Corporate Low-Carbon Transition

• Incomplete Target Specification: Most companies did not define the terms net zero or carbon neutral when presenting targets, and only two of the 12 companies with a transition plan specified the level of long-term, absolute emission reductions for their net-zero or carbon-neutral targets.
• Plan vs Planning: 12 of the 14 companies interviewed had a transition plan. Of those, only five had a stand-alone plan, with the other seven incorporating transition plan elements in an existing annual sustainability report.
• Importance of Senior Level Commitment: Almost all the interview participants mentioned that when looking to create internal buy-in for plan development, target setting, and strategy implementation, visible board- and executive-level support, along with coordinated cross-functional participation, was instrumental to success.
• Guidance Overload: Most companies interviewed indicated that staying up to date on the latest guidance around transition planning and credibility was difficult, and the volume of guidance is making it difficult to assess which is the most important to follow.
• External Stakeholder Engagement to Build Credibility: Given the uncertainty around guidance and the lack of consensus around credibility conferring partners, several companies mentioned proactively reaching out to key stakeholders to engage them during the transition plan development process to build credibility.
• Knowledge Gaps: Interviewees cited significant knowledge gaps during the development of transition plans. Companies struggled with a lack of in-house and institutional knowledge regarding decarbonization pathways, climate scenario analysis, climate and emissions data management, materiality assessments, climate discourse, supplier engagement, renewable energy procurement, life cycle assessment, enterprise-wide emissions reduction strategy integration, climate-related investment analysis, capital allocation strategies, investor engagement, just transition, near-term goals, and climate lobbying. Strategies identified by interviewees to close gaps included: assessing peer actions, reassessing internal roles and responsibilities, refining data management strategies, engaging in employee education, and upskilling efforts. There was also a heavy reliance on external consultants.
• Transparency Gulf: The interviews identified a wide gulf between the transparency expectations outlined in transition planning guidance and the level of transparency that companies are currently comfortable with. The primary concern cited is that any deviation from a publicly available plan will be used as evidence that a company is greenwashing or lacks commitment.
• Lack of Interim Targets & Measures: Corporate targets are centered around the key 2030 and 2050 milestones outlined by the UN Framework Convention on Climate Change (UNFCCC) for achieving 50 percent reduction in emissions and net zero, respectively. There are few instances where companies have outlined an interim target between 2030 and 2050. Without additional, publicly available interim targets there is insufficient data for stakeholders to assess whether a company is on track to meeting their long-term 2030 and 2050 targets.
• Just Transition: There was a wide variation among sectors in understanding and addressing just transition issues; however, there was a clear acknowledgment of the issue’s emerging importance. Interviews identified the need for establishing best practices and better metrics and approaches for meaningful community engagement.

Enhancing Planning

Fully Specified Short-Term and Long-Term Targets

A fully specified target is the first piece of information that stakeholders use to assess ambition and credibility of a transition plan.

• Recommendation: To the extent companies are setting their own net-zero targets, we recommend that companies follow the target-setting guidance outlined in IFRS S2: Climate Related Disclosures, and specifically, the guidance on setting Climate-related targets beginning at paragraph 33. Alternatively, Section 4.4. Metrics and Targets, of the GFANZ guidance: Expectations for Real-economy Transition plans provide guidance on how to fully specify targets and their accompanying metrics.

More Interim Targets

• Recommendation: To ensure transparency and the ability for stakeholders to assess whether companies are on track to meeting long-term targets, we recommend that companies follow ISO Net Zero Guidelines and set interim targets every 2–5 years. More frequent interim targets also enable companies to more clearly demonstrate how strategies are being adjusted to reflect changes in technology and policy, among other things.

Converge Transition Planning and Credibility Guidance
Interview findings made it clear that the crowded and evolving transition planning guidance landscape is creating confusion, which may be slowing corporate action.

• Recommendation: NGOs and standard-setting bodies should seek opportunities to converge transition planning guidance to create certainty and reduce confusion.
• Recommendation: To the greatest extent possible NGOs should seek to use existing guidance to inform real-economy sector companies about the development and content of credible transition plans. Only when there is a gap should the development of new guidance be considered.

Enhancing Transparency

Transition Plan Content Index
To increase transparency, it is important for companies to make the components of their transition plan explicit and accessible when they are not part of a stand-alone plan (i.e., when they are placed in other sustainability reporting documents).

• Recommendation: Companies should use a transition plan context index when their transition plan elements are presented in a document that does not exclusively focus on the transition plan.

Creating an Environment that Encourages Greater Corporate Transparency
Interviews revealed a wide gulf between the level of transparency called for in transition planning guidance and what companies are willing and comfortable disclosing. Bridging this gap will require movement on the part of companies and their stakeholders regarding the iterative nature of the planning process, and that credibility is a function of performance, not planning.

• Recommendation: Setting the expectation among companies and stakeholders that the focus should not be on a single transition plan, but ongoing transition planning will be important first step to creating conditions where greater transparency is the norm, and changes in strategy are understood and accepted by stakeholders.
• Recommendation: Companies and stakeholders (e.g., NGOs, standard setters) should be clear that real credibility will be measured by how a company performs in terms of absolute emissions reductions and performance toward their net-zero targets.

Enhancing Performance

During our evaluation of company transition plans and guidance frameworks, we observed a significant gap in guidance and expectations on what constitutes credible levels of performance. Significantly, many company transition plans focused on the act of planning, rather than on their performance against their plans.

We mapped key elements from several different organization’s guidance and frameworks including Exponential Roadmap, TPT, GFANZ, IIGCC, CA100+, Planet Tracker, and UN Integrity Matters on a continuum that sought to classify these elements into five categories: developing, aligning, credible, leading, and exceeding.

• Recommendation: Criteria for development of a transition performance continuum (as opposed to planning) should be developed to serve as a guide for assessing the credibility of climate action that is a result of transition planning. As companies move from planning to execution it will be increasingly important to have clarity on the levels of performance required for implementation of decarbonization goals to be deemed credible.