps.
When a business is open about its sustainability journey, it does more than just improve its own reputation. It sets a marker, encouraging others in the industry to follow suit. This ripple effect can lead to widespread change, pushing entire sectors towards more sustainable practices. Moreover, it helps consumers and investors make informed decisions, aligning their choices with their values.
Beyond checking boxes
Reporting on sustainability is not just a regulatory hurdle; it's an opportunity to connect, inspire, and lead. It's about working towards a future where business success and environmental health go hand in hand. This approach informs the audience and invites them to be part of the journey towards a more sustainable world.
The path forward
Whilst the current requirements for transition plans and their disclosure may differ by reporting jurisdiction and standard, the overall ambition for transparent reporting remains. As we navigate towards a low-carbon future, the details companies share about their sustainability efforts play a crucial role. Robust reporting, underpinned by emerging standards like ISSB IFRS S1 & S2 and CSRD, is critical in this journey. It ensures that companies' transition plans are grounded in reality and empowers stakeholders to make informed decisions based on credible, transparent, and comparable data. The journey towards a Net-Zero future is a collective one, and robust reporting is the compass that ensures we are heading in the right direction together.
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References
[1] https://www.ifrs.org/sustainability/tcfd/
[2] https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en
