Transition planning, as part of the sustainability reporting regulation, represents a substantial commitment for corporations, both in terms of financial investment and the internal resources required. In fact, many firms are dedicating significant time and effort to ensure their sustainability reporting and transition plans align with regulatory requirements. This is becoming increasingly important as new frameworks come into force across various jurisdictions.
In Europe, finance and sustainability teams from the initial wave of companies subject to the Corporate Sustainability Reporting Directive (CSRD) are currently navigating the European Sustainability Reporting Standards (ESRS). These teams are establishing systems, processes, and definitions in preparation for publishing their integrated reports by early next year. Transition planning is a key part of the standard that in-scope companies need to comply with.
In the UK, the International Sustainability Standards Board (ISSB) is widely expected to be endorsed by Q1 2025. Companies under its scope will soon be required to report their transition plans in line with these new standards.
There are three main benefits for proactive finance teams of corporations that are subject to these regulations, including:
Companies across sectors and geographies will have to report more comprehensively and consistently on sustainability topics, providing investors with more information. How investors use and interpret the additional data points is another matter. Finance teams and their investor relations departments have the opportunity to engage with investors through events and communications promptly to provide a fair and accurate interpretation.
Transition plans are a particularly relevant focus area for institutional investors. Many investors have committed to ambitious decarbonisation objectives through initiatives like the Net Zero Asset Owner Alliance and the Net Zero Asset Manager Alliance. Consequently, companies with credible transition strategies are well-positioned to capture the attention of asset managers and asset owners seeking investment opportunities aligned with these goals.
Snam is the largest gas regulated midstream operator in Europe, with 37,400km of transport pipelines, 20bcm of storage capacity and 20bcm annual regasification capacity. Its mission is to build and operate infrastructures to guarantee energy supply security and reliability.
As a listed company Snam is subject to the CSRD regulation with the publication of the first report in early 2025 (on 2024 data).
Snam’s ambition is to become a multi-molecule infrastructure. Its latest business plan envisages up to €26bn in cumulative CapEx in the period 2023-32. The first part of the investment programme from 2023 to 2027 (€11.5bn net of grants) is focused on maintaining world-class reliability and resilience of assets while reducing carbon footprint. The second part (2028-32), with €14.5bn net of grants, will focus on hydrogen backbone investments and carbon capture and storage (CCS) scale-up.
Snam’s CSRD reporting and transition plan:
Snam’s sustainability journey started in 2006 with the first publication of the sustainability report. In 2021 the energy transition businesses and gender diversity were included in the Bylaws. Also, as a frequent issuer of sustainability bonds (SLBs and green bonds), the company has regularly been engaging investors on its sustainability and decarbonisation journey.
Nevertheless, early on, the management team and its CFO, understood that the transition plan is a key piece of their overall strategy. To make sure that it responded to institutional investors’ demand for ambition, implementation and disclosure requirements decided to work with Impactivise, a boutique consultancy, to engage with four leading institutional investors prior to the publication of the plan to better understand their expectations.
Examples of prepared questions for investors:
When executed well, this type of engagement yields valuable guidance for companies, including insights into investor expectations on targeting, ambition, and the use of labels and databases. Investors also benefit by gaining a deeper understanding of how a company’s transition plan links sustainability efforts with financial performance, particularly in terms of reducing climate-related risks.
While transition planning may be initially led by sustainability teams, it quickly becomes clear that these plans are deeply strategic in nature. The most effective transition plans are the product of collaboration across sustainability, operations, finance, and board-level teams.
Institutional investors are increasingly willing to engage proactively, especially when approached by companies. While initial discussions often involve sustainability and stewardship teams, they often extend to analysts and portfolio managers across both equity and debt markets.
Corporations and institutional investors are pivotal in driving the transition to a low-carbon economy. Transition plans, though initially driven by regulatory requirements, are evolving into crucial communication tools that align corporate strategies with investor priorities.
While many institutional investors have established formalized stewardship activities, this has often been a one-way conversation. The Snam case study demonstrates that companies can take the lead by reaching out proactively, offering transparency into their decarbonisation efforts and facilitating more productive, two-way communication.
Ultimately, increased communication flow leads to more informed decision-making for both finance teams and investors.
Fabrizio Palmucci is managing director of Impactivise and Francesca Pezzoli is investor relations director at Snam
