Transition Planning

The case for climate action is clear: fast and decisive action is needed to achieve net zero, and achieving net zero is essential for sustaining the world as we know it. Our collective future depends upon organizations across the world aligning their business strategy, operations and funding with a net zero pathway. By developing and sticking to transition plans, organizations can contribute to keeping global warming below 1.5°C – and enhance their own organizational resilience to climate-related risks.

Transition plans enable an organization to identify the actions and interim milestones needed for meeting its long-term net zero targets. Robust and transparent transition plans give credibility to an organization’s commitments, allow others to hold it accountable, and help investors to understand and monitor progress. Increasing regulation in this area is also pushing more organizations to act, either on a voluntary basis, in anticipation of future regulations, or a mandatory basis, once regulations are in force.

“Organizations should not wait for regulation to require them to develop a transition plan. The process of developing a transition plan takes time and resources, therefore taking decisive action now will mean you are able to identify opportunities and manage risks earlier, align decision-makers and be prepared for when transition plan regulations come into force.” – Helen Slinger, Executive Director – Knowledge and Learning, A4S  

A transition plan represents a clear move from ambition to action. The process of developing a transition plan helps organizations assess where they are now, where they want to go and how to get there.

Organizations should view transition plans as:

• Dynamic – transition planning needs to be dynamic and responsive, with associated documentation that can be regularly revisited, reviewed and updated.
• A framework for action – a comprehensive transition plan helps organizations structure their activities across the whole business.
• A strategic realignment – the process of developing and publishing a transition plan should be seen as a realignment of business strategy with net zero and not simply a box-ticking disclosure exercise.
• Part of a bigger shift – the net zero transition will only become a reality with collective action from different elements of society, such as technological innovation and government intervention, that combines to create an enabling environment.  

“A transition plan should be much more than simply a disclosure exercise; the process of developing and implementing a transition plan should serve as a strategic planning tool and roadmap for practical action to deliver net zero.” – Michael Izza, Chief Executive at ICAEW and member of the steering committee of the Transition Plan Taskforce (TPT).

Organizations should also keep in mind the importance of enhancing nature and reducing inequalities when developing net zero transition plans. Climate, nature, and people and communities are interconnected, so solving one crisis is dependent on solving the others. A net zero transition plan should therefore address the need for a just transition and contribute to the delivery of the targets of the Kunming-Montreal Global Biodiversity Framework.   

Several standards reference transition planning. For example:

• The IFRS S2 disclosure standard, published in June 2023, requires an entity to disclose “any climate-related transition plan the entity has, including information about key assumptions used in developing its transition plan, and dependencies on which the entity’s transition plan relies”.
• E1 of the European Sustainability Reporting Standards, finalized in July 2023,¹ states that “[t]he undertaking shall disclose its transition plan for climate change mitigation”.

Alongside these and other standards, some governments are starting to require transition plans. At COP26 the UK government announced that it will make transition plans mandatory, becoming the first government in the world to do so.² Some UK organizations, under Financial Conduct Authority rules, are already expected to publish a transition plan on a ‘comply or explain’ basis, in line with guidance from the Task Force on Climate-related Financial Disclosures (TCFD). Transition plan requirements are also in place in Brazil, New Zealand, the European Union, Switzerland and Japan.

Other governments have signalled their intention to regulate transition plan reporting, either through the adoption of the IFRS S2 disclosure requirements or other mechanisms, and more are likely to follow. TPT’s July 2023 status update provides further information on the global uptake of transition plan requirements.

To mitigate the potential risk of divergence across different jurisdictions, the International Sustainability Standards Board (ISSB) designed its IFRS Sustainability Disclosure Standards to be used worldwide, making them suitable as a global baseline. A4S partners with the ISSB for capacity building activities, including the production of guidance and resources to support global adoption and upskilling.

GFANZ, TPT and CDP have all produced guidance to illustrate what a good transition plan looks like. The guidance developed has, where possible, been mapped to existing frameworks and standards. 

GFANZ has produced various resources, including recommendations and guidance for financial institutions,  expectations for real-economy transition plans and workshops in a box. 

TPT has produced a disclosure framework and guidance to help organizations to disclose credible, useful and consistent transition plans.

CDP has a technical note on the definition, principles and elements of a credible climate transition plan.  

* This content was last updated in October 2023.

Finance teams have a clear role to play in leading or supporting their organization in transition planning, especially in areas specifically aligned to the work of finance teams, such as financial planning, raising transition finance, and developing metrics and targets.

To help you get started in developing a transition plan, A4S has produced a range of case studies and other resources.