“Climate transition plans will be of little value for some companies, say Robert Eccles and Tina Mavraki, while suggesting a ‘practical’ approach for determining the need for one.”

Climate Transition Plans (CTPs) have gained significant momentum with funders and regulators in the last 18 months (indicatively, see the number of climate resolutions at the 2023 US AGM season. They have also spurred a heated debate about whether CPT advocates are becoming too prescriptive or interventionist in companies’ climate strategies.

While, unfortunately, this debate has been contaminated by politicisation and emotion (even across Europe), it has nevertheless raised genuine strategic questions about the role of the corporation in climate change. Should companies formally commit to saving the planet and society, and, if so, at what expense to their balance sheet and profitability? How far is too far? What are realistic boundaries to corporate responsibility?

To address these questions, we interviewed 23 senior executives in industry, financial services, investment firms, and strategic advisers. We learned a lot. Based on these interviews we would like to suggest an approach to CTPs that is both practical and responsible.

A company’s top priority is to remain a going concern and so its climate strategy must support the overall corporate strategy and protect its vital resources, not detract from them. Any moral obligation that the company has assumed by virtue of its consciously defined purpose, or jurisdictional requirements owing to the national climate commitments of its countries of operations, should be placed in the context of the company’s long-term going concern considerations.

These basics are firmly established in common law. The UK TPT guidance which has emerged as a global CTP reference framework, carefully uses the operative word around CTPs being “informed by” (inter-)national agreements and commitments, instead of “driven by them”.

Moreover, a company should define long term based its natural capex and product life cycles, and longest-term contractual liabilities. Taking a long-term view on company success, then, doesn’t automatically equate with incorporating the ultimate economic effects of climate change into the company’s business plan.

Let us be clear. Not every company needs a CTP. There is little commercial value, and most likely a fair amount financial resources, time and executive attention wasted in developing a CTP for the sake of communication optics; neither the company nor its stakeholders will become any wiser from it.

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