In the face of increasingly pressing climate challenges and new European regulations, companies are having to adapt their operations and strategies to meet their climate transition objectives. Climate Transition Plans (CTPs) are becoming essential in managing climate risks and aligning companies to a low-carbon economy.

The adoption of effective Climate Transition Plans is accelerated by European Union regulations such as the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), which require companies to publish CTPs that demonstrate alignment with the 2015 Paris Agreement target of limiting global temperature rise to +1.5°C by 2050.

In addition to regulatory compliance, companies must manage climate risks and demonstrate adaptability to transition to a sustainable economy. According to the Climate Bonds Initiative (CBI), companies developing their PTCs have the opportunity to mobilise capital markets to support climate action and reduce greenhouse gas (GHG) emissions.

What a Climate Transition Plan entails

A well-implemented Climate Transition Plan not only complies with the regulations, but also ensures a just transition and aligns the company with decarbonisation targets. Realising a successful CTP involves:

• solid foundations and reliable data

Without accurate data, all forecasts and measures risk failure. It is important that the plan is integrated into the business strategy and has the support of the management team. Working with stakeholders to understand the risks and opportunities and gaining broad support are critical to the success of the CTPP.

• just transition

Another important aspect of the CTPs is to consider the impact of the transition on employees and communities. According to the Climate Bonds Initiative, the transition must be fair, protecting jobs and providing sustainable alternatives for those sectors that may undergo significant changes, such as factory closures or changes in supply chains.

• identifying external dependencies

Many companies will depend on external factors to meet their climate targets. Governments need to implement appropriate legislation and consumers to adopt more energy-efficient technologies. Working with suppliers to reduce upstream emissions is also an important issue. For example, in the retail or technology industries, most emissions come from outside a company's direct operations.

• transparency and continuous reporting

The success of a CTP depends on the transparency with which a company tracks and reports its progress.

A Climate Transition Plan must include a range of information to ensure the clarity and transparency of the plan. These requirements are standardised in various international reporting frameworks and are critical to the credibility of a CTP. Here are the main elements to be included according to the ESRS:

• Climate ambitions and targets: each CTP should clearly define what the emission reduction targets are and how they align with the +1.5°C trajectory.
• Climate governance and decision-making: revelations on how climate decisions are integrated into the corporate governance structure are crucial.
• Scenario analysis: an important element for any CTP is climate scenario analysis, which helps companies understand the impact of different climate trajectories on their operations and develop appropriate strategies.
• Climate risks and opportunities: every company needs to identify and disclose the risks and opportunities associated with the climate transition, both operational and financial.
• Climate mitigation and decarbonisation actions: the plan should include specific measures the company will take to reduce emissions and support the transition to a low-carbon economy (e.g. use of green technologies, optimising energy efficiency and use of renewable energy sources)
• Greenhouse gas (GHG) emission reduction targets: A successful plan must include clear emission reduction targets for both the short and long term, with a detailed plan for monitoring and reporting progress.
• Planned investments in support of the PTC: To support the achievement of climate targets, companies must disclose planned investments in technology, research and development, and infrastructure projects to facilitate the transition.
• Climate adaptation and mitigation policies: A CTP should include both climate change adaptation policies and mitigation measures to ensure that the business is resilient in the face of climate change and associated risks.

To support the credibility of CTPs, various organisations have developed standards and certifications, such as those developed by Science Based Targets (SBTi) or Transition Pathway Innitiative. They provide a clear way for companies to demonstrate their commitment to decarbonisation and to obtain funding through green or transition bonds.