Rewriting Corporate Transition Blueprints for Climate Resilience

This article was originally posted on Climate Proof, a go-to source for information and data on climate adaptation and resilience finance, investment, and technology. Reach out to the editor, Louie Woodall, on LinkedIn.

UK Transition Plan Taskforce has thoughts on integrating adaptation in decarbonization strategies

When it comes to corporate climate disclosures, transition plans are the ‘in’ thing.

European policymakers just passed a law making them mandatory for thousands of companies, while banks and investors are increasingly demanding them from would-be borrowers. As of 2022, 4,000 companies had a transition plan out of 18,600 assessed by the non-profit CDP.

Adaptation plans, in contrast, just aren’t in vogue. Recent data from S&P Global found that barely one in five companies surveyed have an adaptation plan. Moreover, many of those that have been drafted are patchy or lack useful data for investors and other stakeholders. 

The lopsided focus on transition over adaptation and resilience (A&R) planning risks creating an economy that’s under-protected from climate shocks, and doomed to spend billions each year on rebuilding and recovering from ever-worsening extreme weather events and chronic climatic strains. 

Fortunately, an array of bright minds are working on changing this.

Last month, an advisory adaptation working group to the UK’s Transition Plan Taskforce (TPT) issued a primer on including A&R considerations in corporations’ transition-focused disclosures.

Though separate from the TPT itself, which last year issued comprehensive recommendations on drafting transition plans that are now being considered by the UK government, the idea behind the primer is to encourage firms to broaden the scope of these documents to incorporate climate-proofing strategies.

To the working group, the benefits of doing so are clear: “Connecting adaptation planning approaches with the global Transition Planning and disclosure regime can drive a transformative cycle which scales and accelerates private sector adaptation, in partnership with governments and communities,” write the working group co-chairs Faith Ward, from Brunel Pension Partnership, and Katie Spooner, of the UK Environment Agency. 

Adaptation 🤝 Mitigation

Climate Proof spoke with two members of the advisory group to learn more about the effort to mainstream adaptation plans, and why it makes sense for them to gel with transition-focused disclosures. One is Kit England, senior climate adaptation specialist at Paul Watkiss Associates, a firm that provided technical support to the TPT Secretariat and the adaptation working group itself.

“There are some synergies and trade-offs between the decisions that you make as a company between mitigation and adaptation, so you really need to start thinking about the two together,” he says. “Some companies and financial institutions will need to be doing lots more on the mitigation side than the adaptation side — think about fossil fuel companies, for example. But then in, say, agriculture, you need to do both.”

These synergies and trade-offs may not be fully appreciated by companies that are focused on transition in isolation, England adds. This could store up trouble for the future. Think of an energy company looking to site a green hydrogen facility as part of its transition plan. The productivity of this asset relies on access to water, the essential ingredient for electrolysis. If the company does not factor in future climate-related water stresses at the chosen location, what should be a profitable green energy business may turn out to be a dud a few years down the line — imperiling the company’s decarbonization.

However, it won’t necessarily be easy raising adaptation plans to parity of esteem with transition plans. The primer lists a bunch of challenges, from companies’ “lack of knowledge” on physical risks to the perception of measly returns from adaptation investments.

England posits another: “Whilst mitigation is kind of everyone’s business, adaptation is very context-specific; it won’t be everyone’s business straight away, and everyone experiences impacts differently.” This means not all companies are as incentivized to get going with A&R in the here and now.

England’s fellow working group member, Swenja Surminski, managing director, climate and sustainability, at Marsh McLennan, makes a similar point and highlights a key difference between corporate transition and adaptation efforts: “With emissions targets we’ve kind of known the direction of travel for much longer. With adaptation, it’s much harder to say, well, what are you adapting to, what makes an adapted company? It’s been much more difficult to define what adaptation means for corporates so I think that explains a little bit why there has been much more focus [on transition],” she says.

Enhancing the Transition Planning Cycle

Indeed, the relative complexity of A&R at the corporate level is a blocker to adaptation planning, one that the primer strives to address. When it comes to transition, companies have a clear goal: to reduce their greenhouse gas (GHG) emissions. Efforts toward this goal can be quantified fairly straightforwardly, too. This is not the case with A&R.

“Adaptation is really hard because the risks are different in different places. You’ve got different risk appetites, you’ve got different potential impacts, and different predictions of how effective adaptation measures will be and they’re very hard to quantify.”

One way the primer addresses this is by proposing additions to the TPT’s “Transition Planning Cycle,” a rubric intended to drive transition actions and effective disclosure. The advisory group’s souped-up version of the cycle recommends that companies start off by assessing their physical climate-related risks. This in turn can nudge them toward A&R activities that make the most business sense to them.

‘Building Climate-ready Transition Plans: An advisory paper from the TPT’s Adaptation Working Group’

For companies not sure which risks to drill down on, the primer recommends using national-level evaluations, like the UK Climate Change Risk Assessment, as a starting point. It also promotes “urgency scoring”, deployed by the UK assessment, as a way to rank-order risks by size, how manageable they are, and whether there are co-benefits from acting early. 

Aligning company-level physical risk assessments with nation-scale effort like this should help when it comes to equitable A&R burden-sharing, particularly in terms of financing: “Lots of countries are now moving to develop adaptation investment plans, where they translate what actually needs to happen from a high-level into bankable investments,” says England. “As governments go around this planning cycle, they realize the costs are very big … and therefore they have to think very strategically about what are the right enabling conditions for investments in adaptation.”

Once physical risks are identified and prioritized, the primer recommends firms consider “strategic changes” to their own business models and supply chains to make them more robust to these hazards. In the context of a broader transition plan, this is no small task. After all, there are some adaptation actions — for example, increasing air conditioning in a commercial building — that have adverse mitigation impacts, in this instance, higher energy use. On the flip side, there are transition actions that harm adaptation, like the growing of crops for biofuels, which puts stress on water supplies and eats into the amount of arable land for foodstuffs.

Firms should want to maximize what the primer calls “win-wins” — activities and investments that promote adaptation and mitigation. Think of climate-resilient agriculture, where processes are optimized to boost the soil’s capacity to absorb carbon and ability to yield drought-resistant crops. “If you do it smartly, it can create a lot of co-benefits,” says Surminski about these kinds of adaptation actions.

Again, public-private cooperation can yield dividends, here. England says that if companies are clear on what adaptation measures they’re going to take — by disclosing them in their transition plans — governments can use this data to tailor their own plans and optimize the use of public money. “They can also develop programs and responses which help crowd in the private sector, whether that’s subsidies or policy or regulation which drive that action in the real economy and then make it even more conducive for businesses to take further action.”

The final stage in the cycle is prioritizing adaptation actions. As the primer states, without prioritization, companies may find it hard to produce plans that make “economic and financial sense,” because they try to do too much or take on projects that are beyond their capabilities. There’s also a danger of ‘analysis paralysis’ — companies spending too much time gathering data and too little taking action out of concern that their choices will be sub-optimal. 

The primer encourages companies to embrace “low/no regret actions” that lead to immediate benefits as one way around this. “To some extent, adaptation is common sense and good business practice — you have a view on risks and you manage them,” says Surminski.

It also promotes so-called “climate-smart design,” meaning actions that take into account future climate-related issues when building existing assets or projects. The idea with these is to avoid, or protect from, climate shocks that would cost a bundle to recover from otherwise. Think of this image of Tesla charging stations sited on a floodplain for an example of bad climate-smart design. 

Then there’s “early iterative response,” meaning big decisions that may have to be taken in the future to harden a company from climate risks, but that can be piloted today at lower cost and lower risk. This kind of sandbox approach makes sense given the ‘known unknowns’ and ‘unknown unknowns’ of our climate future. “There’s a lot of different types of uncertainty, so it takes quite a lot longer to get to the point where you’re clear on what the actions you need to take are,” says England.

Closing the gap, avoiding burnout

The advisory group’s recommendations are useful contributions to the broader A&R effort — but they’re still couched in the domain of transition. England and Surminski are comfortable with this framing. Mitigation and adaptation should go together like peanut butter and jelly, so it doesn’t make sense to silo adaptation planning off from transition planning. 

Still, the primer itself makes clear there’s more work to be done to close the adaptation-mitigation planning gap. It proposes seven action areas “for strengthening adaptation and Climate Resilience in the Transition Planning ecosystem” that companies, governments, and academia could contribute to. These range from supporting research programs on climate models and impact data to efforts that “enhance interoperability between disclosure regimes.”

There’s a shared understanding across the working group, though, that firms don’t want or need to be saddled with yet another complex reporting framework. Disclosure burnout is real for many resource-constrained firms, after all.

“Businesses are being asked to think about so much, with all of the disclosure regimes and the taxonomies and all these kinds of things. I think there understandably is a little bit of resistance if they’re being asked to think: ‘oh, and adaptation as well?’ Rather than trying to get everyone to think about all of these different agendas in isolation, it’s more about trying to take an integrated, holistic approach, so that you do the thinking once that delivers the best outcomes for society, business, investors and shareholders,” says England.