Australia's new climate transition planning guidance

The Australian Government's new voluntary climate-related transition planning guidance arrives at a time when organisations are facing increasing pressure to understand how the transition to a lower-emissions economy, alongside the growing impacts of climate change, may affect their operations, investment decisions and future growth.

Although transition plans are becoming an increasingly visible feature of climate disclosures, their greatest value may lie in helping organisations test strategic assumptions, evaluate resilience and understand how the climate transition could affect future business performance. This is where transition planning becomes less about documenting a response and more about understanding what the transition means for the business itself.

What is climate transition planning?

Climate transition planning is often misunderstood as a standalone document or a pathway to achieving net zero. The government’s guidance takes a broader view, describing it as an ongoing process that helps organisations prepare for both the transition to a lower-emissions economy and the increasing impacts of climate change.

Effective transition planning considers a range of factors that could influence an organisation's future direction, including evolving regulation and policy settings, changing customer and investor expectations, technological developments, shifts in energy markets and supply chains, and the physical impacts of a changing climate. It also encourages organisations to assess how these factors could affect their business under different future scenarios and identify actions that may improve resilience or create new opportunities.

Importantly, transition planning is not limited to organisations with formal net zero commitments or those subject to mandatory climate reporting requirements. For many organisations, it can provide a structured framework for integrating climate considerations into strategic planning, governance, risk management and investment decision-making.

Why this matters for climate disclosures

For organisations preparing climate-related financial disclosures under AASB S2, transition planning is becoming an increasingly important consideration. While the standard does not require every organisation to develop or disclose a formal transition plan, it does require organisations to explain how they are responding to climate-related risks and opportunities, including the strategies, targets and actions they are implementing to support that response.

As climate reporting practices mature, stakeholders are increasingly interested in understanding how organisations intend to navigate the transition to a lower-emissions economy and how climate considerations are influencing strategic decision-making.

Transition planning can help organisations bring together many of the elements already required for effective climate reporting. It provides a structured way to assess how climate-related risks and opportunities may affect business strategy, identify actions needed to achieve climate-related objectives, and evaluate the resilience of those plans under different future scenarios.

Transition planning as a business strategy tool

Organisations make strategic business decisions every day about capital investment, infrastructure, supply chains, technology, workforce planning and growth. Transition planning provides a structured way to assess how climate-related trends, market shifts and evolving stakeholder expectations could influence those decisions. It can help organisations test assumptions, explore potential future scenarios and better understand the factors likely to shape business performance over time.

Supporting long-term strategic planning

Many of the challenges associated with the climate transition, such as changing energy markets, supply chain disruption, customer expectations and policy developments have the potential to influence an organisation's long-term direction. Transition planning encourages organisations to consider how these trends may affect their operating environment and whether current strategies remain fit for purpose under different future scenarios. This can help boards and executives identify emerging risks, test strategic assumptions and make more informed decisions about future priorities.

Informing investment and capital allocation decisions

Transition planning can also provide valuable insights when evaluating investments, infrastructure projects and asset portfolios. Understanding how climate-related risks and opportunities may evolve over time can help organisations prioritise investments that support resilience, improve operational efficiency or position them to capture emerging market opportunities. For organisations with significant physical assets or long investment horizons, incorporating climate-related considerations into planning processes may strengthen decision-making and reduce the likelihood of future disruption.

Embedding resilience across the organisation

Effective transition planning extends beyond strategy and investment decisions. It also requires organisations to consider how climate-related risks and opportunities are incorporated into governance, risk management and business planning processes. This integrated approach can help organisations build capability, improve preparedness and respond more effectively to an increasingly complex operating environment.

Is your organisation prepared for the climate transition?

Understanding how climate-related risks and opportunities may influence future business performance is becoming an increasingly important consideration for boards, executives and business leaders. If you would like to understand what Australia's new guidance means for your organisation, or how transition planning can support your climate reporting, risk management and strategic objectives, contact BDO's sustainability team.