Climate Transition Planning

On this page:

• What Is a Climate Transition Plan?
• Key Components of a Climate Transition Plan
• How to Develop a Climate Transition Plan
• Helpful External Resources

What Is a Climate Transition Plan?

A climate transition plan is an action plan where an organization describes its strategy to transition all its processes, operations, and business models to meet its public commitments within a specified timeframe. This plan is a vehicle for providing stakeholders with the details behind how an organization will achieve their GHG reduction targets and the implications to the organization's business model, strategy, and financials. Requirements and regulations, along with stakeholder interest for transparency and demonstrated action are driving the need for climate transition plans.

Key Components of a Climate Transition Plan

A comprehensive climate transition plan consists of the following components:

• Near-term and long term greenhouse gas (GHG) emissions reduction targets. A foundational piece of a climate transition plan is setting near-term and long term GHG emissions reduction targets. View EPA's target setting guidance for more information on setting GHG emissions reduction targets.
• Strategies to achieve targets within a defined timeframe. In a climate transition plan, organizations should disclose their strategies to achieve their near-term and long term GHG emission reduction targets. This can include supplemental graphics such as a decarbonization wedge chart that depicts the decarbonization pathways and strategies for achieving the goals. The example wedge chart below shows how a hypothetical organization plans to achieve a scope 1 and 2 GHG emissions reduction target. Strategies identified include renewable energy procurement, energy efficiency measures, electrification, and switching to low carbon fuels.

Hypothetical Scope 1 and 2 Decarbonization Roadmap Wedge Chart

• Engagement plan for the value chain, industry, government, public sector, and customers. A climate transition plan should outline plans for engaging with an organization's value chain, industry, government, public sector, and customers. The value chain engagement strategy should describe how the organization will encourage suppliers, peers, and customers to transition to a low carbon economy. This could include education and incentives offered to suppliers to reduce their emissions and the organization's scope 3 emissions. It may also include working together with customers to promote low carbon products and services. As an example, an organization might strive to have suppliers that contribute to 70 percent of the organization's total scope 3 category 1 and 2 emissions set their own targets by 2030. The transition plan should also highlight collaboration with industry peers, intended to send joint market signals to policymakers. View EPA's supply chain guidance for information about engaging with suppliers.
• Scenario analysis that identifies climate risks and opportunities. Analysis of multiple climate related scenarios should be completed and underpin the transition plan. Based on the scenario analysis, the organization should identify climate related transition risks and opportunities.
  • Examples of transition risks: Increased flooding risk due to extreme precipitation events or storm surge; future climate related regulations; increased power interruptions; increased heating and cooling costs due to extreme temperatures; Increased cost to transition to new technologies such as renewable energy or electric vehicles.
  • Examples of transition opportunities: Development of new products or services that leverage an organization's ability to support a low carbon transition; competitive advantage from products or services offered that are aligned with a 1.5°C future.

For more information see EPA's Climate Risks and Opportunities Defined and Steps to Reporting Corporate Climate Risks and Opportunities.

• Priorities to respond to physical and transition risks and the impact on business model. Transition risks and opportunities should be translated into core business risks and opportunities, for example, operational, financial, or reputational. This should be linked back to the organization's overall strategy. The organization should also outline their plan to respond to the transition risks and how they will adjust their business model accordingly.
• Accountability mechanisms and quantifiable key performance indicators. Disclosing accountability mechanisms for delivering the climate transition plan is critical. The plan should have Board and executive leadership oversight and incentivization. The responsible parties should also have adequate authority and access to resources to ensure effective execution. In the climate transition plan, the organization may disclose how corporate policies have been updated to support accountability and plan achievement. These accountability mechanisms should be backed by quantifiable key performance indicators that are tracked and reported annually. Beyond the leadership level accountability, this should also include employee engagement. For example, training provided to all employees and change management plans to align the organizational culture with a low carbon transformation.
• Financial planning. A climate transition plan should describe the supporting financial plans, budgets, and related financial targets (e.g., amount of capital and other expenditures supporting the decarbonization strategy). This should also include details about spending and/or revenue that is aligned with the organization's transition. Additionally, information on how climate considerations are integrated into capital allocation and financing decisions, expected changes in capital allocation and financing decisions, and high-level information on the impact of capital allocation and financing decisions on climate objectives should be disclosed. The plan may also include details about internal carbon pricing used as a decision-making tool and framework on decarbonization.

How to Develop a Climate Transition Plan

To develop a climate transition plan, several fundamental steps must be completed first.

1. Develop complete scope 1-2-3 GHG inventory. If an organization has not already conducted a complete scope 1-2-3 GHG inventory, this is the first step that should be taken. For more information see EPA's guidance on developing a GHG inventory.
2. Set near term and long-term targets. If an organization does not already have targets that align with the latest climate science, this should be the second step taken. View EPA's target setting guidance for more information on setting GHG emissions reduction targets.
3. Identify and engage key stakeholders. Developing a climate transition plan is a collaborative process that will require stakeholder engagement. Stakeholders may include but are not limited to, the Board, executive leaders, procurement teams, finance teams, energy and building teams, and manufacturing teams. These key stakeholders can provide information on actions that will support target achievement, governance and accountability mechanisms, and financial impacts.
4. Identify actions required to meet targets. To develop transition plan actions, key strategies for emissions reductions should be identified. This can be done through an emissions reduction road mapping effort. Emissions hot spots should be identified first. From there, the key actions that can be taken to reduce those emission hot spots can be identified. EPA offers several GHG reduction programs and strategies that can help identify and implement GHG reduction opportunities.
5. Perform a climate risk and opportunity assessment. Identify an organization's climate risks and opportunities. For more information see EPA's Climate Risks and Opportunities Defined and Steps to Reporting Corporate Climate Risks and Opportunities.
6. Gain leadership approval for governance mechanisms around achieving the plan. It is important to have leadership buy in regarding the accountability and governance mechanisms outlined in the plan. This will ensure the accountability mechanisms are implemented and that those being held accountable are bought in to their responsibilities regarding the plan execution.
7. Integrate reporting of the plan into general purpose financial reports such as an annual report. It is best practice to include climate related reporting alongside general financial reports.

Helpful External Resources

• UK Transition Plan Taskforce (UKTPT): The Transition Plan Taskforce Disclosure Framework (pdf)
• CDP Technical Note: Reporting on Climate Transition Plans
• Task Force on Climate Related Financial Disclosures
• International Sustainability Standards Board (ISSB) Standard IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information
• International Sustainability Standards Board (ISSB) Standard IFRS S2: Climate-related Disclosures
• International Financial Reporting Standards