An introduction to aligning transition planning and financial planning: Key questions for finance teams
Although the benefits of developing a financial plan to support a transition plan are clear, knowing where to start can be a daunting prospect. Transition planning will likely involve a range of internal teams, potentially across different countries, who will each be taking a variety of different actions. Bringing all this information together to understand the financial implications of a transition plan can be a challenge.
This document is aimed at finance teams to help you to identify different transition planning activities that may have financial implications. It provides a structured approach and outlines key questions that you can ask colleagues to help you get started.
The questions are structured around line items (capital expenditure, revenue and operating expenditure) as well as value chain engagement and regulations, internal pricing and offsets.
For example, you may ask your estates team whether they are investing to make any fixed assets more resilient to climate-related physical risks (eg installing flood defences)? Or your products team whether any new low-emissions products or services are going to be introduced?
The document also provides commentary on raising capital. One of the benefits developing a financial plan to support a transition plan is a better understanding of the capital resources that you may require.
In each section you’ll find practical examples of climate action that organizations have taken that have financial implications, for example from Levi Strauss & Co, Unilever, NatWest and Apple.
By developing a financial plan to support a transition plan you will:
- Increase the likelihood of achieving your net zero targets – you will understand the potential financial implications of the actions required to deliver your targets
- Make your organization more resilient – you will be able to estimate whether the organization will be profitable in a net zero world and be able to respond to climate-related risks
- Understand potential funding requirements – you will evaluate whether additional funding is required to deliver your transition plan
- Demonstrate commitment to stakeholders – you will be showing to internal and external stakeholders that your organization is committed to turning targets into action and responding to the climate emergency
- Be able to disclose in line with frameworks and standards – you will be able to provide the information that is required or implied by disclosure frameworks and standards such as IFRS S2, ESRS and those developed by TPT, GFANZ, GRI, CDP and the IOSCO Objectives and Principles of Securities Regulation.
These questions focus on the financial implications of the transition plan, the A4S Net Zero Taskforce on Aligning Financial Planning and Transition Planning is developing more in-depth commentary on how to integrate financial planning and transition planning processes.
This resource has been developed with support from ICAEW.
