How to Identify a Credible Transition Plan

Many companies are setting climate targets. But between an ambition for 2030 or 2050 and the effective transformation of a business model, how can we identify a credible transition plan?

Decarbonisation pathways, investment, governance, timelines and indicators, but also adaptation, biodiversity, water and resources: a credible transition plan cannot be reduced to a carbon target. It must show how a company translates its environmental ambitions into concrete economic decisions and builds the resilience of its business model.

From “net zero” to a transition plan

Setting an emissions reduction target is a first step. A transition plan then defines the pathway, actions and resources required to achieve it.

According to the IFRS Foundation, an entity’s climate-related transition is the process by which it pursues targets, undertakes actions or allocates resources to respond to climate-related risks and opportunities as part of its overall strategy. The guidance published by the IFRS Foundation in June 2025 aims to help companies provide high-quality information about their climate-related transition and, where they have a transition plan, about the elements of that plan, in the context of IFRS S2.

This approach is important because it shifts the focus from targets to execution.

A company may announce a significant reduction in emissions by 2030. Several criteria can help assess the credibility of that commitment:

• What levers will enable these reductions?
• How much depends on investment decisions that have already been made?
• How much relies on technologies that remain uncertain?
• Which assets will need to be transformed or replaced?
• What changes will be required across the value chain?
• What results are expected in three, five or ten years?
• What financial resources will be allocated to this transformation?

A transition plan therefore provides the link between climate ambition, corporate strategy and capital allocation.

1. First criterion: moving from targets to an actively managed pathway

The first step is to examine the targets that have been announced, while recognising that targets alone provide limited information about the pathway designed to achieve them.

A company aiming to reduce its emissions by 50% by 2030 may already have embarked on a major transformation of its operations. Another may announce the same target while postponing most of the effort until the final years.

Credibility therefore also depends on the pathway towards the target.

Initiatives such as the Science Based Targets initiative (SBTi) provide a structured framework for setting emissions reduction targets grounded in climate science. The SBTi distinguishes, in particular, between near-term targets and net-zero pathways. It also contributes to transparency by publishing validated targets. Its framework is currently evolving following the publication, in June 2026, of version 2.0 of the Corporate Net-Zero Standard.

Once the target has been defined, the next step is to build the pathway that will enable the company to achieve it.

This is where complementary methodologies such as ACT Step-by-Step, supported by ADEME, come into play. ACT helps companies develop and manage their transition strategies by translating climate ambitions into a pathway, concrete actions and resources. SBTi and ACT therefore address two complementary dimensions: setting robust climate targets and building the strategy required to achieve them.

At international level, the work of the Transition Plan Taskforce (TPT) complements this approach by providing good-practice recommendations for structuring transition plan disclosures and making their key components clear to investors.

One question can help put these different elements into perspective: are the decisions being made today consistent with the targets announced for tomorrow?

2. Second criterion: investment aligned with ambition

A transition generally requires investment: building renovation, electrification, transformation of industrial equipment, infrastructure upgrades, energy efficiency, changes to sourcing, R&D or the development of new products and services.

A credible transition plan should therefore be assessed alongside the company’s investment decisions. The consistency between actual investment and public commitments is a particularly useful indicator of the plan’s credibility.

A company may have ambitious decarbonisation targets while continuing to invest heavily in assets that are incompatible with its pathway. Conversely, an investment programme that is already underway can make a pathway much more tangible.

For investors, several points deserve particular attention:

• What proportion of future investment contributes to the transition?
• Has the required investment been quantified?
• Is it incorporated into budgets and strategic plans?
• How will it be financed?
• Which assets could lose value or become obsolete?

This perspective connects environmental transition, investment decisions and financial analysis. We also explored this issue in our 2030 foresight exercise, which examines the transformations that could reshape finance over the coming years.

It also raises the question of the cost of inaction: postponing certain investments may reduce expenditure in the short term but increase future exposure to physical, regulatory, energy or technological risks.

3. Third criterion: clearly defined governance

A transition plan cannot be the sole responsibility of a sustainability team.

Once it affects investment, operations, procurement, energy, products, risk or the supply chain, it directly concerns the company’s overall strategy.

Governance is therefore another key indicator of credibility.

• Who is responsible for executing the plan?
• What role does the board of directors play?
• Is the finance function involved in key decisions?
• Are climate targets incorporated into investment decisions?
• Do operational teams have clearly defined responsibilities?
• Where relevant, is executive remuneration linked to specific targets?

IFRS S2 identifies governance as one of the key areas of information investors need to understand how a company monitors and manages climate-related risks and opportunities. The guidance published by the IFRS Foundation on transition plans also emphasises the connection between climate-related transition and a company’s overall strategy.

This dimension helps distinguish a largely declarative commitment from a transformation that is genuinely embedded in how the organisation operates.

4. Fourth criterion: interim milestones and measurable indicators

2050 is distant enough to accommodate many promises. A credible plan must therefore be measurable well before its final deadline. Interim targets play a central role here, helping to determine whether the expected pathway is materialising and to identify gaps between ambition and actual performance.

Indicators may naturally cover greenhouse gas emissions, but they can also track:

• energy consumption,
• the share of renewable energy,
• investment made,
• the transformation of specific assets,
• changes in the supplier base,
• value chain emissions,
• the development of products or services contributing to the transition,
• exposure to specific physical risks.

Several frameworks can help structure this monitoring over time. The SBTi strengthens this dimension in version 2.0 of its Corporate Net-Zero Standard, with annual reporting and periodic assessment of progress, gaps and actions taken. ACT Assessment provides a complementary approach for assessing the robustness of a transition strategy and its implementation.

Analysing actual emissions trends, coverage across the different scopes, underlying assumptions and gaps against interim targets can therefore help measure progress, adjust the pathway and strengthen transparency around implementation.

5. But decarbonisation is not enough

The transition cannot be limited to decarbonisation alone. Reducing emissions remains essential to help limit climate change. But even under scenarios involving significant emissions reductions, companies must also contend with the physical consequences of a climate that has already changed.

Heatwaves, droughts, floods, wildfires, water stress and supply chain disruptions can directly affect assets, operations and costs.

The IFRS Foundation explicitly includes both emissions reduction and adaptation to climate-related risks in its work on transition plans. Its guidance therefore covers both mitigation and adaptation, including adjustments to the business model to strengthen resilience to climate-related physical risks.

The challenge is therefore twofold: reducing the company’s contribution to climate change while preparing its business model for its consequences.

A company may have an excellent emissions reduction pathway while remaining highly exposed to industrial sites vulnerable to flooding, suppliers dependent on increasingly constrained water resources, or raw materials that are particularly sensitive to changes in climate conditions.

Decarbonisation and resilience therefore represent two complementary dimensions of the transition.

6. From climate to water, biodiversity and natural resources

Companies do not depend solely on a stable climate. They also rely on natural resources, water, soils, raw materials and, for certain activities, well-functioning ecosystems. These dependencies can translate into economic risks.

This approach is central to the recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD). Its framework encourages companies and financial institutions to identify and assess four nature-related dimensions: dependencies, impacts, resulting risks and associated opportunities. The objective is notably to integrate these issues into risk management and decision-making.

• A food company depends on the availability of certain agricultural commodities.
• An industrial company may be exposed to the availability of water or critical raw materials.
• A textile company depends on agricultural and water resources as well as international supply chains.
• A financial institution may be indirectly exposed to these risks through the companies and assets it finances.

Not every transition plan is expected to cover every environmental issue in the same way. The relevant question is one of materiality.

Which environmental issues could genuinely affect the company’s operations, assets, value chain or financial prospects?

This approach helps avoid two pitfalls: reducing the transition to carbon alone or, conversely, creating an environmental plan so broad that it becomes difficult to manage.

7. How can investors assess the credibility of a transition plan?

For an investor, analysing a transition plan ultimately means testing the consistency between several dimensions.

Ambition

Are the targets sufficiently precise and documented?

Pathway

Are there interim targets that make it possible to measure progress?

Actions

Have the main transformation levers been identified?

Investment

Are Capex and the resources allocated consistent with the stated ambitions?

Governance

Are responsibilities clearly assigned within the company?

Results

Does the company publish indicators that allow investors to compare the planned pathway with actual performance?

Resilience

Does the plan address the main physical risks to which the company is exposed?

Environmental dependencies

Where material, have issues related to water, natural resources or nature been identified?

Assumptions

Does the plan depend on technologies, prices, public policies or market developments that remain uncertain?

It is the consistency across all these criteria that makes it possible to assess the strength and credibility of a transition strategy.

The transition plan as a lens on corporate strategy

A transition plan should therefore not be viewed solely as an ESG document or a reporting exercise.

For investors, it can provide a framework for assessing a company’s ability to anticipate changes in its economic environment.

• What investment will be required?
• Which assets will need to evolve?
• What costs could emerge?
• Which activities could, conversely, benefit from the transition?
• Will the business model remain competitive?
• Does the company have the financial, human and technological resources it needs?

These questions go far beyond environmental reporting. They relate to strategy, risk, capital allocation and, ultimately, value creation.

This is perhaps the fundamental purpose of a credible transition plan: to make visible how environmental ambition translates into concrete economic decisions.