Companies big and small are thinking about producing climate action plans. Some are under pressure to do so from regulators or shareholders, while others are being encouraged by large companies in their value chains. Many more businesses may be driven by their values or by more prosaic concerns, like protecting themselves from climate-related financial risks.
Whatever the motivation, it can be hard for companies to put together a climate action plan — especially if they don’t know what the plan’s goals should be. It also makes it more difficult if firms don’t feel properly equipped to start the process.
There’s no one definitive guide to drafting a climate action plan. In this article, we describe what a climate action plan is and how any company can set climate goals and map out a route to reach them.
What is a climate action plan?
Put simply, a climate action plan is a company’s roadmap for aligning with global greenhouse gas (GHG) emissions goals and navigating climate risks and opportunities.
Let’s expand on these two elements. What do we mean by global GHG goals? These are the objectives set out in the 2015 Paris Agreement, an international treaty on climate change. The agreement aims to limit global warming to well below 2°C, and preferably to 1.5°C, compared with pre-industrial levels. Climate science shows the world needs to hit net-zero emissions by around 2050 for these warming limits to be met. This means governments, households, and businesses have to balance the GHGs they emit into the atmosphere with GHG removals. To realistically achieve net zero, all entities will have to sharply reduce their GHG emissions from current levels, since the global capacity for emissions removals is limited.
As a result, one goal of a company’s climate action plan should be to zero out its GHG emissions in line with science-based pathways. What this looks like will differ from company to company. For an asset manager, it means transitioning its funds and products to invest in companies that are decarbonizing in line with the Paris Agreement. For real estate firms, it means adapting existing properties to use clean energy and ensuring new builds are constructed using climate-friendly materials and processes. And so on.
On to the second element: What do we mean by navigating climate-related risks and opportunities? Climate change poses both physical and transition risks to companies. These risks may change how a company does business, reshape its value chain, and impact its bottom line. On the flipside, climate change is also opening markets to new products and services that help businesses and households lower their emissions and build resilience to physical climate risks, like extreme weather events.
A company that does not have a plan to manage its climate risks and take advantage of its climate opportunities is leaving money on the table and hobbling its future potential to boot.
That’s why the second goal of any company’s climate action plan should be to describe how these risks and opportunities will be addressed.
7 steps toward a climate action plan
Understanding the goals of a climate action plan is one thing, but putting the actual plan together is another. Here are seven steps companies should consider to develop and implement a successful plan. Remember — starting the plan is what’s important. No company has all the knowhow to put together a perfect plan on day one. And, as the last step makes clear, producing a climate action plan is an iterative process, which companies get better at with practice.
1. Find your champions
Plans need planners. To make a climate action plan, a company has to assign the responsibility to specific individuals or teams to drive the process forward. These ‘climate champions’ should have access to all the resources they need to understand their organization’s climate profile. They should also get buy-in from and be accountable to senior managers and members of the board. This kind of institutional support is critical for making sure that the final climate action plan is properly implemented organization-wide.
2. Pick your lane
All climate action plans should have the same two goals. However, the measures they include and the timelines they set will vary depending on each company’s level of ambition. Before drafting a plan, a company should clarify its motivation. Does it want to be a climate leader? Does it want to follow its peers? Or does it simply want to do enough to satisfy regulatory and/or investor demands? Picking a lane helps set the parameters of the climate action plan and makes communicating its purpose simpler.
3. Educate, educate, educate
A climate action plan is useless if no one besides a company’s ‘climate champions’ understands it. That’s why it’s critical for organizations to educate their employees on climate risks and opportunities and learn how their products and/or services contribute to — or help reduce — global warming.
Climate scenario analysis can help companies with this. As a first step, an organization may want to consider how key business lines or operations could be affected under various climate futures. For example, an electricity provider may want to know how its profit margins may be squeezed in a scenario in which the price of emitting GHGs is higher than it is today. On the other hand, a private equity company may want insights into how increased droughts and heatwaves could affect industrial assets in its portfolio.
Furthermore, companies need to learn about the compliance obligations they face from climate-related regulations so that their action plans don’t neglect them. In response, climate champions should consider scheduling periodic education sessions and climate competency-building programs.
4. Find the right tools
Companies don’t have to start a climate action plan from scratch. There’s a wealth of tools and frameworks developed by industry bodies, regulatory agencies, and civil society groups that organizations can draw upon for help.
For example, when it comes to planning how to reduce GHG emissions, banks, asset managers, and insurers can refer to the Glasgow Financial Alliance for Net Zero’s recent guidance on net-zero transition plans for financial institutions. Non-financial companies can explore the Science-based Targets Initiative’s corporate net-zero standard.
As for identifying and addressing climate risks and opportunities, companies can use the Task Force on Climate-related Financial Disclosures (TCFD) as a guide. This is the world’s premier framework for assessing and disclosing climate-related risks and opportunities. It’s been co-opted into corporate reporting rules set by regulators around the globe and has been used to inform climate disclosure standards that are under development by the International Sustainability Standards Board (ISSB). The latter could soon be implemented in dozens of countries around the world.
To best navigate the TCFD and the other disclosure frameworks it interacts with, companies can lean on new climate risk planning solutions, like Manifest Climate, which provides the tools, data, and support needed to identify climate-related risks and opportunities.
5. Set targets
Climate action plans need to include targets for companies to track their progress. No plan would be complete without interim and final emissions reduction targets, as they are essential to measuring a company’s alignment with global decarbonization goals. These targets must be credible, achievable, and science-based. An organization that has built up climate competency and chosen the right tools will find this an easier task than one that has not. A good climate action plan should also link the pay and compensation of company leaders to the achievement of these targets.
As for targets relating to a company’s own climate risks and opportunities, these will vary depending on its business model, sector, and geography. Organizations should get creative with metrics and targets to address these and use frameworks like the TCFD for reference.
Every climate action plan target should be integrated with a company’s financial planning so that appropriate resources are allocated toward it. This will help prevent the climate action plan from being siloed away from other aspects of a company’s business strategy.
6. Go public
Once the climate action plan is complete, a company should disclose it publicly, along with explanations of the tools, frameworks, and methodologies used. This will allow stakeholders to effectively audit the plan. The company should also commit to periodically updating the public on its work to implement the plan.
Public disclosure is a powerful accountability mechanism that should incentivize company leaders to make meaningful climate progress between reporting periods. It also allows external stakeholders to provide feedback, which is helpful for when a company iterates its plan.
Producing a climate action plan isn’t a ‘one and done’ exercise. Several factors make it important for companies to periodically review their plans and adapt them when necessary.
One of these factors is that climate science is an expanding field, and our collective understanding of how GHG emissions correspond to specific climate impacts is getting more sophisticated over time. Another is that new and evolving technologies could reshape the climate risk landscape and open up new opportunities that didn’t exist when a climate action plan was first drafted. Companies should not be afraid to enhance their plans or add new targets as their capabilities increase.
Put simply, a climate action plan should be a living document, not something that’s frozen in time.
How Manifest Climate can help
Manifest Climate is the leading Climate Risk Planning solution. Our proprietary software and in-house climate experts help businesses identify climate risks and opportunities, build internal climate competency, better align their disclosures with global reporting frameworks, sharpen their climate management, and stay on top of market developments and peer actions. Request a demo to learn more.