Jun 18, 2024 4 min read Transition Planning

CDP: One-quarter of companies now have a 1.5ºC-aligned climate transition plan

Corporate adoption of climate transition plans rose last year, with one in four companies now stating they had one in their CDP disclosures.

Olivia Peluso

Photo by Marek Piwnicki on Unsplash

Corporate adoption of climate transition plans rose by 44% last year, with one in four companies stating they had one in their CDP disclosures, according to a report published Wednesday by the organization.

CDP – which runs the world’s only independent environmental disclosure system – found that 5,906 companies reported having climate transition plans in place last year, up from 4,100 in 2022. Another 8,200 companies said they expect to create such a plan by 2025.

“It’s evident that data on forward-looking commitments are becoming crucial tools for companies to build and maintain confidence with market stakeholders. This momentum is unmistakable,” said CDP chief executive Sherry Madera. “This is encouraging and a smart business move, as climate transition plans are an essential tool needed for credible businesses as they shift to net-zero.”

Climate transition plans highlight how a company expects to meet climate targets. They tend to include emissions reduction targets, decarbonisation levers, and planned investments and funding mechanisms to support their implementation. Several sustainability reporting regulations now require climate transition plans, though plan requirements vary among governments and regulatory bodies.

Transition plan credibility and scope slipping in some regions

Challenges remain around these transition plans’ robustness and scope. Per the report, less than 1% of all companies disclosing through CDP reported to all 21 indicators required to judge a plan’s credibility.

Among those who reported, businesses listed on Europe's FTSEurofirst 300 Index and Korea’s KOSPI 200 collectively outperformed their listed peers in the G20 considerably, CDP says, with 77% and 75% respectively covering most key indicators in their disclosures. Comparatively, Canada’s S&P/TSX60 and China’s CSI 300 were the poorest performing indices among G20 countries, with only 28% and 29% of companies disclosing data on most key indicators.

“Having robust plans is becoming more important for accessing capital, driving business efficiencies, and for complying with regulatory and market demands. Our data shows that companies consistently disclosing climate information through CDP are raising their ambition, and are more likely to be developing detailed, credible, and effective transition plans,” says Madera.

Guidance on what makes a “good” transition plan was still scarce in 2023. The UK’s Transition Plan Taskforce (TPT) released its disclosure framework in October, which has since been widely considered a “gold standard.” The document details five disclosure elements, including implementation and engagement strategy, metrics and targets, and governance. The TPT also released sector-specific guidelines to provide more in-depth information for seven critical industries: asset managers; asset owners; banks; electric utilities and power generators; food and beverage; metals and mining; and oil and gas.

Ceres, a US-based nonprofit, also published its “Blueprint for Implementing a Leading Climate Transition Plan.” And others are coming, among those one from EFRAG, which the organisation described as “transition plan implementation guidance” to help companies comply with the European Commission’s Corporate Sustainability Reporting Directive.

Hope for momentum

The new CDP analysis shows that companies can develop and disclose a “credible plan” in under two years, indicating potential for momentum. Some 25 of the companies assessed by CDP to cover all indicators were those signalling an intention to draft a plan two years ago. Overall, 39% of companies that reported having a plan are already disclosing data on most of these indicators needed to judge credibility, which the CDP interprets as a sign that many are well on their way to developing robust plans.

“Transition plans are now an essential part of any organisation's forward-looking strategy,” said Kate Levick, co-head of the TPT. “I would urge all companies to get started on their transition plan in order to stay ahead of the curve, and continue to disclose those plans year on year to ensure they continue to align with best practice.”

Transition plans are becoming more of a standard requirement for investors trying to understand where companies are in their climate transition. Some see them as a management tool to support business transformation: While sustainability reports review progress, transition plans force companies to break targets down into concrete measures, a shift seen as indispensable by sustainability experts.

With some 97% of companies having felt the negative impacts of climate change, climate resilience also is becoming an essential consideration for business operations. And regulators are interested in how these plans can help identify risks and obstacles as industries work towards becoming net-zero.

“Transition plans are one of the really critical pieces of infrastructure that you need in order to be able to build more integrity into the transition finance market, because they not only tell you about the past performance of the firm, but also what its forward-looking plans are, which is exactly the information that you need to make a much more meaningful distinction between companies that are taking the steps necessary, and those that are maybe missing the opportunity,” Ira Poensgen, Secretariat Technical Lead at TPT, told CSO Futures last month.

Several companies, including multinational telecommunications giant Vodafone, have published their inaugural transition plans this year. According to the plan, Vodafone aims to achieve net-zero emissions across its value chain by 2040. Actions toward this goal include building carbon data analytics capabilities, expanding product lifecycles, and encouraging repairs and trade-ins. The company also said that, to reduce supply chain emissions and support procurements, it would explore using internal carbon pricing.