Transition Plans: New IFRS Guidance Helps Connect Climate Goals to Strategy

What should companies disclose in a climate transition plan?

The International Sustainability Standards Board (ISSB) has published new guidance to support companies disclosing climate transition plans under IFRS S2. This guidance builds on the UK’s Transition Plan Taskforce (TPT) and helps businesses explain how they will adapt to – and shape – the global net-zero transition. While IFRS S2 doesn’t mandate a transition plan, it requires disclosure if one exists, and this guidance outlines what that should include.

Why This Matters

• If a company sets climate targets, then it must show how it plans to achieve them – or risk losing investor confidence.

• If investors can’t see a clear path to net zero, then they may view climate goals as greenwashing.

• If a company has no transition plan, then it must still disclose how it is managing climate-related risks under IFRS S2.

• Scenario: A financial institution funds multiple high-emission sectors but fails to disclose a transition strategy. Investors may demand greater transparency or shift their capital elsewhere.

• Scenario: A manufacturer sets a 2040 net-zero target. With this guidance, it can disclose clear steps on decarbonizing its supply chain – boosting its credibility and access to capital.

What is a Transition Plan?

A transition plan is a roadmap for how an organization expects to adapt its business model, operations, and strategy in response to climate-related risks and opportunities. It often includes targets for reducing greenhouse gas emissions, timelines, and financing strategies. Under IFRS S2, companies are not required to publish a plan – but if they have one, they must disclose its contents transparently.

What Does the New ISSB Guidance Include?

The July 2024 ISSB guidance outlines three key disclosure elements to guide companies:

1. Governance and Strategy

   1. How climate objectives are integrated into business planning.

   2. Board and management oversight.

   3. Assumptions about policy, technology, or market change.

2. Actions and Resources

   1. Specific actions to achieve emissions reductions.

   2. Capital, R&D, workforce, and operational investments.

   3. Plans for carbon credits, offsets, or asset retirements.

3. Accountability and Metrics

   1. Milestones and interim targets.

   2. Linkage to executive compensation or capex plans.

   3. How progress is measured and reported.

   4. This framework builds directly on the TPT Disclosure Framework, offering a globally adaptable structure without prescribing specific climate targets or pathways.

How Does this Link to the UK Transition Plan Taskforce?

The ISSB’s work incorporates and globalizes the TPT’s Disclosure Framework, which originated in the UK as a standard for credible, actionable climate transition plans. Both frameworks aim to improve the quality of disclosures, strengthen accountability, and provide clear signals to investors and regulators. However, ISSB’s guidance avoids jurisdiction-specific mandates, ensuring interoperability for international reporters.

What are the Implications for Business?

Companies now have a clear framework for disclosing plans to meet climate goals. Even without a transition plan, IFRS S2 still requires companies to reveal their strategy, governance, risks, and opportunities related to climate.

Many firms may find that developing a formal transition plan is not only useful for compliance, but also increasingly expected by investors, regulators, and customers. The guidance also helps companies clarify tradeoffs, define internal accountability, and integrate long-term sustainability into day-to-day business planning.

Action Items

Transition planning is no longer a “nice-to-have.” It’s becoming essential for companies that want to demonstrate long-term resilience, respond to investor expectations, and stay ahead of regulatory trends. The new ISSB guidance offers a clear and flexible roadmap for credible disclosure. Here's how companies can act now:

• Assess readiness: Take stock of your existing climate strategy. If a transition plan exists, evaluate whether it aligns with IFRS S2 and the Transition Plan Taskforce framework. If no plan exists, identify key risks and opportunities that could form the basis for one.

• Build internal alignment: Collaborate across sustainability, finance, legal, and risk teams to ensure transition planning is integrated into core business strategy and capital allocation.

• Disclose transparently: If your organization has a transition plan, disclose its governance, actions, and metrics clearly and concisely using the ISSB’s three-part structure. Transparency builds trust and reduces reputational risk.

• Engage with stakeholders: Investors are increasingly asking for transition plans. Proactively engage with them to explain your approach, assumptions, and progress. This reduces uncertainty and enhances credibility.

• Link to incentives: Consider tying transition performance to executive compensation, capital expenditures, or long-term planning. This sends a strong signal of accountability and intention.

  
  

Even if your company is early in the transition journey, beginning the process now and aligning with the ISSB’s global baseline can position you as a leader—not just a reporter.