At COP29 in Baku, countries delivered a hard-won agreement to mobilise $1.3 trillion of finance to developing countries by 2035, supporting delivery of the Nationally Determined Contributions (NDCs) under the Paris Agreement goals for global climate action. Achieving this goal will require substantial mobilisation of private investment. Private sector transition planning is a critical lever to unlock capital and redirect economic activity to meet the world’s climate needs.
Market momentum around transition planning is growing, with requirements rapidly being integrated into standards and regulatory requirements around the world. Following UK leadership at COP26, transition plans have evolved into a widely valued market tool to support firms to align their core business actions with those needed to transition to a low-emissions, climate-resilient economy.
In October, the G20 Sustainable Finance Working Group issued high-level principles for credible, robust and just corporate transition planning. Meanwhile over 30 jurisdictions are on the path to introducing the ISSB Standards, which include a transition plan-related element, into their legal or regulatory frameworks, and several jurisdictions are putting in place additional requirements related to transition plans.
The UK and the EU lead the way on transition planning
The UK and the EU have both demonstrated leadership in embedding transition plan creation and implementation into regulatory frameworks. The EU has already put in place mandatory requirements, and the UK will consult on mandatory transition planning next year.
In both jurisdictions, the regulatory approach indicates a significant evolution: moving beyond mere disclosure requirements to emphasise the substantive role of transition plans in achieving the Paris Agreement’s goals. This underscores the growing expectation for organisations to not only report on their climate strategies but to actively align them with a 1.5C economic transition, enabling national delivery of climate goals alongside unlocking sustainable growth.
The emergent push for 1.5C transition planning is a clear sign that government and the private sector alike recognise the need for further ambition. Investors and companies see the importance of a global transition to net zero and see the economic opportunities such a transition creates. Over the past year the number of companies with a voluntary net zero target has grown by 23%1 with 72% of UK companies and 57% of companies in the wider European area having set net zero targets.2
Ensuring that this ambition is transformed into concrete action will mean addressing a number of challenges. Regulators will need to work with markets to develop and define mechanisms for assessing transition plans credibility, and addressing non-compliance.
Already, firms are under intense public scrutiny, with stakeholders increasingly demanding transparency and accountability in climate strategies. In the near future, reputational and compliance risk may shift dramatically, failing to create and explain a robust transition plan in the first place could pose a greater liability than struggling to deliver one.
National-level support needed for private-sector transition plans
Mobilising finance at the necessary pace and scale will require government support for private sector action at every step. The G20’s 2024 Climate Taskforce TF CLIMA work highlighted the critical role of national transition planning. To support delivery of national plans, sending clear policy signals and incentives to the private sector can unlock innovation and investment. Given the strong interdependencies between government-led decarbonisation strategies and private-sector transition plans, a coordinated approach is crucial for effectively achieving national climate goals.
The interlocking components of a 1.5C framework need careful staging, including enhancement and strengthening of regulatory compliance mechanisms, appropriate incentives, and credible national sectoral pathways which can support mobilisation of domestic and international investment.
Setting early expectations that firms should produce and report transition plans will help build a market norm, and will avoid delaying delivery in the later phases when additional tools to support 1.5 alignment are added to the policy toolkit.
Governments now have an extraordinary opportunity to shape the global economic transition while maintaining fiscal efficiency. Setting clear policy and regulatory expectations will incentivise firms to align their investments with long-term sustainability goals, helping to unlock vast pools of private capital for a globally sustainable future.
By seizing the opportunity to create this dynamic relationship between public ambition and private innovation, internationally agreed climate targets can cascade through the market to support climate transitions for citizens across the world.
Read more about the evolving landscape of transition planning here.
