Executive summary

Global and domestic markets are shifting as organisations recognise the necessity of responding to physical climate change effects and Australia’s transition to net zero by 2050. Approximately 80 per cent of the market capitalisation of ASX200 companies has already set net zero emissions targets. This voluntary guidance is a priority initiative under the Australian Government’s Sustainable Finance Roadmap, designed to help organisations manage climate-related risks and harness opportunities through robust transition planning.

Purpose and audience

This guidance highlights good practices for transition planning as an internal strategic activity to improve risk management and business resilience. It aligns with international standards, specifically the Transition Plan Taskforce (TPT) Transition Planning Cycle, while providing context-specific references for the Australian market. It complements mandatory climate-related financial disclosures and the Australian Sustainable Finance Taxonomy, assisting entities in developing effective plans that may eventually be disclosed under AASB S2 requirements.

Overview of climate-related transition planning

Transition planning is an ongoing, iterative process. The report outlines three approaches based on an organisation’s climate risk exposure and sector complexity: focusing on fundamentals for low-complexity entities; full business integration for medium-exposure organisations; and technical, target-aligned approaches for high-exposure, asset-intensive sectors. Effective planning requires embedding transition goals into core business strategy, balancing ambition with reality, and maintaining a focus on return on investment to meet stakeholder and lender expectations.

Stage 1: Assess or re-assess organisational position

The initial stage involves establishing Board oversight and cross-organisational ownership. Organisations must map key stakeholders, including value chain partners, First Nations communities, and local authorities. A comprehensive assessment identifies transition risks (policy, legal, market) and physical risks (acute hazards and chronic shifts) using tools like the National Climate Risk Assessment (NCRA) and climate scenarios (+1.5 °C, +2 °C, and +3 °C). Measuring the emissions footprint across Scopes 1, 2, and 3 is critical; for most companies, Scope 3 emissions are the largest source, typically accounting for 70–90 per cent of their total carbon footprint.

Stage 2: Set strategic ambitions

Organisations define high-level mitigation and adaptation objectives. Mitigation ambitions should align with international agreements like the Paris Agreement and national targets, such as Australia’s legislated 43 per cent reduction by 2030 and its 2035 target of 62 to 70 per cent below 2005 levels. Planning must consider domestic policies like the Safeguard Mechanism and the Renewable Energy Target of 82 per cent renewable electricity by 2030. Adaptation ambitions focus on managing exposure and vulnerability to physical risks on the balance sheet, such as upgrading infrastructure to withstand floods or extreme heat.

Stage 3: Plan actions

Ambitions are translated into concrete actions across business operations, product offerings, and R&D. This includes integrating climate considerations into financial planning, such as allocating capital expenditure (CapEx) to low-carbon technologies or improving resource recovery through circular economy frameworks. Organisations should set clear, time-bound metrics and targets for mitigation, adaptation, and financial performance. If carbon credits are used to offset residual emissions, they must meet high-quality criteria, including being additional, permanent, transparently documented, and independently audited. Engagement strategies for upstream and downstream value chains are essential to address shared risks and Scope 3 emissions.

Stage 4: Implement or re-implement strategic ambitions and actions

Implementation is a dynamic phase supported by regular monitoring and progress reporting. The guidance recommends that organisations update their transition plans at least every three years to ensure ambitions remains relevant as technologies evolve and data availability improves. This iterative cycle allows leadership to reflect on lessons learned, respond to new policy developments, and adjust the strategy to maintain an actionable pathway towards net zero.