ERM - How climate transition planning can unlock capital

Climate transition is a key challenge for businesses. Many companies recognize climate risks and set ambitious goals but struggle to translate them into operational actions that drive commercial value. Securing financing for decarbonization projects remains a significant barrier.

The Council on Sustainability Transformation (ERM) highlights in its whitepaper that stronger business-investor engagement is crucial for accelerating private-sector climate action. Climate science underscores the urgency, while inconsistent policies create complexity. A shared vision is essential to mitigate risks and seize opportunities.

Bridging the gap

The disconnect between investors and companies stems from valuation and communication challenges. Many investors lack tools to assess climate risks and opportunities, focusing on short-term returns. Meanwhile, companies struggle to present data-driven business cases that attract investment.

Transition planning offers a structured approach, helping companies define financial risks and opportunities while crafting a clear strategy to communicate long-term value to investors. A well-structured transition plan strengthens investor confidence, showcasing both individual project returns and their role in broader corporate strategy.

Commitment and collaboration

For transition planning to succeed, companies must integrate climate goals into their strategies, supported by leadership, clear targets, and accountability. If treated merely as a compliance exercise, its potential will be lost. Investors must also enhance their ability to assess decarbonization business cases, supported by evolving regulatory frameworks.

Regulatory shifts and investor momentum

Regulations continue to evolve. While the EU Corporate Sustainability Reporting Directive (CSRD) initially required transition plan disclosures, updates under the Omnibus Directive have relaxed these obligations. However, the Corporate Sustainability Due Diligence Directive (CSDDD) still mandates transition plans for large companies by 2027. The International Sustainability Standards Board (ISSB) also reinforces transition planning by integrating guidance from the Transition Plan Taskforce (TPT).

Investor interest is growing. Organizations like GFANZ and IIGCC provide frameworks to help investors assess climate risks and opportunities. More than 700 financial institutions have adopted GFANZ’s Net-Zero Transition Planning framework. Additionally, ERM and PESMIT have developed methodologies to quantify the financial value of avoided emissions.

In 2023, nearly 6,000 companies disclosed transition plans to CDP, a 50% increase from 2022, with thousands more planning to do so by 2025.

Towards net zero

While not a silver bullet, transition planning is a key tool to enhance investor confidence, unlock capital, and accelerate decarbonization. Strengthening investor-business alignment will be essential for achieving a net-zero economy.

More information and full article can be found at:  How climate transition planning can unlock capital

It is the sole responsibility of the Sustainable Network Member to check the truthfulness, accuracy and completeness of the data and information entered on this web page, when within its competence and provided by the Sustainable Network Member. Borsa Italiana S.p.A. is not responsible for the contents developed by third parties and in particular by the Sustainable Network Member contained in this web page.