Taking stock of corporate transition planning

Climate commitments abound in corporate Australia. 

For more than a decade, companies of all sizes have increasingly made climate and sustainability commitments as investor and customer pressure to act on the climate emergency intensifies. 

In 2023, the Australian Council of Superannuation Investors found that 61 per cent of ASX200 companies had net zero commitments, compared to 48 per cent in 2022.

Commitments can range from general statements of intent to specific emissions reduction targets. For over five years, Climateworks Centre has provided best practice guidance on setting a net zero target in the Australian context. 

However, holistically integrating these climate targets into business strategy and operations has proven challenging for many organisations. 

Over the last few years, new guidance on ‘transition plans’ – forward-looking documents that outline how a company will prepare for, navigate, and support the transition to net zero emissions – has been developed in Australia and globally. 

These plans are now the primary vehicle for setting and operationalising climate commitments. 

Transition plans also serve as a market signal to investors and customers that a company is serious about achieving its net zero targets – it is an opportunity for a company to set itself apart. 

Why it matters whether companies have credible plans 

The corporate sector is responsible for the majority of Australia’s emissions. 

The country’s success in upholding its commitment to the Paris Agreement largely depends on companies transitioning to net zero emissions in line with this goal. 

Australia is currently off track and companies are not yet making enough progress. 

‘This is a global trend – most company transition plans do not credibly support decarbonisation in line with Paris Agreement goals.

In 2023, CDP collected data on transition plans from more than 20,000 companies globally. CDP uses 21 indicators to judge transition plan ‘credibility’, including alignment with the Paris Agreement’s 1.5 degrees Celsius temperature goal. 

Of the 192 Australian companies reporting to CDP, none disclosed all 21 indicators. Only 2 per cent of all reporting companies could. 

Net Zero Tracker’s recent global stocktake affirms the trend.

Without guidance on what ‘good’ looks like, and how to assess the credibility of transition plans, the risk of greenwashing remains high, even if a company has the best intentions.

What is Climateworks doing in this space?

Climateworks is part of the international effort to establish core principles of ‘credible’ climate transition plans. 

Building on our previous body of work to assess Australian corporate climate commitments, Climateworks joined the Assessing Companies Transition Plans Collective (ATP-Col). This collaborative initiative of over 40 experts from leading organisations convened by the World Benchmarking Alliance seeks to ‘develop a consensual framework with guidance on how to assess companies’ transition plans’ credibility.’

Climateworks experts contributed to a new report [PDF 1.1mb] that provides detailed guidance for transition plan assessors on determining credibility. 

The report focuses on key indicators, including completeness, internal consistency, ambition and feasibility, and whether sufficient consideration has been given to nature, just transition and the company’s specific local context.

Global thought leaders including the Network for Greening the Financial System, Oxford Sustainable Finance Group and Client Earth are increasingly attuned to the importance of country-specific transition plans. 

This is for reasons of relevance and applicability as well as fairness as it relates to ‘differentiated responsibilities’, introduced first in 1992 and affirmed by the Paris Agreement. 

For an Australian company, country specificity would mean setting targets and building a roadmap based on Australia’s carbon budget as an advanced economy, Australian policy and regulation, and the availability of technology, infrastructure and geological resources.

Companies in low and middle-income countries would appropriately peg their plans to their national emissions and economic context, which may also help remove barriers to entry [PDF 1.2mb] for doing business in emerging markets.

Climateworks has spent over a decade producing country-specific modelling in partnership with CSIRO. 

We also have a strong track record of supporting companies in adopting credible transition plan criteria and incorporating local pathways insights into their strategies.

Australia has a longer history than most countries of developing its own modelled pathways and seeing them used and adopted, for example the Australian Energy Market Operator’s recent Integrated System Plans. 

The Climate Change Authority recently released modelled decarbonisation pathways for Australia, and many government departments are currently coordinating the development of sectoral decarbonisation plans. 

Australia is thus well placed to inform global efforts on using local modelling and incorporating such pathways into transition plan development in line with international investor expectations.

How do transition plans fit into the bigger picture?

Australia’s sustainable finance system architecture, developed under the Treasury’s Sustainable Finance Strategy, is rapidly taking shape. 

A significant effort has been underway to realign the financial and corporate sectors with national climate goals – an outcome with much support from investors and businesses across the country. 

From January 2025, corporate climate disclosures will become mandatory for Australia’s largest organisations. 

In a few years, all large companies will be required to report their climate risks and dependencies and disclose a transition plan to address these if they have one (as would be expected from a large organisation). 

The Treasury has announced it will release transition plan guidance by the end of 2025. Climateworks would encourage reference to current global best practices and international investor expectations as reflected in frameworks like ATP-Col and emerging thought leadership on factoring in local context. 

In parallel, the Australian Sustainable Finance Taxonomy will also be based on Australia-specific information, including sectoral pathways where there is sufficient data. 

The Taxonomy will act as a tool for the financial sector to allocate capital to sustainability objectives, including climate solutions. It will inform other aspects of sustainable finance architecture, like green and climate bonds and product labelling.

Transition plans will act as a key data point for any investor or regulator doing due diligence and should be viewed as an opportunity to showcase a company’s credentials to the market. 

Within Australia’s emerging sustainable finance system architecture, underpinned by consistent assumptions from national decarbonisation pathways, Australian corporates and financial institutions can develop their transition plans with the confidence that comes from clear local and global market signals.