10 reasons why your company needs a climate transition action plan
Among the key tools to ensure a company’s readiness for the future, is a solid climate transition action plan: a roadmap that indicates how your company will adjust its business model so that it aligns with the latest and most ambitious climate science recommendations. This means: halving greenhouse gas (GHG) emissions by 2030 and reaching net-zero by 2050 at the latest, to limit global warming to 1.5°C. Having such a plan, demonstrates that your company is committed to taking climate action and is a pre-condition for your business model to remain relevant and profitable in a net-zero carbon economy.
“A goal without a plan is just a wish.”
According to CDP, more than 4,000 companies worldwide — just over 20% of companies they surveyed in 2022 — had a climate transition action plan in place. If you’re not one of those 20% just yet, read on. We believe the list of reasons below might convince you to get started. To all the others, they will re-confirm that you are on the right track.
Your investors demand it
As important environmental tipping points are approaching at great speed, investors increasingly look to manage their exposure to climate risks. In 2022, 602 investors, representing nearly EUR 40 trillion in assets, issued a collective call for governments to require companies to disclose science-based climate transition plans, aligned with the 1.5°C pathway. They consider this vital, to ensure returns on the longer term and to benefit from the opportunities associated with the shift to a net-zero economy.
Things are also changing on the work floor. A recent article in the Harvard Business Review on the evolving role of Chief Sustainability Officers (CSO) highlights how CSOs are now increasingly part of direct C-suite conversations with investors. This demonstrates how investor interest in sustainability is skyrocketing.
Other companies are doing it
Embracing climate action undoubtedly drives innovation within your company. Developing new technologies, products and services that address climate challenges can create a competitive advantage and open up new market opportunities. More than 2800 companies worldwide, including 66 headquartered in Belgium, now have validated science-based emission reduction targets. Another 2400 have a commitment to do so, of which almost 40 reside in Belgium. Having a climate transition plan, via science-based targets or any other model, is gradually becoming business-as-usual.
Members of the Belgian Alliance for Climate Action such as bpost, Cofinimmo, Velux, Spadel and Lidl - as well as many other companies in our network - have been vocal about how they develop their plans. In doing so, they provide a useful signal to investors and other stakeholders of their take on climate action.
To win the war for talent
Showing that your company is serious about its role in the climate transition, has become a key factor to attract and retain talent. According to the European Commission, the green transition could create up to 1 million additional jobs in the EU by 2030. Still, companies often struggle to find workers with the right skills, while many job seekers are looking to work in companies with clear climate goals. In a survey by KU Leuven from 2022, almost 80% of over 2000 Belgian employees indicated that they find it important that their employer takes climate action. Almost one in five employees would even leave their current company when it does not take sufficient climate action.
4. It will soon be required by law
Governments around the world are increasingly implementing strict environmental regulations and are setting targets to limit GHG emissions. In early 2023, the European Corporate Sustainability Reporting Directive (CSRD) entered into force. All companies within its scope - roughly estimated at 50.000 companies - are required to disclose their transition plans for climate change mitigation. According to the latest draft standards published in November 2022 by the European Financial Reporting Advisory Group (EFRAG), the body tasked by the European Commission to advise on sustainability reporting standards link to CSRD, companies will need to explain how its targets are compatible with limiting global warming to 1.5°C and how their transition plan is embedded in their overall business strategy. Companies will also have to report on the progress made with implementing their transition plan.
The upcoming Corporate Sustainability Due Diligence Directive (CSDD) arguably goes even further. Article 15 of the CSDD’s latest proposal requires companies to effectively adopt a plan to ensure that its business model and strategy are compatible with the 1.5 °C target. Additionally, if a company has or should have identified climate change as a key risk for the company’s operations then the company should include emissions reduction targets in its plan.
5. To secure your long-term business model
Climate change poses various risks to businesses: there are transition risks, related to the conversion towards low-carbon operations, and physical climate risks, derived from extreme weather events, supply chain disruptions and business continuity issues. Developing a climate transition plan allows your company to identify and manage these risks, ensuring business continuity and resilience in the face of climate-related challenges.
Still, climate transition planning is often seen as a story of sticks without carrots. This recent academic study from the University of Münster in Germany, however, finds a positive correlation between companies’ financial performance and their commitment decarbonisation efforts by setting science-based emission reduction-targets. In other words: it pays off to be green.
6. To mitigate the risk of climate litigation
Communities and people increasingly start to hold ‘big emitters’ accountable for the negative effects of climate change. Consequently, this results in higher climate litigation risks for companies, and their directors.
In a recent study from the London School of Economics, researchers found a causal relationship between unfavourable court decisions in climate cases and reduced company value.
A groundbreaking example is the famous Client Earth’s court case against a Big Oil company’s Board of Directors. They were held accountable for failing to adopt and implement an energy transition strategy that aligns with the Paris Agreement.
7. Your clients and suppliers want to involve you in their own transition plans
Even if your company does not fall within the scope of the EU CSRD (see Reason 4), it is very likely that there are companies in your value chain who do. In order for these companies to map their scope 3 emissions, your company might be asked to provide and exchange carbon accounting data. Given the complexity of this exercise, it’s never too early to start working on this.
8. Customers will reward you for it
Having a climate transition plan enhances your reputation and allows to retain customers who prioritise sustainable products and services. This is especially true for companies operating in a business-to-consumers (B2C) market. A yearly survey on corporate reputations with the general public shows that companies with CEOs who are outspoken about environmental issues have higher average reputation scores. That same survey indicates that addressing climate change is found among the top 3 most important sustainability issues for companies to address in helping society to flourish.
9. Your Board is (or should be) asking about it
Not just investors, clients, suppliers and employees are putting pressure on companies to take climate action. Our partner Chapter Zero Brussels also sees things shifting at the Board level. Chapter Zero’s mission is to empower Boards of Directors across Belgium and the EU to ensure climate accountability and act on reducing greenhouse gases directly and indirectly emitted from their companies' activities. They are running the Director’s Climate Journey, a flagship for directors. This initiative aims to educate about the why and how of taking informed decisions in the climate area and support placing climate transition planning at the top of the corporate agenda.
10. To contribute your share to the Paris Agreement targets
The urgency of the climate crisis is clear. Although recent reports show that emissions need to be cut by 43% by 2030, a rising trend is manifesting. This puts the world at risk of failing to limit temperature rise to 1.5°C above pre-industrial levels and exposes it to the devastating impacts of surpassing various environmental tipping points.
By raising your ambition and sharing your plans for turning that ambition into action, your company can play a key role in bridging the gap. Not only will it allow cutting your own emissions; it will also give governments the confidence to take the bold action that is necessary to meet our collective climate goals.
11. Bonus: for the next generation
In 2014, Barack Obama quoted a fellow leader, saying that “we are the first generation to feel the impact of climate change and the last generation that can do something about it”. A study by the World Economic Forum suggests that people who feel a responsibility towards future generations are more likely to worry about climate change and support pro-environmental policies. It’s indeed an argument we often hear within our network: companies are taking climate action because their leaders want to be role models for the next generation.
What's next?
Climate transition action plans make business and climate sense. Do you want to take impactful climate action, but you don’t know where to start? Or do you simply want to step up your climate game and inspire others to choose the same path?
The Belgian Alliance for Climate Action offers a sprouting ground for like-minded organisations committed to taking their climate ambitions to the next level. We support over 100 organisations in setting science-based carbon reduction targets and effectively decarbonising their operations, and those of their value chain. Don’t be afraid to be ambitious. Get in touch and join our community of climate frontrunners!