Climate Transition Plans Are The Next Mandate For EU Firms: Are You Ready?

Climate Transition Plans Are The Next Mandate For EU Firms: Are You Ready?

Climate transition plans, which demonstrate an organization’s commitment to and alignment with climate science recommendations to stakeholders, will become mandatory for EU-based firms over the next few years. Creating and disclosing transition plans will take significant resources as the plans cover all elements of an organization’s long-term net zero and climate risk strategy, requiring firms to define their ambition level, collect data and adjust operations. Robust transition plans, according to guidance from the CDP, detail the following elements: governance and policy engagement mechanisms; financial planning including time-bound actions to decarbonize business processes; climate risks and opportunities underpinned by scenario analysis; science based targets; and Scope 1, 2 and 3 emissions.

At the start of June 2023, the European Parliament agreed its negotiating position on the European Commission’s proposed Corporate Sustainability Due Diligence Directive (CSDDD). Once the CSDD has been formally adopted, around 2024-2025, member states will have two years to implement it into national legislation. In comparison to the initial proposal, organizations will now be required to execute Paris Agreement-aligned transition plans, in addition to performing due diligence on climate impacts. The new rules firstly apply to businesses with over 500 employees and more than €150 million in revenues, extending later to those with over 250 employees and €40 million revenue. Non-EU firms with revenues earned in the EU above the aforementioned thresholds will also be required to follow the regulations.

Accordingly, organizations should get started on formulating and applying climate transition plans before regulations force their hand. During London Climate Action Week, Bank of England COO Ben Stimson advised firms intending to create climate transition plans not to aim for perfection at the first attempt and to break long-term targets down into interim targets, in order to work within time horizons more commonly used in business planning. As well as appropriately conceptualizing the challenge, organizations should put key building blocks in place to get started:

• Establish a climate scenario analysis process – register for our upcoming webinar to learn more.
• Build out teams with a targeted talent acquisition strategy to aggregate corporate and climate attributes. For more information, see our recent report Strategic Focus: Mind The Climate Skills Gap.
• Leverage carbon management software to calculate and model Scope 1 to 3 emissions. For guidance on which vendor to select for assistance with this, take a look at our Buyer's Guide on carbon management software.
• Get support from consulting firms with relevant expertise. To see which services firm to shortlist for your requirements, check out the Verdantix climate change consulting benchmark.