Driving value from net zero transition planning

In October 2023, the Transition Plan Taskforce (TPT) published its final disclosure framework, which sets the standard for disclosing climate transition plans. The framework builds on the existing requirements to disclose transition plans under the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and IFRS Sustainability Disclosure Standards. The aim is to help organisations meet their climate goals and support the Government’s pledge to achieve net-zero greenhouse gas emissions by 2050.

Your planet

Climate change is a key issue for governments, investors, employees and customers, and any elements of 'greenwashing' could damage your business's reputation. Hence, as organisations make commitments and plans to reach net zero, there's a growing need to ensure the credibility and assess the financial impact of these transition plans.

The TPT aims to drive good practice based on the following three key principles:

• Ambition – objectives and goals should be ambitious and help the wider economy meet net-zero targets
• Action – firms need to break down these ambitions into clear actions in the short, medium, and long term
• Accountability – transition plans need to have board-level oversight, and be backed by appropriate governance arrangements, incentives and accountability processes

Transition plans are much more than a compliance requirement. While the foundations of transition plans lie in the climate risk facing our planet, the approach is steeped in ensuring a transition to a just and sustainable business model. Ultimately, if done in the right way, robust transition plans will benefit people and profit too.

Your people

Focusing on your environmental impact can be a powerful tool in employee attraction and retention. Research from Great Place to Work (2019) found that people who feel their employers make a positive impact on the world are:

• 11 times more likely to say they plan to stay with their organisations for the long haul
• 14 times more likely to say they look forward to coming to work.

Research by IBM (2022) also found that 67% of people are more willing to apply for jobs with environmentally sustainable companies. From the same study, roughly one in three people who had changed jobs in the past year, had accepted a lower salary to work for a socially responsible or sustainable organisation.

Your purpose

Environmental, social and governance (ESG), in its broadest sense, is becoming a consumer expectation. A 2022 consumer study by the IBM Institute for Business Value and the National Retail Federation found that purpose-driven consumers – those who choose products and brands based on their alignment to their values – represent the largest segment of consumers, at 44%.

Companies will need to align to this consumer shift. Thinking about greenhouse gas emission reduction is a key part of transition planning. Scope 3 emissions across the company’s value chain are more challenging to measure and control versus scope 1 emissions (direct) or scope 2 (indirect, energy-linked). In the current context, managing these will be essential to engage with the purpose-driven consumer, as well as deliver the economy-wide transition that the Transition Plan Taskforce envisages.

Your profit

Certain ‘pathway to net zero’ decisions can lead to efficiencies that can reduce your cost base or be reinvested for future growth – preparing your organisation to operate successfully in a net zero world. Transition plans can drive diversification, or alternative ways of doing business, which can positively impact your bottom line.

As you go through the transition planning cycle under the TPT framework, you need to consider your organisation's objectives, and what this means for your operating model. It involves looking at the business model implications, for example, impacts on products or services caused by resourcing, cost and material independencies, to name a few. As with any transformation plan the rigorous management of risks, opportunities, and key milestones is vital to progress and, when possible, acceleration of the transition.

How to get started on your transition plan

A robust transition plan can drive cost reduction, support talent attraction and retention, and positively impact your brand reputation while helping you keep a competitive edge. Some practical steps you can take when developing a credible transition plan and an execution strategy for reaching net zero:

• Alongside regulatory need, be clear about the 'why' of your transition plans and ensure stakeholders are on board
• Establish accountability through robust timelines and key milestones
• Boost transparency through regular communication of progress towards your net-zero emissions target, including financial impacts and opportunities
• Identify and quantify the financial impact of climate-related risks and opportunities
• Use a strategic rather than piecemeal focus to make your transition plans more efficient and effective
• Be transparent about the ongoing and one-off costs that may be occurred – and look for opportunities to reduce this financial impact
• Consider engaging with external experts or sustainability consultants to help guide you through the planning and implementation process
• Start your transition plan journey early and review and update it against your key milestones to ensure that it remains relevant and effective as regulation and best practice evolve