Once the European Commission’s proposed Corporate Sustainability Due Diligence Directive (CSDDD) has been formally adopted, around 2024-2025, member states will have two years to implement it into national legislation. Since the initial proposal, the framework has evolved to require organizations to execute Paris Agreement-aligned transition plans. These climate transition plans outline a firm’s alignment with climate science recommendations and commitment to environmental goals.
At first, businesses with over 500 employees and more than €150 million in revenues will be required to produce the plans. Later, this will extend to those with over 250 employees and €40 million revenue – while non-EU firms with revenues earned in the EU will also be required to follow the legislation. Before regulations force their hand, business leaders should:
- Map out the requirements needed for a robust transition plan.
In order to create a comprehensive transition plan, business leaders will need to collate a wide range of information from across an organization. According to guidance from the CDP, plans should include details of science-based targets, governance and policy engagement mechanisms, and climate risks and opportunities underpinned by scenario analysis. In addition, businesses should also incorporate financial planning – including time-bound actions to decarbonize business processes – and Scope 1, 2 and 3 emissions. - Ensure adequate resources are in place.
Creating and disclosing transition plans will take significant resources, as the plans cover all elements of an organization’s long-term net zero and climate risk strategy. Firms need to define their ambition level, collect data and adjust operations. For most, this will require acquiring specific talent and expertise, while those seeking a competitive advantage will need a dedicated team bringing together corporate and climate capabilities. As emission levels will be a central element of climate transition plans, organizations that do not already have adequate monitoring capacity should consider leveraging carbon management software to calculate and model Scope 1 to 3 emissions. - Reframe long-term targets to align with corporate time scales.
To appropriately contextualize the challenge at hand, decision-makers should think about the short-term picture. During London Climate Action Week 2023, Bank of England COO Ben Stimson advised firms to break down their long-term targets into interim goals. Shorter time periods align more closely with the time horizons commonly used in business planning, allowing business leaders to incorporate climate transition plans with longstanding commitments more smoothly. Ben Stimson also urged organizations not to aim for perfection at the first attempt.
For further insights on climate transition plans, including analysis of different climate models and emerging best practices in the field, check out the Verdantix webinar Cracking The Code: Understanding Climate Scenario Analysis For Effective Decision-Making.
