Many organisations set climate targets, but far from all know how to reach them. The climate transition plan, or CTP (Climate Transition Plan), is one of the most important steering documents for prioritising, investing and managing the business in relation to sustainability. It connects climate targets to investments, risk and financial planning.
The climate transition plan defines the company’s path through the transition. The plan acts as a management tool for turning climate targets into concrete decisions, accountability and follow-up.
Even though the requirements have been formalised through ESRS, the need for transition is, at its core, business-driven. Today, investors and other stakeholders expect transparency on how ambitions are linked to investments, risk management and long-term value creation.
What is a climate transition plan?
So what are the key elements of the plan? A climate transition plan is a strategic summary that shows how a company will transition its operations in line with the Paris Agreement’s 1.5°C target. Under the CSRD, the climate transition plan is regulated in ESRS E1.
When climate is assessed as material in the double materiality assessment, the company must describe how the business model and strategy are compatible with a transition in line with the Paris Agreement. The plan should answer questions such as:
- What is required to transition the company?
- How will emissions reductions be achieved?
- When will emissions reductions take place?
- What targets and actions are planned?
Baseline and targets in the climate transition plan
The foundation of the climate transition plan is a baseline for carbon emissions. Emissions are measured according to Scope 1–3: direct emissions, indirect emissions from purchased energy, and value chain emissions.
Based on this baseline, the climate transition plan establishes three types of targets - short-, medium- and long-term:
- Short-term targets. Efforts that can take place within 1-5 years, such as energy efficiency initiatives or switching to renewable energy.
- Medium-term targets. Efforts that can take place within 5-15 years, such as reducing carbon emissions linked to suppliers and critical operations.
- Long-term targets. Efforts that can take place up to 2050 and lead to net zero emissions across the entire value chain.
Targets should then be broken down into milestones, monitored and reported on continuously. For many organisations, Scope 3 is the biggest challenge - both in terms of data and governance. Setting targets without a plan for, for example, supplier influence often results in targets that are symbolic rather than operational.
Roadmap for the climate transition plan
In the climate transition plan, you as a company need to be able to point to specific measures to reach your emissions reduction targets. This roadmap is also often called a climate roadmap and shows how ambitions are broken down into prioritised initiatives, resource allocation and follow-up. Measures should be linked to targets, milestones, cost and impact. The measures can be structured across different time horizons:
- Immediate measures. Relatively quick actions, such as switching to renewable energy or optimising existing processes.
- Medium-term measures. Measures linked to, for example, suppliers or designing products for reuse.
- Long-term measures. More transformative measures, such as electrification, new material choices and issues related to climate resilience in the business model.
A well-designed roadmap makes it possible to prioritise between measures, weigh climate benefits against financial impact, and ensure the transition is both feasible and economically sustainable.
Scenario analysis with multiple benefits
The climate transition plan needs to be dynamic, meaning it should be able to adapt depending on what happens along the way. This can include everything from new technology to new legal requirements. Scenario analyses should therefore be carried out to assess the consequences of different developments.
Scenario analyses have several benefits. They contribute to:
- Better prioritisation. Helping you identify which risks may become more important over time, rather than focusing only on the current situation.
- A more robust strategy. Allowing you to test whether strategy, targets and measures hold up even as conditions change - so you can identify vulnerabilities early.
- Support, governance and decision-making. Providing a basis for management and the board. You can show that the work is systematic, forward-looking and proportionate.
Integrated at all levels of the company
A prerequisite for succeeding with a climate transition plan is that it is integrated into the business strategy. What does that mean in practice? At its core, it means that climate-related risks and opportunities must be considered in all major decisions the company makes - from investments to the development of new products.
Integration of the climate transition plan must also happen across the organisation. It should be cross-functional between different departments - everything from procurement and sustainability to finance and marketing. The transition also needs to be financially secured, both for capital investments and operating costs.
Climate transition plan – from strategy to action
A prerequisite for turning the climate transition plan into action is a significant adaptation of the company’s organisation - from leadership all the way through the value chain. The real challenge is rarely to formulate a net zero target, but to break it down into measures that are financially, operationally and organisationally feasible.
- Leadership support. The plan needs to be integrated into the governance of the entire organisation and included in the company’s KPIs.
- Cross-functional collaboration. All parts of the company need to work together to reach the targets.
- Supplier collaboration. Collaboration needs to include targets for emissions reductions.
- The role of customers. This can involve how products are used and how waste is handled.
In other words, there needs to be a clear link to accountability and priorities throughout the organisation. As a company, you need control over your entire value chain. Last but not least, monitoring and reporting must work so that the right decisions can be made along the way.
Take control of the transition work
A climate transition plan without structured follow-up risks becoming a static document. To function as a governance tool, the plan needs to be integrated with targets, risks, actions and follow-up - and updated as the external environment changes.
The plan is significantly simplified with system support that enables traceability, accountability and continuous follow-up - for structured work. Read more about how Stratsys can support your organisation in ESG work.
