CDP: Companies need credible climate transition plans for long-term financial success

The corporate sustainability disclosure platform has this week published new data confirming a rapid and wide-reaching uptake of net-zero transition plans by corporates.

Transition plans go beyond stating emissions goals for business’s operations and their value chains. They also outline how firms intend to deliver decarbonisation, covering factors such as changes in business models, innovation investments and staffing and skills.

Almost half of businesses disclosing through CDP claim to have a transition plan aligned with the Paris Agreement’s 1.5C ambition.

But many firms making such a claim are not providing enough information. Six in ten of the companies disclosing a transition plan through CDP do not include at least two-thirds of the key indicators and metrics. Common omissions include financial planning and measures to engage the value chain in decarbonisation.

Only 1% of the companies are fully disclosing data relating to all 21 key indicators and metrics listed by CDP.

CDP is warning that companies will need to produce more detailed, credible plans urgently to support their financial performance in the coming years, as more and more governments mandate sustainability reporting regulations and as investors seek to navigate intensifying environmental risks.

CDP found that three-quarters of the businesses listed on Europe’s FTSEurofirst 300 Index and Korea’s KOSPI 200 produced detailed transition plans and collectively outperformed their listed peers in the G20 considerably last year.

Of the businesses listed on Canada’s S&P/TSX60 and China’s CSI 300, the worst-performing indices in the G20 in 2023, fewer than one-third produced robust transition plans.

“Having robust plans is becoming more important for accessing capital, driving business efficiencies, and for complying with regulatory and market demands….  it’s evident that data on forward-looking commitments are becoming crucial tools for companies to build and maintain confidence with market stakeholders,” said CDP’s chief executive Sherry Madera.

Regulatory change

Governments to have mandated climate disclosures from large businesses include New Zealand, Singapore, the UK, Canada and the USA. Many others have signalled, in principle, their support for integrating the International Sustainability Standards Board’s (ISSB) first two standards into their national corporate reporting recommendations or requirements.

In the UK, where edie is based, the UK Government promised to mandate transition planning from large firms in high-carbon sectors in late 2021. It has not yet done so, but these firms are being encouraged to prepare and disclose nonetheless by the Financial Conduct Authority (FCA).

The Government has supported a Transition Plan Taskforce (TPT) in defining what a robust plan should include. Its overarching ‘Gold Standard’ guidance was finalised in the latter half of 2023, with more detailed sector-specific guidance having been provided earlier this year.

For companies seeking to get ahead of the regulatory curve, the good news is that CDP believes companies can develop and disclose a credible plan within two years.

Signify’s new plan

Multinational lighting company Signify has this week published its inaugural climate transition plan, outlining how it intends to meet an existing 2040 net-zero goal.

Progress towards this overarching long-term goal will be measured by whether the firm cuts absolute emissions across the value chain by 90%, against a 2019 baseline.

The plan confirms that Signify expects to halve its emissions footprint by 2030 against this baseline.

More than 99% of the business’s total emissions occur in the downstream value chain – largely in the use of its products and, to a much lesser extent, how they are managed at the end of their working life.

To that end, delivering net-zero for Signify “will depend on further climate action by government and business”, particularly in the decarbonisation of energy grids. The transition plan therefore includes policy advocacy for the renewable energy transition.

Signify also outlines, in the plan, ambitions to improve produce efficiency and to help customers source renewable electricity credibly. For example, business consumers can participate in power purchase agreements (PPAs).

Related article: Are investors getting what they need from corporate transition plans?