In recent years, a growing number of companies have developed and published climate transition plans, which set out how they intend to achieve their climate-related targets while adapting, growing and remaining competitive as the global economy decarbonizes and faces greater climate physical risks. These plans, when robust and credible, provide financial market participants with the information they need to allocate capital efficiently and finance the transition at the speed and scale required to address climate change.

Transition planning is maturing

Investors’ calls for better standardization and disclosure of sustainability-related information has accelerated the adoption of climate transition plans globally. According to CDP's latest Climate Transition Plan Disclosure report, one in four companies disclosing through CDP reported having a climate transition plan aligned with limiting global warming to 1.5 degrees C above preindustrial levels — a 44% increase from 2022. The goal of the 2015 Paris Agreement on climate change is to limit the global temperature increase to “well below” 2 degrees C and pursue efforts to limit warming to 1.5 degrees C. 

This growth has been accompanied by significant developments in the disclosure standards landscape. In June 2024, the International Financial Reporting Standards (IFRS) Foundation assumed responsibility for the disclosure-specific materials developed by the UK government's Transition Plan Taskforce, considered the "gold standard" framework for private sector transition plans. IFRS S2, which is the set of climate-focused standards included in the sustainability disclosure framework developed by the International Sustainability Standards Board (ISSB), requires companies with transition plans to disclose information about them. As of year-end 2024, 13 jurisdictions have adopted the ISSB standards on a voluntary or mandatory basis with reporting starting as of Jan. 1, 2024, or Jan. 1, 2025, and 22 other jurisdictions are planning to adopt them in the future. Some are establishing specific transition plan-related rules or requirements, including Australia, Brazil, Malaysia, Switzerland and the UK. 

In the EU, the Corporate Sustainability Due Diligence Directive (CSDDD) requires large companies operating in the EU to adopt and put into effect a transition plan for climate change mitigation. However, the European Commission’s recent omnibus package of proposals to simplify sustainability disclosure rules contains amendments to CSDDD that remove the requirement to “put into effect” a climate transition plan and instead state that transition plans should include implementation actions planned, with the aim of aligning CSDDD requirements with those of the Corporate Sustainability Reporting Directive.

Roundtable recap

In October 2024, S&P Global Sustainable1 convened an investor-corporate roundtable to discuss opportunities, challenges and ways forward for climate transition planning and disclosure. The roundtable, which took place in Toronto alongside the 2024 PRI in Person conference, brought together 30 leading North American banks, asset managers, insurers and corporates from a variety of sectors. 

Roundtable participants heard from regional and global standard-setters on the evolving landscape of transition plan guidance, best practice and disclosure requirements. The discussion focused on the current state of corporate action on several topics central to transition plans, including emission reduction targets, disclosure of climate-related financial risks and opportunities, adaptation planning, and the level of responsibility boards of directors and executive managers have for climate strategy. Trends on these topics were presented from findings in the S&P Global Corporate Sustainability Assessment (CSA) and the Net-Zero Commitments Tracker dataset, which reveal a wide range of adoption levels across transition plan-related indicators. 

The following chart highlights the extent to which companies in the S&P Global 1200 incorporate climate-related issues into board-level oversight and/or management-level responsibility.

While the data indicates that climate-related issues are receiving sufficient attention at the highest levels of governance among the vast majority of the largest companies globally, data on specific climate risk management indicators tells a more complicated story. 

For example, S&P Global Sustainable1 analysis shows the total cost of climate hazard exposure for S&P Global 1200 constituents is projected to reach $1.2 trillion annually by the 2050s. Yet only 32% of these companies have a climate physical risk adaptation plan, according to data collected in the S&P Global Corporate Sustainability Assessment.

S&P Global Sustainable1’s recently published Climate Action Framework uses S&P Global ESG Raw Data underpinned by the CSA, alongside the Trucost Environmental dataset, Trucost Paris Alignment dataset and S&P Global Business Involvement Screens to evaluate companies’ ability to manage the complex challenges of transitioning to a low-carbon economy marked by greater climate physical risk. The framework assesses companies across three pillars: Climate Governance and Strategy, Physical Risk Adaptation Strategy and Climate Risk Mitigation and Alignment. It then categorizes companies within a five-tier classification system ranging from "Transition Strategic,” indicating exceptional alignment with sustainability goals, to "Transition Limited," indicating significant areas for improvement. A regional analysis of constituents in the S&P Global World Index shows that only 2% of US companies achieved the highest rank of Transition Strategic as of November 2024.

We uncovered the following additional insights based on feedback from participants at the roundtable, which has been aggregated and anonymized.

• Disclosure gaps pose challenges for investors, and some skepticism around decision-usefulness remains. Investors and banks are increasingly interested in using transition plan information for capital allocation, portfolio construction, risk assessment, pricing, valuation, product design and stewardship activities, but participants noted that disclosure is limited and that critical forward-looking datapoints such as capital expenditure alignment are still hard to come by. One participant questioned whether transition plan disclosures will support better pricing of risk in the market, noting that while forward-looking metrics can be useful, this information will not be widely adopted by asset allocators until it is incorporated into new ratios and utilized by sell side analysts. 

• Global standardization and jurisdictional implementation are key. Roundtable participants questioned the likelihood that companies will disclose transition plans in the absence of regulatory mandates, owing to potential costs and liability risks. Absent regulation, they said, companies with higher costs to transition will be less likely to disclose this information, creating information asymmetries that could result in inefficient capital allocation. Participants reinforced the importance of the IFRS Foundation’s work in establishing a global baseline, along with the need for regional taxonomies and disclosure regulations to enable transition planning and disclosures that are relevant to specific jurisdictions.

Looking forward

Climate transition plans are set to play an increasingly prominent role in business strategy planning and climate disclosures. As transition plan frameworks evolve and converge around a consistent set of indicators, and as regulators incorporate transition plans into disclosure mandates, data solutions and assessment frameworks can help financial institutions assess the credibility and robustness of companies' transition plans as they seek to manage climate-related risks and opportunities and finance the low-carbon transition.