Expert advice on how to refine your climate transition strategies

A new AICD guide, developed in consultation with experienced directors and institutional investors, shares lessons from organisations refining their climate transition strategies.

For many directors, the early phase of climate transition planning is history. As organisations move to a second and third iteration of transition plans, the insights gained are proving invaluable in navigating a more complex and demanding stakeholder landscape.

A climate transition plan outlines how an organisation will respond to climate-related risks and opportunities, moving beyond compliance or aspirational goals towards strategies with clear, deliverable targets embedded in core business plans. Transition planning serves several purposes. It helps organisations prepare for long-term resilience and competitiveness, and it provides transparency for stakeholders, including investors.

As expectations rise, experienced directors share what works — and what doesn’t — on building confidence and delivering business value in the new AICD directors’ resource, Governing for Net Zero: The board’s role in organisational transition planning. The guide was prepared in collaboration with the Australian Council of Superannuation Investors (ACSI).

Stakeholders want a bit more

Under Australia’s mandatory climate-related financial reporting standard — AASB S2 — stakeholders will soon have greater access to information on an entity’s climate-related risks and strategy, including any transition plan. Across financial markets, supply chains, government and civil society, attention is shifting from the existence of climate commitments to their substance. Transition plans are becoming a preferred lens through which to assess credibility, ambition and an organisation’s willingness to collaborate.

“All organisations need to be mindful of what their obligations are, both at law and from a regulatory sense,” says Australian Retirement Trust chair Andrew Fraser GAICD. “That is ultimately the source code for why we developed a transition plan. Member and stakeholder expectations are the next layer of how any organisation needs to calibrate those factors into its thinking.”

Investors and financial institutions are incorporating climate risk into decisions, with major Australian banks often requiring credible transition plans for lending in emissions-intensive sectors. Supply chain partners are evaluating if long-term decarbonisation pathways are in place.

Regulators are sharpening their scrutiny. The Australian Securities and Investments Commission (ASIC) may assess whether climate-related statements are adequately supported. The Australian Prudential Regulation Authority (APRA) may evaluate how regulated entities identify and manage climate financial risks. The Australian Competition and Consumer Commission (ACCC) may review whether transition disclosures align with marketing claims.

Employees and communities are also engaged. Strong plans can support staff attraction and retention, while offering a framework for a “just transition” that considers community and workforce impacts. The Net Zero Economy Authority (NZEA) promotes orderly economic transformation with regional and worker support.

“ESG is part of the employee value proposition,” says Penny Bingham-Hall FAICD, non-executive director at Fortescue Metals Group. “Younger employees want to work for companies that demonstrate real commitment to sustainability and addressing climate change.”

Lessons from those who have led

Directors who have overseen multiple planning cycles highlight several lessons that characterise effective transition strategies.

The most fundamental lesson? Transition plans must be embedded in core strategy,  not treated as a standalone compliance or ESG initiative. Plans should align with commercial goals and be integrated into strategic decision-making, budgets and operations. CFO involvement is critical from the outset. “Start with conversations with senior leadership, including the CFO, about linking transition plans to strategy from an early stage, rather than it being more of a regulatory driver,” advises AGL non-executive director Vanessa Sullivan GAICD.

Early transition plans were often overly detailed, diluting strategic clarity. Today, stakeholders expect concise, transparent and targeted disclosures, with mandatory standards improving comparability.

“Transition plans are actually significant reports in their own right, and the journey ahead involves being relevant and crisp about what really matters in the transition to net zero — not all the marketing material,” says David Thodey AO FAICD, chair of Ramsay Health Care and Xero.