Corporate change: Are you a follower or a pioneer?
Dr Antonios Koumbarakis
Partner, Sustainability & Strategic Regulatory Leader, PwC Switzerland
In order to achieve their climate targets, companies and financial institutions must develop a clear decarbonisation strategy that goes far beyond reducing their own emissions. The integration of transition plans not only fulfils regulatory requirements, but also ensures sustainability and opens up new business opportunities. Senior management commitment and understanding of transition plans at the highest level is critical to their successful implementation. In addition, companies will be judged on the quality and effectiveness of their transition plans in the future, as these are gaining in importance compared to sustainability reports and rating agencies are also increasingly focussing on them.
Governments and regulators around the world are introducing net-zero targets to decarbonise the economy over the next two to three decades. All industries are affected as they must reduce their greenhouse gas emissions in line with these targets. The Swiss government is aiming for net-zero emissions from 2050 and the EU is aiming to reduce its greenhouse gas emissions by at least 55 per cent by 2030 compared to 1990 levels.
Transition plans are crucial for the strategic orientation of companies with regard to global climate targets. They describe how companies will achieve their climate targets and commitments along the entire value chain within a defined period of time - and how these targets will be integrated into the overall business strategy.
Risk management through transition strategy
Financial service providers face special challenges. Their emissions include not only their own operational activities, but above all those that occur "downstream" in their value chain, namely through financing, investments and insurance activities. In contrast, companies in the real economy generate many emissions "upstream" (production and transport). Convincing transition plans align business activities with the 1.5 degree target and rely on transparent climate indicators and robust monitoring processes. They are particularly important for identifying risks and assessing progress in light of changing market and societal conditions. Transition plans are therefore not only a response to regulatory requirements, but also a central aspect of corporate strategy that increases transparency and credibility towards stakeholders such as investors, customers and the public.
The regulatory landscape for transition plans comprises various national and international requirements. In Switzerland, large companies are required to prepare transition plans from 2024 (reporting year 2025) in accordance with TCFD recommendations. International standards such as IFRS S2 and the CSRD/ESRS require the disclosure of transition plans that include strategies to reduce carbon emissions. The new Corporate Sustainability Due Diligence Directive (CSDDD) also requires such plans. These regulations are supplemented by voluntary international initiatives.
Elements of a successful transition plan
Integrating a transition plan into corporate strategy is critical to ensuring long-term sustainability and profitability while capitalising on new business opportunities in a low-carbon economy.
A transition plan comprises six core components:
Complexity of measuring emissions and defining reduction paths
The creation of transition plans presents companies with various challenges. One major difficulty lies in determining and calculating CO₂ emissions, which not only include direct emissions (Scope 1), but also indirect emissions from upstream and downstream activities (Scope 2 and 3). The quality and availability of the data and the complexity of the measurement methods make this process considerably more difficult.
Another problem is defining reduction paths for the coming years, including the selection of suitable strategies such as divestment, customer engagement or the exercise of voting rights. It is important not to disinvest profitable companies prematurely, but to encourage them to reduce emissions through targeted engagement. If there is still a gap, companies must consider additional measures such as the use of renewable carbon energy (carbon renewables). Planning also requires regular stress tests and scenario analyses.
Transition plan as the key to sustainable financing
A successful transition plan requires the dedicated commitment of senior management. The board of directors, CEOs and other managers must actively support the plan and align the company's strategic direction with whether it is acting as a pioneer in climate protection or simply following regulatory requirements.
Although most companies are slowly becoming familiar with reporting and regulation, there is often still a lack of understanding of the transition plan. This complements retrospective reporting with a forward-looking perspective, providing a more comprehensive overview of the company's strategy. In the future, companies will increasingly be evaluated based on the quality and effectiveness of their transition plans, which will also have an impact on their financing.
