What is the transition plan?

The transition plan expresses, in a concrete and responsible way, how an organisation intends to adapt its business model to operate in a low-emissions economy. It is not simply a set of intentions, but an operational strategy that should show where the company is, where it wants to go and, more importantly, how it will get there.

There are several regulatory frameworks and investors requiring companies to have a clear, measurable and public plan on decarbonisation and transformation of operations. The Transition Plan Taskforce proposes a format that integrates emissions targets, reduction actions, budget allocations and governance mechanisms. All this effort needs to be aligned with ambitious climate goals, in particular limiting global warming to 1.5°C.

GFANZ, the global coalition of financial institutions involved in the transition to net-zero, warns that a transition plan is not convincing if it remains outside of real financial decisions and corporate governance. That means management involvement, dedicated budgets for investment and a clear ability to measure and communicate progress.

Along these lines, SBTi sets out the scientific criteria for validating climate targets. According to this initiative, a genuine transition plan implies quantified, verifiable targets, without relying on offsets such as offsets.

A well-done plan provides a coherent picture of how the organisation is changing its structure, products and financial decisions to remain relevant in a rapidly changing economic and climatic context.

Why is it important for businesses?

For companies, the pressure is no longer just in the regulatory arena. Investors, business partners and customers are putting more and more weight on the credibility of transition commitments. Without a clear plan showing the steps taken and the budgets available, it becomes difficult to sustain a solid position in an international value chain.

Such a plan is not only a communication tool but also a financial planning tool. The CFO's involvement is not a technical detail, but an indicator of how seriously the company is taking the subject. Transition costs need to be forecast, budgeted and tracked over time. Without this component, the plan risks remaining a PowerPoint presentation.

For companies preparing to access sustainable finance - such as green bonds or sustainability-linked loans - the transition plan becomes a reference document. It helps to build a solid investment profile, but above all to gain the confidence of financial partners.

The transition plan is also a statement of responsibility. It shows the extent to which the company has understood the context in which it operates and how it intends to remain relevant in an economy that is changing the rules of the game.

Example

One example is Ørsted, a renewable energy supplier, which has made the transition from fossil fuels to renewable energy, publishing several reports and white-papers focussed on green energy. It has developed a 98 % Scope 1-2 emissions reduction plan by 2025 and a net-zero target for the entire value chain by 2040, validated by SBTi (https://cdn.orsted.com/-/media/annual2024/orsted-annual-report-2024.pdf?rev=02bde37dc8424c8eb8e4e9f3b65cc833&hash=A05D897FF6CA71315480487832E17FA2)

Unilever launched its first Transition Plan (CTAP) in 2021, updated in 2024 as part of its medium to long-term strategy. The plan includes absolute emission reductions in operations (Scope 1 & 2) by 2030 and clear value chain adjustments (Scope 3). The strategy also includes dedicated investments - clear links to budgets - and concrete governance mechanisms, supported by SBTi (https://www.unilever.com/files/ctap.pdf)