A 4-step approach to crafting a climate transition plan

With climate change being an omnipresent threat to people and nature, it is no surprise that climate change is the first of the European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive. In this, the Climate Transition Plan (CTP) is key.

Understanding what the plan entails forms the outset for any work on crafting the actual transition plan. If you haven’t already, begin your ESRS E1 deep-dive here: What is a climate transition plan?

This article is more hands-on. To meet the disclosure requirements of ESRS E1 – Climate Change, the following four-step approach helps companies structure their CTP in a way that is actionable, comprehensive, and integrated with their overall business strategy.

1. Baseline & targets

Establishing a carbon baseline. The first and most critical step in developing a CTP is to establish a carbon baseline, which serves as the foundation for all subsequent actions. A baseline assessment provides an accurate picture of a company’s current GHG emissions and helps identify the areas with the highest impact. This involves measuring emissions across three scopes:

• Scope 1: Direct emissions from sources owned or controlled by the company, such as fuel combustion from company vehicles or boilers.
• Scope 2: Indirect emissions from the purchase of energy, typically electricity, that is consumed by the company.
• Scope 3: All other indirect emissions from activities within the value chain, both upstream (e.g., emissions from suppliers) and downstream (e.g., emissions from product use or disposal).

Scope 3 is often the largest source of emissions for many companies, but it is also the hardest to quantify due to the need for collaboration with suppliers and customers. Start by focusing on Scope 1 and Scope 2, which are more directly controlled, while progressively improving Scope 3 data over time.

Setting (Science-Based) Targets. Once the baseline is established, companies should develop targets aligned with the Paris Agreement to limit global warming to 1.5°C. Setting targets approved by the Science-Based Targets initiative (SBTi) is one way to ensure robust targets and avoid scrutiny over alignment justification. Targets must at least include a short-term target but may also include medium and long-term, depending on the framework and methodology used to create them.

• Short-term goals (1-5 years): Immediate actions, such as energy efficiency improvements or quick wins like transitioning to renewable energy
• Medium-term goals (5-15 years): Decarbonising critical operations or engaging suppliers to reduce their emissions
• Long-term goals (up to 2050): Achieving net-zero emissions across the company’s entire value chain.

Each target should be broken down into measurable milestones to allow for regular monitoring and progress reporting. Companies should assess not only the emissions reductions within their operations but also across their supply chain and product lifecycle, addressing upstream and downstream impacts.

2. Decarbonisation roadmap

Creating a clear and dynamic roadmap. The decarbonisation roadmap outlines the specific actions needed to achieve the emission reduction targets. It serves as a step-by-step guide for companies to transition from current operations to a low-carbon future. The roadmap should prioritise actions based on their feasibility, cost, and impact including:

• Immediate actions: Quick, low-cost measures, such as energy efficiency upgrades in buildings and manufacturing processes, or switching to renewable energy sources like wind or solar power. For instance, a company could retrofit existing facilities to reduce energy consumption or install on-site renewable energy systems
• Medium-term actions: These are more complex changes, such as shifting to sustainable supply chains, incorporating circular economy principles, or developing low-carbon products. This could involve switching to suppliers that use low-carbon materials or designing products for durability and recyclability
• Long-term actions: This entails deep decarbonisation efforts, such as electrifying vehicle fleets, transitioning completely off fossil fuels, or exploring carbon capture and storage (CCS) technologies. Long-term planning should also include building climate resilience into the business model to anticipate future climate risks.

Marginal abatement cost curves can be a strong way to prioritise actions because they allow companies to visualise the actions that both generate the most savings as well as if they will either save money or which will be the cheapest to implement.

Flexibility and scenario planning. The decarbonization roadmap should be dynamic, allowing for flexibility as new technologies emerge and regulatory requirements change. Companies should conduct scenario analysis to assess different pathways and their impacts on the business. For example, what if carbon prices rise sharply? What if new low-carbon technologies become available? Scenario planning helps companies identify and prepare for potential disruptions while remaining on track to achieve long-term goals. Scenario planning is a familiar exercise for any company that has assessed its physical and transition risks (also part of ESRS E1).

3. Strategy & finance integration

Aligning the CTP with business strategy. For the Climate Transition Plan to succeed, it must be integrated into the company’s core business strategy. Sustainability should not be seen as an add-on or compliance requirement but rather as an essential component of business operations. Companies must ensure that climate risks and opportunities are factored into all major business decisions, including mergers and acquisitions, capital expenditures, product development and market expansion.

This requires cross-functional collaboration across departments—finance, operations, procurement, R&D and marketing—to align all areas of the business with the climate transition goals. For example, the procurement team will be a core driver of delivering scope 3 emissions reductions, while the R&D team will focus on developing and designing lower-carbon products.

Linking the CTP to financial planning. The transition to a low-carbon economy often requires significant upfront investment in new technologies, infrastructure and processes. Companies should ensure that the financial planning process supports this transition by allocating sufficient resources to fund decarbonisation actions. This includes:

• Capital expenditures (CapEx): Directing CapEx toward sustainable projects such as installing renewable energy systems or upgrading machinery to be more energy-efficient
• Operational expenditures (OpEx): Ensuring that day-to-day operational costs support low-carbon alternatives, such as purchasing renewable energy credits or implementing circular economy practices

Companies may need to revisit internal Return on Investment (RoI) criteria to facilitate the long-term planning required for low-carbon investments like renewable energy. Additionally, companies should explore sustainable financing options such as green bonds or sustainability-linked loans, which offer favourable terms for projects that align with the company’s climate goals. Internal carbon pricing can also be used to embed the cost of carbon emissions into business decisions, incentivising low-carbon choices across the organisation.

4. Implementation

Turning the plan into action. This final step focuses on the operationalisation of the Climate Transition Plan. Implementing the plan requires modifying existing business processes, structures and governance frameworks to ensure climate goals are achieved. To successfully implement a CTP, companies require:

• Top-down leadership support: The CTP must have backing from senior management and be embedded into the organisation’s overall governance. Climate goals should be part of executive KPIs and incentive schemes to ensure accountability
• Cross-functional teams: Climate action cannot be siloed within the sustainability department. Every part of the business, from procurement and logistics to HR and marketing, needs to contribute to meeting climate goals.

Value chain engagement. Most emissions lie within a company’s value chain, particularly in Scope 3 emissions from suppliers (upstream) and product use (downstream). To effectively reduce emissions across the value chain, companies need to:

• Collaborate with suppliers: Work closely with key suppliers to set joint emission reduction targets and encourage them to adopt sustainable practices. This might include introducing supplier engagement programs or building sustainability clauses into contracts
• Educate and engage customers: For downstream emissions, companies may need to redesign products to be more energy-efficient or recyclable and educate customers on sustainable product use or disposal.

Monitoring progress and adjusting the plan. As most plans, the CTP is not static—it requires continuous monitoring and reporting to ensure targets are being met. Companies should establish Key Performance Indicators (KPIs) linked to climate goals and regularly track progress against these metrics. This allows for early identification of any areas where the company is falling behind and enables corrective action to be taken.

Regular internal and external reporting is critical to maintaining transparency with stakeholders, including investors, regulators, and customers. As part of this, companies must stay up to date with evolving regulations (such as future updates to the CSRD and EU Taxonomy) and adjust their plans accordingly.

Moving Forward

Developing a robust Climate Transition Plan requires careful planning, strategic alignment and continuous improvement. By following the four-step approach—establishing a carbon baseline and setting targets, developing a decarbonisation roadmap, integrating the CTP into strategy and finance, and effectively implementing and monitoring the plan—companies can not only align with ESRS E1 under the CSRD but also position themselves for long-term success in a low-carbon economy.

Overcoming challenges like value chain engagement, investment planning and target achievability will require a combination of innovation, collaboration, and leadership. However, by taking these steps, companies will be better equipped to mitigate climate risks, seize new opportunities and contribute to a sustainable global future.