United StatesAt a time of significant policy uncertainty and rising costs and severity of extreme weather events, more than ever, companies need to effectively and transparently disclose how they are responding to climate change.
To be decision-useful for investors, these disclosures, often referred to as ‘corporate climate transition plans’, must be grounded in the reality of corporate constraints. They should also be responsive to rapidly evolving risks, not wedded to a specific temperature alignment pathway or aspirational goal.
Against this backdrop, policymakers and regulators are ramping up their focus on whether to enhance current regulation to ensure companies disclose more forward-looking actions, building on existing TCFD-style reporting.1 The UK government recently consulted on this question, with plans to set out next steps later in 2025.
Physical and transition risks are rising
The costs of climate change are rising globally, with all sectors and companies facing an increasingly uncertain operating environment. Global insured losses from natural catastrophes, made more probable and severe by the effects of climate change, stood at US$146bn in 2024, 35% higher than their 10-year average.2
Transition-related costs are often harder to quantify, but the costs to business caused by rising policy uncertainty is clear. In the past year, global macroeconomic headwinds and the new US administration’s attitude towards climate change have been combining to limit governments’ ambition on climate action. In January 2025, the Net Zero Asset Managers (NZAM) initiative announced that it would suspend activities pending an ongoing review, citing recent developments in the US and different regulatory expectations.
These risks will not be linear and are interacting with local conditions in each region in different ways. This complicates companies’ planning over the medium-term.
Transition plans can enhance corporate resilience
Transition plans are a critical tool for communicating a company’s resilience in the face of this complex and fast-evolving risk landscape. These documents should be forward-looking in nature, outlining how a company intends to respond to the risks and opportunities arising from the physical impacts of climate change, and society’s response in the form of policy and market evolution.
Importantly, companies should be highlighting how their transition plans are resilient under various different scenarios, rather than aligning to one specific aspirational goal.
At Impax, we evaluate the quality of transition planning across our investee companies. We like to see plans demonstrate how the transition is integrated into an organisation’s business strategy and day-to-day operations.
Based on our experience, the most decision-useful parts of corporate transition plans are: descriptions of how an organisation is responding to climate change through the design of its products and services; the allocation of capital expenditure; the governance of its transition plan (including how it incentivises a corporate culture that aligns with a company’s climate response); and its engagement with actors in its value chain.
Adaptation and resilience must be in focus
To maximise their usefulness to investors and businesses, transition plans should place greater focus on adaptation and resilience planning. There is increasing consensus that global action to reduce greenhouse gas emissions will be insufficient to limit global temperature rises to 1.5°C. Moreover, regardless of future emissions reductions, the costs and severity of extreme weather events are expected to rise based on past activity.
Given the need for companies to put in place adaptation and resilience-focused actions where they face material physical risks, these should be built into each of the decision-useful topics of a transition plan outlined above. This should also include any areas of uncertainty considered in the company’s assessment of climate resilience.
However, at present, corporate reporting on exposure to extreme weather risks and resilience measures are sub-optimal, hindering investors’ understanding of their risks to extreme weather within their portfolios.
Flexibility around temperature alignment pathways is vital
The value of corporate transition plans lies in their ability to expose the strategic uncertainties that companies face, including from policy, technology and consumer-led shifts. Companies should be transparent about how they have incorporated consideration of climate-related risks and opportunities across multiple potential states of the world in developing their responses, and which scenario they think is the most plausible basis for their plans.
By reporting on the dependencies and constraints that firms face in achieving their strategy, including policy gaps, transition plans can become useful tools for decision making by investors and policymakers.
A call to action
In a world of rising climate risks and policy uncertainty, robust planning for a company’s response to climate change is a critical tool for corporate planning. Transparency over how climate-related risks and opportunities are being managed by companies is therefore crucial for investors to understand the implications for investment performance.
The most effective plans will not only reflect a range of credible scenarios, but also provide clear, forward-looking actions on how a company intends to adapt its business model in response to risks and to capitalise on opportunities arising from the transition.
1 Task Force on Climate-related Financial Disclosures (TCFD)
2 Swiss Re Institute, April 2025: Natural catastrophes: insured losses on trend to USD 145 billion in 2025
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