Six key components of a transition plan for climate change mitigation

WHAT YOU NEED TO KNOW

The CSRD sets detailed requirements for sustainability reporting, and you can find information about the directive’s scope and timeline in our CSRD Guide.  

Organizations must use the European Sustainability Reporting Standards (ESRS) to report under the CSRD. The standards cover a range of environmental, social and governance matters. For the relevant climate-related disclosures, the ESRS E1: Climate Change standard essentially translates the scientific concept of corporate decarbonization into a reporting standard.

WHAT YOU NEED TO DO

Developing a transition plan for climate change mitigation involves evaluating past, current and future decarbonization efforts in line with the ESRS. The following six components help businesses navigate their journey.  

1. Establish the baseline GHG inventory. A comprehensive greenhouse gas inventory – based on the Greenhouse Gas Protocol – builds the foundation for goal setting and establishes credibility. For this, companies should:

• • Calculate greenhouse gas emissions across Scope 1, 2 and 3 in line with the requirements of the GHG Protocol.  
  • Set up an emissions quantification process with annual, iterative, deepening reviews.  
  • Verify assessments through a third party. 

2. Identify GHG reduction potentials. Companies need to gain transparency on carbon hotspots and GHG emissions reduction potentials. To lower direct and indirect emissions, companies can:

• • Improve energy efficiency and use renewable sources. Introduce initiatives to optimize energy consumption in buildings and operations. Develop plans to switch to clean technologies.  
  • Adopt low-carbon procurement. Source sustainable materials and products in upstream processes. 
  • Investigate eco design. Include environmental aspects in product development, which influences downstream emissions from product use or end-of-life processes.  
  • Optimize processes. Modify operations to reduce emissions from production and transportation.  

3. Develop the transition plan including decarbonization scenarios. With their decarbonization roadmap and targets, the organization defines measures it will take to reduce its carbon footprint. These measures are typically spelled out in policies, actions and targets.

• • Policies: Develop tactics related to climate change mitigation and adaptation.  
  • Actions: Define the  intended activities and allocate resources for their implementation. 
  • Targets: Align GHG emissions reduction goals with science-based climate targets and confirm the decarbonization trajectory through standards. 

4. Transform the business strategy. The transition plan is likely to affect the entire organization. Businesses must imbed the desired environmental and economic outcomes in their structures, processes and roles. They will need to evaluate the climate-related risks, opportunities and financial impacts associated with the transition.

• • Product and service portfolio: Assess decarbonization readiness and identify products with positive/negative contributions. 
  • Capital expenditure allocation: Budget for investments in clean technologies and infrastructure upgrades and integrate this financing into the business strategy. 
  • Financial incentives: Explore potential financial mechanisms such as internal carbon pricing or green bonds. 

5.  Implement climate strategy. Companies will need the right instruments to operationalize processes and drive change throughout the entire organization.

• • Executive leadership commitment: Get approval by the executive and supervisory boards to underline their support. Integrate performance on climate targets into pay structures to generate commitment and engagement.  
  • Ownership: Establish teams and roles responsible for implementing the plan and for tracking progress toward targets. Review teams’ performance regularly. 
  • Stakeholder engagement: Communicate climate goals to customers and educate suppliers or provide incentives to reduce Scope 3 emissions. This can help engage businesses that are not covered by CSRD legislation. 

6. Monitor progress. Finally, organizations will have to monitor emissions impacts against the transition plan, then update activities, metrics and targets to reflect the progress made. Documenting and reporting on challenges, as well as on progress, ensure transparency.

FOR MORE CONTEXT

As mentioned, the climate transition plan must be aligned with the organization’s overall business strategy. With the plan, enterprises demonstrate that they are aware of and prepared for changes brought about by the transition to a low-carbon economy.  

Additionally, the concept of “just transition” is an ESRS requirement (ESRS S1 §14e), which states that companies are required to disclose how their transition plan affects their own workforce. Plans should also ensure fair outcomes with decent work conditions and respect for human rights throughout the value chain, as well as for communities and consumers. 

THE BENEFITS