Using climate transition planning for impact

With mandatory climate reporting now a priority for boards, a new guide drawing on the direct experiences of directors and institutional investors shows how transition planning can reinforce reporting efforts. Lessons from organisations refining their plans highlight how a well-embedded strategy strengthens disclosures while building resilience, credibility and long-term value.

For many directors, the early phase of climate transition planning is behind them. Today, mandatory climate reporting is absorbing much of the board’s and management’s time – a necessary focus as Australia’s new disclosure regime takes effect.

Yet as organisations revisit their transition plans for a second or third iteration, many are discovering these plans support, rather than distract from, these reporting efforts. By clarifying strategy, targets and delivery pathways, transition plans make disclosures more credible, more consistent and more valuable to stakeholders. They are also helping boards navigate a more complex and demanding operating environment.

As expectations rise, experienced directors share what works – and what doesn’t – when it comes to building confidence and delivering business value in the AICD’s new directors’ resource Governing for Net Zero, prepared jointly with the Australian Council of Superannuation Investors (ACSI).

Stakeholders want more, but not too much

Under Australia’s mandatory 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 both their obligations are at law and from a regulatory sense, and that is ultimately the source code for why we developed a transition plan,” says Andrew Fraser GAICD, Chair of Australian Retirement Trust. “Member expectations and stakeholder expectations are the next layer of how any organisation needs to calibrate those factors into its thinking.”

The scrutiny is intensifying across multiple fronts. Investors and financial institutions are factoring climate risk into decisions, with major Australian banks often requiring credible transition plans for lending in emissions-intensive sectors. Supply chain partners are evaluating whether long-term decarbonisation pathways are in place.

Regulators are sharpening their focus. ASIC may assess whether climate-related statements are adequately supported. APRA may evaluate how regulated entities identify and manage climate financial risks.

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

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

Lessons from those who have led

For many organisations, compliance work has laid the groundwork. Now directors are finding that transition planning deepens and strengthens those foundations. Directors who have overseen multiple planning cycles highlight several lessons that characterise effective transition strategies.

The most fundamental insight? Transition plans must be embedded in core strategy – not treated as a standalone compliance or ESG initiatives. 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 a very early stage, rather than it being more of a regulatory driver,” advises Vanessa Sullivan GAICD, who is non executive director at  AGL and CSIRO and chair at Centacare.

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.

Balancing strategic ambition with reality

This balance between ambition and deliverability not only shapes transition success, but also builds the credibility behind mandatory disclosures. Another key insight: ambition must be balanced with a realistic path to delivery. Transition plans should reflect financial constraints, technology readiness and operational capacity. Unrealistic targets risk undermining credibility.

“Transition plans are important – it’s about balancing ambition with what is practical, real, and commercial. Every organisation will have its own perspective on that,” says Penny Bingham-Hall FAICD.

Boards play a vital role in making the business case for climate action – addressing trade-offs, time horizons and value impacts. Plans should clearly show how long-term goals support profitability and shareholder outcomes.

“I would say the board creates the license and the safe space for management to pursue their ambition in this space,” says Michael Ullmer AO FAICD, non-executive director at Westpac and former Chair of Lendlease.

While long-term value creation through sustainability is critical, many investors remain focused on short-term performance. Transition plans must show how climate strategy supports both time horizons.

An era of better examples

Expectations continue to grow, and the message from market leaders is clear.

“Climate expectations from policymakers, investors and the public are not going away – if anything, they will intensify as 2050 approaches,” warns Innes Willox, Deputy Chair of AustralianSuper. “Public and shareholder tolerance for backsliding on climate commitments is low, and businesses that fail to take climate action seriously may face growing regulatory, financial and reputational risks.”

For directors of organisations developing their first plan, the recommendation is to use transition planning to underpin and strengthen mandatory reporting. Embedding plans in core strategy, learning from peers and refining approaches over time creates a stronger foundation for climate disclosures and organisational decision-making.

Transition planning will not remove uncertainty, but it can give boards the structure and confidence to navigate it. Directors who treat it as a strategic enabler will be better placed to deliver credible reporting, attract trust and investment, and steer their organisations through the net zero transition.