Working towards carbon targets aligned with a 1.5C-reduction pathway is almost a given for many businesses. More than 6,700 companies have now had their targets validated by the Science Based Targets Initiative; a further 3,500 have committed to set such targets within the next two years.
But how many of these targets are supported by robust, time-bound climate transition plans? The answer is not too many, according to the latest data from CDP. Although almost 6,000 companies have disclosed to CDP a 1.5C-aligned climate transition plan, 1% of these are disclosing data on all transition plan indicators. There’s still much work to do to ensure businesses are factoring in the various elements necessary to achieve net-zero.
During a Sustainability Leaders working group call on climate transition planning last week, two principal challenges became clear: corporate governance, that is, gaining board-level oversight and cross-functional commitment; and financial planning.
The two are often interlinked. As one participant on the call noted: “When we presented the financial numbers associated with decarbonising the business to our board, it was a bit of a shock to them. Those numbers were big. So there is, of course, pressure on how we can do it cheaper.”
McKinsey estimates that the net-zero transition will require $9.2tn in annual average spending on physical assets by 2050. In an environment where many businesses are facing cost pressures, the challenge of convincing boards and other stakeholders to invest will ring true for many companies.
So, how best to do this? Building a business case that incorporates financial planning and corporate governance into a climate transition plan will vary from company to company, but there were some common lessons that came out of our community call.
One was around leveraging the new regulatory environment. “Regulations have played a big role for us,” one participant said. “Regulations such as the Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive have given us a bigger stick to work with in having leadership conversations around budget for net-zero.”
Another was to develop a bottom-up approach to governance and finance. “Over the past few months, we’ve been working with our line of business leaders to identify the business case, pathways and strategic actions specific to them,” another member said. “We (sustainability) engaged with each of those leaders and their teams to define the strategies.”
Actions such as these are necessary to develop a credible transition plan. While this isn’t a quick strategy: putting in place the building blocks necessary to create a robust transition plan will take months, or even years, for certain businesses.
But, with key targets fast approaching, the time to start this work is now. Otherwise, as the French writer Antoine de Saint-Exupéry said: “A goal without a plan is just a wish.”
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