Deliver a climate transition plan

This guide enables organisations to:

• prepare and implement a transition plan
• ensure delivery of the plan by integrating targets and actions into contracts
• establish a board committee with specific responsibility to develop, implement and review the transition plan
• put in place an annual reporting mechanism to update the plan every twelve months to assess progress made towards its targets.

What is a transition plan and why do organisations need one?

A transition plan outlines how an organisation will credibly transition to a lower-carbon economy contributing to limiting the increase in global temperature to 1.5C. The plan should (as best practice) also:

• ensure the organisation’s resilience, and address transition risks impinging upon its strategy and business model
• take into account:
  • physical risks impacting the organisation’s assets and operations
  • nature-related dependencies, impacts, risks and opportunities that may affect its delivery, the organisation’s business and its stakeholders
  • the achievement of climate and sustainability objectives recognised in international hard and soft law instruments. 

Examples of nature-related dependencies, impacts, risks and opportunities include:

• dependency: a water system the organisation relies on
• impact: on soil integrity or diversity of species underpinning an ecosystem
• risk: soil degradation or a declining bee population
• opportunity: reducing impacts on nature by using less natural resources, like water, while creating operational efficiencies and reducing costs.

If an organisation is caught by legislation or is serious about reducing its greenhouse gas emissions and getting ahead of any legislative changes, it must both put a transition plan in place and then carry through targets and actions into its contracts. It needs to be aware of when and how contracts need to be amended in order to align them with the transition plan.

Before an organisation can prepare a transition plan

In order to prepare a robust transition plan with realistic climate and nature targets, an organisation needs to gather information. It must also consider the wider context of its operations, and identify how it is going to produce and maintain the transition plan and embed targets and actions within its contracts. 

An effective transition plan will be prepared collaboratively, involving people from all parts of the organisation, including internal counsel and compliance officers. It should:

• Measure:
  • its own greenhouse gas emissions (scope 1 and 2), ensuring integrity and reliability of the calculations and the emission boundaries 
  • its emissions [and environmental impacts] from its supply chain (scope 3). It can do this through  questionnaires with existing suppliers and due diligence during supply contract procurement (see Request climate information in due diligence questionnaires guide and Just Transition glossary term).

• Identify:
  • high-emitting assets to be divested and which legal arrangements need to be terminated or amended to implement swift and successful decommissioning of high-emitting assets and technologies
  • the organisation’s levers with counterparties and related legal risks deriving from the decommissioning
  • new investments in low-carbon capital expenditures that can credibly contribute to the reduction of its emissions to align with the 1.5C pathway
  • which type of legal arrangements are needed to implement the commitment to invest in low-carbon technologies, the organisation’s levers with counterparties and related legal risks
  • internal and external stakeholders (such as supply chain, consumers, businesses in the same sector, industry associations and government) with a view to engaging with them about sharing responsibility for delivering the plan and so that they can help develop their targets and delivery methods.

• Consider:
  • the wider role it can play in reducing economy-wide emissions (for example, through lobbying)
  • what impact any transition activities may directly (or indirectly through the supply chain) have on nature with a view to ensuring actions contribute to nature restoration and regeneration rather than decline
  • drivers of change related to technology advancements, adoption of policy and legislation, consumer shifts impacting its strategy and business model, and their potential impact on the feasibility of the plan
  • what engagement it may need to carry out with stakeholders and come up with a plan of action for regular and meaningful engagement activities and how any findings will be gathered, considered, and actioned
  • just transition issues (for example, related to the decommissioning of assets and the investment in low-carbon technologies) and assess the impact of the transition plan on its own workforce, supply chain’s workforce and communities.

• Assess:
  • all current contracts (including length and renewal dates) to understand where emissions and other environmental impacts lie and what action needs to be taken to enable the transition plan to be successfully delivered
  • the need for skills and expertise to foster the transition within its organisation
  • policy and legal dependencies related to the chosen type of low-carbon technologies and identify whether the technology is aligned with the regional or country’s industrial transition pathways.

• Prepare:
  • a team or teams within the organisation who will be responsible for creating, implementing, reviewing, updating and reporting the transition plan, ensuring that they have cross-organisational support
  • an investment and financial plan and budget to finance any actions in the transition plan.

Prepare a transition plan

A best-practice transition plan should include:

• Targets and actions:
  • time-bound greenhouse gas emissions-reduction targets (for scope 1, 2 and 3) in five-year steps starting from 2030 up to 2050 based on conclusive scientific evidence. (Scientific evidence is evidence with independent scientific validation, consistent with the limiting of global warming to 1.5C with no overshoot as defined by the Intergovernmental Panel on Climate Change and taking into account the recommendations of the European Scientific Advisory Board on Climate Change)
  • short-, medium- and long-term actions and levers that can be used to achieve the emissions-reduction targets [and any other environmental targets] while safeguarding and restoring nature and human rights.

• Details of:
  • how and which contracts will be amended on renewal to reflect the objectives of the plan and how the terms of new contracts will be approved and aligned (in line with a just transition)
  • the exposure of an organisation to coal-, oil- and gas-related activities
  • the role the administrative, management and supervisory bodies will play in relation to the transition plan
  • measures to mitigate risks to employees, stakeholders (for example, suppliers, communities and customers) and the environment
  • measures to maximise opportunities for employees, stakeholders and the environment 
  • governance and accountability mechanisms to support the transition plan, including reporting, approval of significant contracts and linking executive remuneration to achieving interim targets.

• Consideration of:
  • the impacts and dependencies of the plan and the organisation’s business on the natural environment (and associated risks and opportunities) and how these have been identified, assessed and taken into account.

• An explanation of and quantification for how meeting targets will be financed (including investments and funding)
• Promotion of a just transition to a low-carbon economy.

Check the latest guidance for your jurisdiction and any relevant mandatory requirements as well as international frameworks and standards.

Allocate responsibility for delivery of the transition plan

The highest level of management buy-in is required if an organisation is to successfully decarbonise. Establish a board committee with specific responsibility to deliver the transition plan and emissions-reduction targets. Bear in mind that all board members must take responsibility for integrating this into company strategy, in accordance with their company law duties. 

The committee should comprise or be advised by subject matter experts who can improve the accountability, evidence base and transparency of the organisation’s climate decisions and measures. The organisation may want to appoint an external climate expert.

For more detail, see our guide Align the board with climate goals.

Require board approval for significant contracts

Make board approval mandatory for any proposed significant contracts, as these could have material carbon or nature implications. This gives the board greater oversight and control over transactions that may derail its transition plan. 

Establish governance and approval processes for the board to:

• define a ‘significant contract’ by reference to both value and length (such as, above £0.5m or more than two years in duration)
• consider the impact on the organisation’s emissions targets of proposed significant contract
• review and approve the carbon footprint of proposed significant contracts to ensure they are within the organisation’s targets, and align with its decarbonisation strategy and transition plan.

For further drafting, see Griff’s Clause (Template Board Paper for Significant Contracts/ Transactions).

Publish an annual progress report

The organisation should put in place a mechanism to ensure that the transition plan is updated annually and that progress towards the targets set is described as part of this. A transition plan is a living document. It must be iterative and responsive to changing factors. Ideally, an organisation will publish publicly an annual report on its progress to reduce emissions. The organisation should outline the minimum requirements of what the report must include. 

Check the latest guidance for your jurisdiction and any relevant mandatory requirements as well as international frameworks and standards.

Ensure contracts are aligned with the transition plan

To deliver the transition plan, emissions-reduction targets and the actions called for must be integrated into contracts and legal documents. If this is not done then the transition plan cannot be delivered and there is a risk of failing to comply under legislation in some jurisdictions.

To align contracts with the transition plan: 

• Commit counterparties to decarbonisation: use supply contracts to require counterparties to implement decarbonisation measures that align with the organisation’s own transition plan.
• Set emissions-reduction targets and reporting standards: use supply contracts to require counterparties to measure, manage and report on their contract-related emissions. Read our guide Get information on contract emissions.
• Include employee training in contracts: use supply contracts to require counterparties to provide training for employees and contractors.