Corporate Low-Carbon Transition Planning: Best Practices & Recommendations to Support Credible Action

Thousands of companies have set ambitious, interim 2030 carbon reduction goals and pledged net-zero emissions by 2050. Yet, some stakeholders are skeptical, suggesting corporate net-zero goals are no more than greenwashing. The United Nations High-Level Expert Group (HLEG) report Integrity Matters: Net Zero Commitments by Businesses, Financial Institutions, Cities and Regions emphasized that net-zero commitments should deliver significant near- and medium-term emissions reductions, which are based on an implementation plan that is: science-based, transparent, verifiable, and that aligns actions and investments with net-zero commitments.

With this project and the accompanying report, the Center for Climate and Energy Solutions (C2ES) aims to support and accelerate the development of low-carbon transition plans that align with the objectives of the Paris Agreement among companies in real-economy industry sectors. To this end, it is important to understand: (1) the existing guidance landscape for target setting, planning, and credibility, as well as broader stakeholder requirements for transition planning; and (2) the current state of corporate transition planning.

This work began with an analysis of transition planning guidance focused on real-economy companies from non-governmental organizations (NGOs), governments, and quasi-governmental organizations that focused on identifying commonalities and unique requirements. Guidance from the Task Force on Climate-Related Financial Disclosure (TCFD) and the Glasgow Financial Alliance for Net Zero (GFANZ) were both the most comprehensive and the most widely adopted of all the guidance reviewed. There is a high level of correspondence between TCFD and GFANZ and other transition planning guidance, though there are some differences. Areas of divergence arise when a particular guidance provides more in-depth or specific requirements around certain topics. For example, the UK Transition Planning Task Force (TPT) guidance recommends companies disclose their intended use of carbon credits and update these disclosures annually. Guidance also varies with regard to just transition and nature-based impacts, with GFANZ and Ceres both including these thematic considerations.

The degree to which consensus exists around what makes a credible plan was determined by analyzing guidance focused on the processes, elements, commitments, and strategies required for a plan to be deemed credible. Seven key dimensions encompass the majority of credibility-building guidance:

• net-zero targets
• net-zero strategy
• policy/engagement
• transparency and verification
• nature and just transition
• governance
• contribution to climate solutions.

An area of divergence among credibility-building guidance was the inclusion of guidance on areas outside of core plan elements. For example, several guidance regimes indicate that specific planning methods—scenario analysis, for example—are required for credible plan development. Other guidance includes specific strategy elements that credible strategies should adopt, such as the HLEG requirement that the strategy includes a commitment to phase out the use of fossil fuels.

To gain insight into the state of transition planning, C2ES conducted structured interviews with 14 real-economy sector companies spanning 12 industries. Key findings from the corporate transition plans and interviews include:

• 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.

This report concludes with recommendations that fall into three broad categories and are informed by the research conducted on transition planning guidance, corporate transition plans, and the lessons learned from the corporate interviews. The first category offers recommendations to enhance the planning process. The second category focuses on recommendations to enhance transparency, with proposed actions for companies and their stakeholders; the interviews made clear there is a gulf between transparency practices and expectations. The third category offers suggestions to shift the focus from planning to measuring performance.