6 key elements of climate transition plans for SMEs

SMEs in the EU face increasing pressure to align with global climate goals and reduce their environmental impact, developing a climate transition plan is becoming essential to secure funding or remain competitive in the supply chain. A comprehensive plan not only helps businesses manage climate-related risks but also unlocks new opportunities in a rapidly evolving market. Below are the critical components that every climate transition plan should include:

1. Analysis of Climate Risks and Opportunities Based on Climate Scenarios

A climate transition plan should begin with an analysis of climate risks and opportunities. This analysis involves examining potential climate scenarios—ranging from the very optimistic, so-called "Net zero" scenario where temperatures rise by 1.5°C to the more pessimistic ones where the rise exceeds 3°C or "Current policies" scenario —and assessing their impact on the business operations, supply chains, and market conditions. Understanding these risks allows companies to identify areas where they are most vulnerable, such as increased energy costs or damage from extreme weather events, while also pinpointing opportunities, like improved efficiency or new green market demand.

2. Carbon Footprint Using GHG Protocol Methodology

A clear and measurable understanding of an organization's carbon footprint is critical to any transition plan. This should be calculated using the Greenhouse Gas (GHG) Protocol methodology, which helps businesses measure emissions into three key scopes:

- Scope 1: Direct emissions from owned or controlled sources.

- Scope 2: Indirect emissions from the purchase of electricity, steam, heating, and cooling.

- Scope 3: All other indirect emissions, such as those from the supply chain, employee commuting, and product use.

By accounting for emissions across all three scopes, organizations can gain a more comprehensive picture of their overall environmental impact and identify the most significant areas for action.

3. Science-based targets

Setting climate targets aligned with the Science Based Targets initiative (SBTi) is essential to ensure that the goals are in line with the latest climate science. SBTi provides a framework for organizations to set targets that limit global warming to 1.5°C. These targets should be measurable, and time-bound, and they need to be adjusted over time to ensure continual progress toward net-zero emissions. Having a transparent, science-driven target helps build credibility and accountability.

4. Action Plan for Decarbonization

A successful transition requires a detailed action plan for decarbonization, which identifies key initiatives to reduce carbon emissions. This plan should target key contributors to the carbon footprint—whether it's energy consumption, transportation, waste, or raw materials—and provide specific measures for reducing emissions in each area. Actions might include transitioning to renewable energy, optimizing supply chains for efficiency, adopting circular economy principles, and implementing low-carbon technologies. Actions must have clear connections to GHG reductions, have a clear timeline and identify resources needed for their implementation.

5. Financial Plan

Decarbonization requires substantial investment, and therefore, a financial plan is a crucial part of the climate transition strategy. Additionally, businesses should identify funding sources, such as EU Funds, sustainability-linked loans, or private capital. A well-structured financial plan helps ensure that the necessary resources are allocated and that the financial implications of the transition are properly managed.

6. Other Considerations (Assumptions, Challenges, and Just Transition)

Finally, the climate transition plan should consider various other factors that could impact its success, including assumptions, challenges, and the concept of a just transition. Assumptions about future climate policy, technology availability, and market dynamics need to be clearly stated, as they will influence the viability of the plan. The just transition principle ensures that the shift toward a low-carbon economy is inclusive, equitable, and beneficial for all stakeholders, particularly vulnerable communities and workers whose jobs may be displaced by the transition.

Conclusion

A comprehensive climate transition plan is more than just a roadmap for reducing emissions; it's a strategic framework that enables businesses to mitigate risks, capitalize on new opportunities, and contribute to a sustainable future. By including an analysis of climate risks and opportunities, carbon footprint measurement, science-based targets, an actionable decarbonization plan, a financial investment strategy, and considerations for a just transition, companies can ensure that they are well-prepared for the challenges and opportunities of the low-carbon economy.