Across the globe, an energy transition is underway, and companies are planning for these shifts. For many companies, preparing their businesses for the future includes committing to decarbonization goals. To reach these goals — and meet expectations from regulators and investors — organizations need to develop robust climate transition plans. We were joined by Cate Hight, Partner at Bain & Company, and Persefoni’s Chief Global Policy Officer, Emily Pierce, for a fireside chat to share insights and strategies for climate transition planning.
Climate Transition Strategies: 5 Key Insights
Here are the top five takeaways from their conversation.
1. It’s time to think about concrete, near-term actions.
There is no longer uncertainty about the direction of the energy transition. Climate change is shaping global economic trends, and businesses are responding. What’s less clear is the pace. Organizations need to think not just about long-term planning but about concrete, near-term actions. An orientation toward 2030 is increasingly important.
It’s time to get pragmatic, starting with questions like:
- What’s an achievable and realistic decarbonization target?
- In the next 5-10 years, what will you do to differentiate from the competition, win additional market share, and accelerate progress on climate targets?
- How are you going to align capital to make these steps happen?
“Organizations are orienting to near-term action as the North Star. It’s exciting to see the turn to a very pragmatic, ‘today’ mindset,” Hight explained. For example, chemical and energy clients are considering how to make investments in lithium now to meet the booming demand for electric vehicles.
2. Transition planning is here to stay.
As climate-related disclosure requirements come into effect, formal transition plans are going to be expected, and the expectations for transition plan disclosures will be more specific.
Many companies are still understandably hesitant to put their transition plans in writing when regulatory requirements are in flux — but global best practices are already taking shape. The influential International Sustainability Standards Board (ISSB) recently assumed responsibility for the UK Transition Plan Taskforce (TPT) framework, a move that promises to harmonize transition plan requirements around the world. The TPT framework provides a useful tool to help ensure that your transition plan meets global standards.
We’re seeing policies evolve from “if you have a plan, you must disclose it” to “you must have a plan.” Europe’s Corporate Sustainability Due Diligence Directive (CSDDD), for example, mandates transition plans from certain organizations. In today’s environment, transition planning is no longer a “nice-to-have” — it’s a core part of a business strategy. “Having a transition plan is a strategic call,” Pierce explained. “It’s the first step in preparing for one of the largest macro trends in the global economy.”
3. It comes down to risk management, strategy, and value creation.
Transition planning starts with identifying and managing risk. You need to understand the physical and transition risks you face, then move forward with developing a strategy that creates business value. You can begin with questions like:
- What do our customers want?
- What new products are they demanding that enable us to meet our climate goals?
- Are there opportunities to deliver new products that transform our carbon footprint?
Your strategy should be about shaping opportunities, not just reacting to risks. For example, one tool company in Europe looked at its footprint and decided the most strategic approach to decarbonizing was to become an electric tool company.
4. Climate change impacts have a ripple effect, and so will climate policies and regulations.
Just like you need to consider how climate change risks and impacts can shape the environment for your business, you need to understand how climate disclosure regulations will shape the markets you operate in. It’s not enough to just consider what regulators require of you. Ultimately, your audience is global investors — and transition plans are becoming a market norm. Europe’s Corporate Sustainability Reporting Directive (CSRD) already requires transition plan disclosure from thousands of businesses. If your peers are disclosing their transition plans, investors may expect the same from you.
Similarly, if your partners have set targets that include scope 3 reductions, they may look to you for emissions data — and reductions — to support their plans. While companies can account for their own scope 3 emissions using estimates, the European Sustainability Reporting Standards (ESRS) require companies to disclose the percentage of emissions calculated using primary data from suppliers or other partners. The IFRS Climate-related Disclosures standard asks companies to prioritize primary data, and to make disclosures about how they calculated their scope 3 emissions. As organizations work to improve their own disclosures and support their decarbonization plans, they will ask for more data and seek more action from their business partners. Even if your company doesn’t face direct regulatory obligations, you need to think about what’s a good strategy for your business, not just the minimum you need to do in order to be compliant.
5. Adopting a systems lens will prepare you for the future.
Companies that proactively figure out how to organize against the challenge of climate change now, instead of hedging and waiting to see what happens with policy developments, will have an advantage. Smart organizations are applying a systems lens to the issue. They’re moving sustainability into the C-suite and engaging the CFO function now. They’re asking strategic questions like:
- What’s the commercial upside of the climate transition?
- How are we positioning ourselves with customers?
- Are there opportunities to add to our portfolio?
Forward-thinking organizations are focused on developing market-shaping behavior, engaging policymakers, and seeking opportunities to partner across the value chain. The energy transition is largely driven by policy, regulation, and market shifts. Understanding these developments is crucial. Every organization should mobilize a key person to stay abreast of climate policy and regulation and consider how it will impact your business. The more you engage in civic dialogue about addressing the climate change challenge, the more ready you’ll be to capitalize on the changing marketplace. “You need to think about how to participate in the energy transition in a holistic and aggressive way,” Hight said. “It all comes down to value. How are you going to create value out of transitioning your company?”
Climate Transition Planning: A Key to Future Business Success
At its core, climate disclosure is about communicating your business strategy and business risk to investors — and a big part of that strategy is how you’re preparing for the energy transition. Companies that create comprehensive climate transition plans now will have a competitive edge.
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