Are companies developing credible climate transition plans?

March 23, 2023 – One of the requirements for publication in the new European Standard for Reporting on Climate Sustainability is the publication of a transition plan to mitigate climate change.

Whether companies are able to develop credible climate transition plans is the central question of the latest Carbon Disclosure Project (CDP), the global platform for environmental disclosure. The survey covered 18,600 organizations in 13 industries and across 135 countries around the world.

The aim of the survey was to determine the extent to which companies’ disclosure is “sufficient and credible”.

The CDP Climate Plan is defined as:

“A time-bound action plan that clearly outlines how an organization will achieve its strategy to pivot its existing assets, operations and entire business model towards a trajectory that aligns with the latest and most ambitious climate science recommendations, i.e., halving greenhouse gas (GHG) emissions by 2030 and reaching net-zero by 2050 at the latest, thereby limiting global warming to 1.5°C.”

Key indicators

Only 4,100 organizations (22%) disclosed through CDP that they have a 1.5 °C – aligned climate transition plan.

However, only 0.4% of organizations (81 out of 4,100) have made credible transition plans.

Of the transition plans produced, only 1,751 were publicly available, with a well-defined mechanism to collect feedback, but even among leading organizations more transparency is needed. This shows that organizations have not yet developed plans to demonstrate to capital markets, customers, users and other stakeholders how they will mitigate climate risks and realize opportunities arising from alignment with the 1.5 °C limit.

Of particular concern is that 3,341 organizations have no intention of developing a 1.5 °C climate transition plan. On the other hand, 6,520 announced the development of the plan within two years.

In terms of sector share, power generation and financial services are based on the share of transition plans with 38% and 35% respectively, while the least transition plans are made in the apparel, fossil fuels, and hospitality industries.

Scenario analysis

Although the transition plan should be based on a “robust scenario analysis — to identify potential substantive climate-related risks and opportunities, enhance critical strategic thinking, and help an organization understand how it might perform in different future states”, only 3,315 organizations disclosed a robust scenario analysis process.

Value chain

Only 16% of organizations disclosed details on their supply chain engagement strategy, which requires organizations to disclose the type of engagement, description of the impact, percentage of coverage over supplies and procurement spend, and a rationale for engagement.

Scope 1, 2 and 3 accounting with verification

Of the 4,101 organizations that developed a climate change transition plan, approximately 43% had a credible emissions inventory verified by a third party that was consistent with their plan.

Oikon d.o.o.
Oikon d.o.o.