ERM Energetics is supporting a growing number of Australian Accounting Standards Board (AASB) S2 entities as they prepare for their first year of climate reporting. One topic that is front of mind: climate transition plans (CTPs). With an increasing number of clients asking – what exactly is a CTP, is it required, and how detailed does it need to be?

Under AASB S2, CTP is defined as “an aspect of an entity’s overall strategy that lays out the entity’s targets, actions or resources for its transition towards a lower-carbon economy, including actions such as reducing its greenhouse gas emissions”. Whilst the preparation and disclosure of a CTP is not strictly mandated, there is an inherent expectation from stakeholders, particularly investors and regulators, for Australian entities to demonstrate a credible and resilient pathway to navigate the net zero shift. A cohesive CTP strengthens investor confidence by linking ambition to measurable, funded actions and governance accountability

Best practice is still emerging with respect to the development of CTPs, however, international guidance, notably by the International Financial Reporting Standards Foundation (IFRS) combined with recent publications by the Investor Group on Climate Change (IGCC) and Climateworks provide Australian reporters with some guidance on what to consider in shaping their CTPs. A common thread across these publications is for CTPs to be ‘feasible’, ‘credible’ and ‘resilient’.

In this context and to support AASB S2 reporters, Treasury has drafted guidance (the Guidance) on best practices for climate-related transition planning. The Guidance is underpinned by leveraging international frameworks (ie. IFRS), alignment with Australia’s decarbonisation and adaptation pathways and focus on ‘just’ transition (as well as social and nature considerations). Treasury undertook consultation on the Guidance in August – September 2025.  

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ERM Energetics submitted a response to Treasury’s consultation, which provided us with a valuable opportunity to reflect on what we’re seeing in practice, and what Australian businesses need to do to navigate these emerging requirements under AASB S2.

Our synopsis of the draft Guidance revealed the following key insights, which underpinned our submissions, including:

  • The need for enhanced clarity around the definitions – arising from the lack of clarity between transition planning, transition plans, and disclosure. These are often treated interchangeably in Treasury’s draft Guidance. Enhanced clarity is required to help businesses understand the nuances with respect to the process (transition planning), transition plan (outcome of the process that outlines the organisation’s objectives, targets and actions on route to a net zero and climate resilience future) and disclosures (e.g., specific AASB S2 provisions).  
  • Bankable CTPs connect decarbonisation and adaptation – decarbonisation and resilience/adaptation are two integral dimensions of a credible CTP. They can no longer be managed in isolation but as inter-linked pieces of the strategy that an entity needs to disclose to meet the transparency and investor-usefulness aims of AASB S2. For instance, physical climate impacts (requiring adaptation/resilience) will affect supply chains, operations and asset values – meaning that a CTP grounded in mitigation efforts alone is insufficient. By combining decarbonisation and adaptation, CTPs enable businesses to stress-test their strategies under different climate scenarios and ensure that both the path to net zero and the capacity to withstand climate shocks are financially and operationally viable.
  • Integration of a CTP in business plan remains challenging - standards and investor expectations now demand not just targets, but financed, operational roadmaps and resilience measures across the value chains. However, most organisations lack the aligned metrics, resourcing, scenario-alignment and supply-chain data needed to convert high-level commitments into capitalised and budgeted business decisions. Whilst the Guidance explains what a transition plan should include, it does not provide guidance on how to operationalise it within business planning, capital allocation, or governance processes.
  • CTPs provide an opportunity for businesses to cohesively articulate their risk management and transition strategies – by applying a ‘beyond compliance’ lens (as opposed to a disclosure driven approach), the development of a CTP provides Australian businesses with a strategic opportunity to connect climate risk, resilience, and opportunity through an actionable CTP that demonstrates credible governance, aligns capital with purpose, and builds investor and market trust in their long-term transition journey.

Closing the planning gap: what businesses should do next

ERM Energetics’ submission to Treasury highlights that most Australian businesses are still in a compliance mindset when it comes to transition planning – focusing on what to disclose, rather than how to plan. But credible transition plans require more than reporting; they demand strategic integration of climate risks and opportunities into core business decisions. The key takeaway is this: businesses that treat transition planning as a strategic process – not just a disclosure exercise – will be better positioned to meet investor expectations, navigate regulatory shifts, and remain competitive in a low-carbon economy. The next 12–24 months are a critical window to close the planning gap and move from compliance to credibility.