Stage 1 Re-Assess

The Transition Planning Cycle

The first stage of preparing a transition plan is to assess your current position, leveraging the analysis of climate-related risks and opportunities carried out to support your wider corporate strategy and disclosures in line with the ISSB Standards and/or the TCFD recommendations:

Before you start: Engage your board

As you set out on your climate transition planning journey, it is important to establish robust governance arrangements to ensure appropriate awareness, ownership, and challenge. As part of this, you may consider the following steps:

Build Board-level buy-in, awareness and skills:

Transition plans are an integral aspect of an entity’s corporate strategy. Responding to climate change to protect and enhance long-term value is a Board-level issue in line with directors’ duties. Regardless of where you are in your transition planning process, it will be important to ensure that your Board has a good baseline and shared understanding of climate science, of your entity’s climate-related risks and opportunities (physical, transition and liability), and of their governance role relating to climate. This may be built through internally or externally provided training and regular briefings, and through Board effectiveness assessments.

As your strategy and transition plan develop, your Board will need to be regularly engaged on it. This will enable them to uphold their governance and oversight role, such that they:

  • develop the right competencies, knowledge, and expertise to challenge whether the plan is robust and credible;
  • can hold management to account for its delivery; and
  • can ensure that the plan is being appropriately integrated into the corporate strategy and risk management processes.

Before you start: Ensure cross-company ownership

With Board-level buy-in, steps may be taken to ensure that the transition plan is owned at the executive level and embedded across functions, divisions and business lines within your organisation.

Developing and executing a transition plan will require inputs and a coordinated response across a wide range of functions, divisions, and business lines, with clearly defined roles and responsibilities. From the outset, leadership teams may therefore want to consider how they will ensure that ownership over the transition plan is embedded across the company.  

Different organisations may use different governance structures to achieve this. Many will find it helpful to have a cross-functional working group (or equivalent governance body) which ‘holds the pen’ on the development of the transition plan.

Recognising that effective climate transition planning will entail whole-of-organisation transformation, it will need to be approached as an integral part of wider corporate strategy. Accordingly, you may need to leverage, and integrate the planning process into, existing structures for decision-making and strategy-setting.

Resources:


This sub-step may inform disclosure against:

  • TPT Sub-Elements: 5.1. Board oversight and reporting, 5.2 Management roles, responsibility, and accountability

Case Study: Tyman’s Board engagement journey

A conversation with Jonathan Garrett, Group Health, Safety & Sustainability Director, Tyman

Case Study: Phoenix Group’s Board engagement journey

A conversation with Bruno Gardner, Head of Climate Change & Nature, Phoenix

Kingfishers approach to Climate Governance

Kingfisher is an international home improvement company operating in eight countries across Europe, under retail banners including B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint, and Koçtaş. Kingfisher summarise their approach to Climate Governance in the below case study.

Setting up effective governance structures from our Board of Directors to our retail banner sustainability teams has been essential to ensure that transition planning is joined up and aligned to business strategy.

Climate change governance has been integrated into our overarching group governance framework. In 2022 we established a Group Climate Committee, chaired by our CEO, and made up of representatives from the Group Executive and retail banner board members. The committee is supported by our Group Climate Change teams, it meets quarterly and has oversight of Kingfisher’s approach and delivery of net zero targets and its transition plan.

Key decisions and actions from the Group Climate Committee are shared with the Board of Directors through the Kingfisher Responsible Business Committee (RBC). The RBC  is chaired by a non-executive director and attended by our CEO, it oversees the delivery of the Kingfisher Responsible Business strategy and provides advice and assurance to the Group Executive and the Board on all matters relating to responsible business practices (including climate change). The Board also assesses the Group’s principal and emerging risks, which includes climate change, and is updated on our external climate targets on an annual basis.

To help ensure that governance is joined up across the organisation and that we continue to deliver on our climate commitments and targets, we also established a Climate Disclosure Steering Group (‘Steer Co’) and group-wide Climate Transition Plan Working Group.

The Climate Steering Group meets monthly and is attended by directors from finance, internal audit and risk, responsible business, and the retail banners. It provides a steer and input on any climate-related disclosures, including TCFD and transition planning.

The Climate Transition Plan Working Group, reporting into the Steer Co, meets fortnightly and brings together the climate leads from our retail banners and relevant group functions (such as finance, property, and logistics). The objective of the working group is to act as a central point of coordination for the development of Kingfisher’s climate transition plan, ensuring consistency in transition plan development across all our banners. It is chaired by our group climate leads and acts as a cascade point for information regarding key decisions made at the Group Climate Committee that need to be actioned at a retail banner level. It also acts as a support and knowledge hub for climate change leads across the business, where topics such as Scope 3 planning and finance integration can be discussed in more detail.   

Engagement across all levels of our organisation has been a helpful exercise to identify where climate change transition planning decisions and communications efforts need to be targeted. This has been helpful for Kingfisher as the climate governance within each retail banner can be different.

Map key stakeholders

As a starting point for your transition planning journey, you might find it valuable to conduct a stakeholder mapping exercise to identify the interactions, resources, and relationships that you use and depends on to deliver on your corporate strategy. This will include identifying key groups of internal and external stakeholders, and understanding your interactions with society, the economy, and the natural environment.

Key stakeholders may include:

  • entities along the value chain (e.g. investors, suppliers, customers etc.);
  • industry counterparts (e.g. peers, membership bodies, industry associations);
  • governments, public sector organisations (e.g. regulators), local communities and civil society; and
  • internal stakeholders (e.g. workers, contractors etc.).


Be prepared to engage key stakeholders throughout the transition planning process; resources, relationships and dependencies are relevant at every stage.

Resources:


This sub-step may inform disclosure against:

  • TPT Sub-Elements: All Sub-Elements

Assess your climate related risks and opportunities

A transition plan should be grounded in a broader understanding of your material climate-related risks and opportunities. You will be able to build on any existing assessment of climate-related risks and opportunities carried out to support your wider corporate strategy, and/or to support disclosures in line with the ISSB Standards, TCFD Disclosure Recommendations and related reporting requirements that you may be subject to.

When undertaking a climate-related risk and opportunities assessment, you may assess physical (i.e. acute, and chronic) and transition risks (i.e. policy and legal, technological, market and reputation), as well as climate-related opportunities (i.e. resource efficiency, energy sources, products/services, markets, and resilience).

Scenario analysis is an important tool to support the identification and assessment of risks and opportunities. Exploring different possible future scenarios will help you develop a better understanding of your exposure to possible future risks or opportunities and inform your assessment of the strategic options available to respond to these – e.g. by applying identified transition levers, financial planning and capital allocation, and engagement strategies.

In assessing vulnerabilities to the physical impacts of the changing climate, you may consider a wide range of possible future warming scenarios, including more extreme scenarios (e.g. modelling an average increase in global surface temperatures of up to 4ºC degrees by 2100). While less likely, such higher end and more sophisticated scenarios carry with them a range of significant impacts that may be explored, including flow-on human impacts such as displacement and potential geopolitical risk. Broadening the assessment can capture richer flow-on effects and maximize the effectiveness of adaptation and resilience actions in all scenarios.

While performing the risks and opportunities analysis, it will be instructive to document and challenge the assumptions and analytical choices that you have made. This will help inform future disclosures, while also building an awareness and understanding to help internal and external stakeholders interpret the outcomes.

Examples of assumptions and analytical choices include those related to macroeconomic trends, climate/related policies in relevant jurisdictions, national, and local weather variables, etc.

To inform your analysis, you may also find it insightful to engage with others in your industry and across your value chain – both up- and down-stream of your operations – to better understand their assessments of climate-related risks and opportunities.

Overall, this assessment of risks and opportunities will help you identify and prioritise vulnerabilities that need to be addressed, and opportunities that can be leveraged. This will be an important input into the development of your transition plan.

Assessing climate-related risks and opportunities will, at a later stage, help:

  • define the Strategic Ambition of your transition plan;
  • articulate the assumptions of your transition plan, as well as the external factors on which the success of your plan relies; and
  • assess the resilience of your transition plan to climate-related risks and opportunities.


Leading practice: If your firm is further along in the transition planning journey or has very strong direct impacts or dependencies on the natural environment or on key stakeholders or society, you may find it valuable to integrate into this step a more comprehensive assessment of nature-related and/or social risks and opportunities. Where possible, consider quantitatively assessing these risk and opportunities. Doing so will support you in translating these risks and opportunities into principal business-related risks and opportunities, including potential financial effects.

In terms of nature-related risks and opportunities the Taskforce on Nature-related Financial Disclosures (TNFD) has developed a valuable set of tools to help entities undertake this assessment. To better understand social risks and opportunities, you may find useful to leverage existing systems for human capital management and human rights due diligence processes (e.g. due diligence procedures implemented in line with the EU Corporate Sustainability Reporting Directive).

Internal governance & engagement pointers:

  • As you assess your climate-related risks and opportunities, consider taking steps to build awareness of these risks and opportunities, as well as the key assumptions underlying this analysis, among key stakeholders (including the Board). This will help build a common understanding of why a transition plan is required and underpin the case for action.
  • It is very likely that you will encounter data gaps, inconsistencies, and uncertainties in this analysis. At the same time, there is an urgent need for action and there are likely “no-regret” actions that can be taken even in the absence of perfect information. To ensure progress is not delayed, it will be important to take steps to build comfort among key decision-makers that they will have to develop and implement plans in a context of uncertainty and imperfect data availability.
  • It will also be important that the Board and other key stakeholders appreciate the scale of transformation that will be required to navigate the climate transition effectively. Taking time to understand system interdependencies will be crucial in identifying critical external factors, and assessing the feasibility of assumptions. Having a flexible mindset will be essential to support adynamic transition planning process that is responsive to new information and external developments.   

Diageo case study

COMING SOON

Case Study: Phoenix Group’s approach to assessing climate-related risks and opportunities

A conversation with Bruno Gardner, Head of Climate Change & Nature, Phoenix

Measure your emissions footprint

A robust inventory of your Scopes 1, 2, and 3 GHG emissions is a crucial building block for your transition plan. These steps may help you identify and assess your transition levers and set the Strategic Ambition of your transition plan (see Stage 2).

In line with IFRS S2 Climate-related Disclosures, the TPT Disclosure Framework recommends that you follow the emissions accounting standards provided by the GHG Protocol unless required by a jurisdictional authority or exchange on which you are listed to use a different method.1

Accounting for Scope 1 and 2 emissions: In many cases, entities are already reporting Scope 1 and 2 emissions as recommended by the TCFD and required under IFRS S2.2

Accounting for Scope 3 emissionsTo prepare an inventory of Scope 3 emissions, you may apply the steps and reporting boundaries of the GHG Protocol’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard. The GHG Protocol breaks down Scope 3 emissions into 15 categories across its value chain (both upstream and downstream categories).

You may find it helpful to start by identifying the most relevant upstream and downstream Scope 3 emission categories. To do so, you may refer to the GHG Protocol’s criteria for identifying relevant Scope 3 activities (see Infobox 2), as well as the CDP Technical Note: Relevance of Scope 3 Categories by Sector.

Once relevant Scope 3 categories have been identified, you can start to quantify emissions for these categories and assess what steps are needed to overcome barriers to developing a full inventory of Scope 3 emissions.

An important input to this exercise will be engagement with key stakeholders identified across your value chain to understand their emissions profiles. This may also help assess the degree of control and influence you have over different parts of your Scope 3 emissions, and identify potential transition levers.

Accounting for Scope 3 emissions is an iterative process and many entities will currently face gaps in the availability and accuracy data. You are likely to need to estimate Scope 3 emissions for some categories, with the ambition of improving the accuracy of your calculations over time. Any method used to estimate emissions may be documented and be applied consistently year-on-year to support comparative analysis. Any changes in methods will require an historical adjustment of that category.

In building your Scope 1, 2 and 3 inventory, you may find it helpful to use existing software tools developed to support companies in their carbon accounting journeys.

Land Sector and GHG removals: Where your firm has land sector removals or CO2 removals and storage within its value chain, you may also consider accounting for these in your GHG inventory. To do so, you can refer to:

  • The GHG Protocol Land Sector and Removals Guidance, which provides guidance on how to account for GHG emissions and removals from land management, land use change, biogenic products, carbon dioxide removal technologies, and related activities in GHG inventories; as of October 2023, this guidance is available in draft form and is subject to finalisation.
  • The SBTi Forest, Land and Agriculture Guidance, which provides guidance for how entities in land-intensive sectors can set science-based targets.


It is important that data on removals is collected and reported separately from data on GHG emissions. Again, you may need to engage with others along your value chain to ensure you have the necessary data to compile accurate emissions and removals inventories. For example, where a supplier both emits and removes GHGs, you may need to engage with these to ensure that their emissions and removals are accounted for separately, and that removals are certified against credible standards.

1. Since March 2023 the Greenhouse Gas Protocol has been processing feedback from a public consultation to update its standards across all scopes: Survey on Need for GHG Protocol Corporate Standards and Guidance Updates | GHG Protocol. The GHG Protocol expects to complete its work by 2025. The ISSB S2 on climate disclosures references the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004) as the basis for the disclosure, as long as it doesn’t contradict the content in IFRS S2.

2. In the UK, the Streamlined Energy and Carbon Reporting (SECR) framework also requires certain UK entities to disclose Scope 1 and 2 emissions, and an emissions intensity ratio, across multiple reporting periods.

Internal governance & engagement pointers

  • While you should aim for complete and accurate emissions inventories across all scopes, you are likely to face significant challenges in data collection, particularly in the short-term. As data availability improves over the coming years, expect your emissions inventories to change.
  • At the same time, even incomplete emissions inventories can help senior leadership teams understand where key transition levers lie and define the priorities of the transition plan.
  • The internal working group (or equivalent body) leading on this analysis can take steps to ensure that senior decision-makers:
    • are aware of data uncertainties and gaps;
    • understand that figures will evolve over time; and
    • are prepared to make strategic decisions in a context of uncertainty.

Resources

This sub-step may inform disclosure against:

  • TPT Sub-Elements: 1.1 Strategic Ambition and 4.3 GHG Metrics & Targets.

AstraZeneca case study

COMING SOON

Identify your transition levers

Building on the assessment of your climate-related risks and opportunities and emissions footprint, the next step is to identify the strategic levers at your disposal to respond and contribute to the transition towards a low GHG-emissions, climate-resilient economy. You may consider levers across all three channels of a strategic and rounded approach to transition planning, exploring options available for:

  1. decarbonising the entity
  2. responding to the entity’s climate-related risks and opportunities and
  3. contributing to an economy-wide transition.


This approach can help you consider the actions to take now to capture opportunities, minimise future risks and protect and enhance long-term value, both for your business and for the stakeholders, society, economy, and natural environment on which your business depends.

This assessment will, by nature, be highly dependent on the profile of your business. In some cases, there may be a considerable overlap of levers between these three channels. In other instances, there may be trade-offs.

In assessing your transition levers, you may find it helpful to:

  • Conduct an economic abatement capacity assessment which identifies the proportion of emissions that are economic to abate using current proven technologies or that are projected to be economic to abate in the short- or medium-term.
  • Revisit your scenario analysis, to help identify strategic options available to address climate-related risks and opportunities; this may include appraising options to strengthen resilience to the physical impacts of the changing climate, options to manage transition risks, or options available to increase opportunities.
  • Assess your ability to engage with and influence key stakeholders identified internally and externally, to encourage actions that will contribute to the transition towards a low GHG-emissions, climate-resilient economy.
  • Review, where available, relevant sectoral guidance that can help identify opportunities for the sector to contribute to economy-wide decarbonisation.


Financial Institutions:
 Financial institutions may consider assessing their opportunities to support the transition via the four financing strategies set out by GFANZ: 

  • Climate solutions: financing or enabling the development and scaling of climate solutions to replace high-emitting technologies or services;
  • Aligned: financing or enabling entities already aligned to a 1.5ºC pathway;
  • Aligning: financing or enabling the transition of real-economy firms, according to robust net zero transition plans; and
  • Managed phase-out: financing or enabling the accelerated managed phase-out of high-emitting assets.

Resources


This sub-step may inform disclosure against:

  • TPT Sub-Elements: 1.1 Strategic Ambition

CPP’s experience with conducting Abatement Capacity Assessments

CPP Investments is a global investment management organization that invests funds transferred from the Canada Pension Plan (CPP). CPP summarises their learnings from piloting their Abatement Capacity Assessment Framework.

We developed and piloted an Abatement Capacity Assessment Framework for assessing a company’s capacity to economically reduce emissions. The Framework provides a systematic method for companies to identify their decarbonisation levers.

How it works:

We recommend a conceptually simple process for conducting an Abatement Capacity Assessment:

  1. Measure your baseline emissions
  2. Assess what emissions are economic to abate using currently available and proven technologies (i.e., your current or proven abatement capacity)
  3. Assess what emissions are likely economic over the long-term, assuming regulation and technology costs hold steady, while the cost of carbon rises (i.e., your projected or probable abatement capacity)
  4. Determine what emissions you are unable to eliminate cost-effectively (your projected uneconomic abatement capacity) and develop strategies for addressing these.


Since developing the Assessment Framework in 2021, we have piloted the Framework with 12 portfolio companies spanning the real estate, infrastructure, agriculture, energy and tourism sectors. For example, applying the Framework to the Trafford Centre, one of the UK’s largest shopping malls, helped management identify projects that can reduce the company’s emissions today and are economically viable. These include the installation of more efficient lighting, the replacement of old equipment, and the upgrade of elevators. For Trafford’s management, the Framework provided a starting point from which the company can chart its path to net zero. In the case of a portfolio company in the infrastructure sector, the Framework helped the management team identify abatement options for cargo handling equipment and other yard operational activities.

Key lessons learnt include:

  • Conducting this assessment can help boards and management teams identify opportunities beyond reducing emissions, including opportunities for reducing costs, growing market share, and building investor support.
  • The analysis can help break down entity-wide decarbonisation commitments into bite sized, manageable projects, making it easier for management teams to act.
  • Decarbonization efforts are not a sustainability initiative in isolation, but rather require a full-company transformation, with involvement from all levels of the organization.
  • The Framework can be used to help investors assess plans to achieve net-zero goals and create long-term value.

More details on the Abatement Capacity Assessment are available here.

Assess your impacts and dependencies

The strategic and rounded approach recommended by the TPT Disclosure Framework encourages you to consider the actions that you can take now to capture opportunities, minimise future risks and protect and enhance long-term value, both for yourself and for the stakeholders, society, economy, and natural environment on which you depend.  Once you have assessed the levers you can activate to support the transition, it is important to recognise that these may impact or be dependent on your stakeholders, society, the economy or the natural environment. These impacts and dependencies, in turn, may give rise to sustainability-related risks and opportunities that might affect your cash flows, access to finance or cost of capital over the short-, medium-, or long-term.

For example, where you have identified the closure of high-emitting production facilities as a transition lever, this may have an adverse impact on your workforce or communities in which you operate. You may therefore consider proactive steps to anticipate, assess and address these social consequences, which may otherwise have financial implications. Financial effects may arise from severance, litigation, reputational, or political costs, the latter perhaps being most acute where vulnerable and marginalised communities are perceived to bear the costs of the transition.

Figure 1 - Impacts and Dependencies

Be mindful that these impacts and dependencies may arise either within your own operations or in your value chain. An effective assessment will therefore require a robust engagement strategy with the key stakeholders identified through your stakeholder mapping.

This step will enable you to:

  • assess where and how your transition levers may give rise to other sustainability-related risks and opportunities;
  • identify potential trade-offs and synergies between your transition plan and other sustainability-related aims; and
  • develop action-oriented implementation steps (Stage 3) to achieve your Strategic Ambition (Stage 2) in a manner that captures opportunities, avoids adverse impacts for stakeholders and society, and safeguards the natural environment (where possible).


There may be limitations to the degree of your control over certain societal and economic factors. It is good practice to acknowledge and be as transparent as possible regarding such limitations.  

Leading practice: More advanced preparers may consider:

  • Conducting a nature impact materiality assessment of key transition levers consistent with Task Force on Nature-related Financial Disclosures (TNFD) Guidance on the identification and assessment of nature-related issues: the LEAP approach.
  • Referring to the International Labour Organisation Guidelines for a Just Transition, to understand the role employers play in supporting a just transition and for guidance on the principles that entities can apply when assessing the impacts and dependencies of their transition plans on stakeholders and society.

Internal governance and engagement considerations

Meaningful dialogue with workers, unions, consumers, local communities and environmental groups can help you identify the social and nature-related risks which may arise through your transition as well as potential opportunities to deliver positive social impacts. You will likely benefit from engaging in such dialogue throughout the entire transition planning process.

Resources:

This sub-step may inform disclosure against:

  • TPT Sub-Elements: all under 1. Foundations, 2.1 Business operations and 4.4. Carbon credits.

SSE’s Just Transition Strategy

SSE is a leading generator of renewable electricity in the UK and Ireland and one of the largest electricity network entities in the UK. SSE summarise their Just Transition strategy in the below case study.

We aim to achieve net zero across Scope 1 and 2 emissions by 2040 at the latest (subject to security of supply requirements) and for remaining Scope 3 emissions by 2050 at the latest. Our Net Zero Transition Plan sets out the 17 key actions that it will take to drive progress towards our net zero ambitions and our interim science-based targets aligned to a 1.5oC pathway at the same time recognising cross cutting issues of social impact and climate resilience for employees, consumers, communities, suppliers, and wider society.

The net zero transition plan recognises that a transition means exiting from high-carbon activity while simultaneously increasing low-carbon activity. This results in social consequence – impacting on people – employees, consumers and communities. We recognise that the transition depends upon people too: for their consumer demands and their skills and knowledge. SSE understands these social impacts can be both positive and negative.

The concept of ‘transitioning into’ and ‘transitioning out of’ forms the structure of our Just Transition strategy, and we identified employees, communities, suppliers, and consumers as the key stakeholders impacted by our transition to net zero. We did this using a variety of engagement, co-creation, and collaboration activities to help us to identify the impacts, including:

  • annual survey work with our employee base to identify the number of people that have transitioned to a low-carbon from a high-carbon sector;
  • deep dive focus groups with employees to understand their experiences working in high-carbon sectors and their transition to low-carbon sectors in order to develop strategies to support future employees with the transition;
  • working closely with climate focused investors who wanted to prioritise the consideration of social risks within climate strategies;
  • engaging and consulting through a collaboration with Disabled Motoring UK (DMUK) to identify the enablers and barriers for EV adoption for drivers with disabilities, and to recommend traditional and innovative solutions for making EVs and EV infrastructure more accessible;
  • ongoing consultation with SSE’s recognised trade unions on the development of the strategy, principles, and disclosure work; and
  • providing a commissioner to the Scottish Government’s Just Transition Commission since early 2019. The Commission is considering the transition to net zero for all sectors of the Scottish economy, taking evidence from each of the sectors most affected by net zero.


These activities have helped us develop a just transition strategy which involves a series of principles that we are working towards with our key stakeholders. Specific examples on initiatives implemented include:

  • Pursuing a strategy to actively attract former oil and gas workers from the North Sea Continental Shelf, adapting recruitment techniques and supporting retraining.
  • Repurposing the Tarbert oil fired power station in Ireland to develop a low-carbon alternative, with sustainable biofuel which received a 10-year contract from the Irish authorities earlier this year. We are now working with key stakeholders to secure planning consent and reach a final investment decision in order to achieve a secure energy supply that secures jobs at the site.
  • Improving our due diligence and legally insisting on human rights standards in our procurement contracts to address risks to human rights.


See our Just Transition: measuring progress for further detail of actions and outcomes related to SSE’s Just Transition principles.  .

Learn from previous iterations

An effective transition planning process must be flexible, dynamic, iterative, and adaptive. It will be important to schedule regular review points to assess what you have learnt from previous implementation experience.

This may include:

  • lessons drawn from ongoing assessment of climate-related risks and opportunities and insights from engagement with relevant stakeholders;
  • insights from challenges (e.g. data, analytical, decision-making) faced during previous transition planning cycles, or during the practical implementation of a previous transition plan (e.g. execution, engagement, financial, organisational, human resources); and
  • responses to new developments – e.g. observed weather events, advances in science, policy changes, technological developments, macroeconomic or market outcomes – that may warrant a reappraisal of assumptions, alter the likelihood of dependent external outcomes, or otherwise prompt a material change in the direction of your strategy.


Keeping a record of information with lessons learned can help you keep track of what worked and what didn’t work, reappraise any assumptions, and adjust accordingly.