Companies are off track on setting climate transition plans, undermining the deluge of net-zero pledges agreed around COP26. Transition plans are a fundamental part of what is needed from corporate governance to decarbonize the economy and allow investors and other stakeholders to assess a company’s progress in reaching ambitious climate goals. CDP’s latest analysis finds that out of the 13,000+ companies that disclosed in 2021 worth 64% of global market capital ($64tn) just one third are developing a low-carbon transition plan (4002/13,100+). Moreover, a paltry 1% (135) of companies reported through the total 24 key indicators associated with a credible climate transition plan.
These indicators were picked as they align with the eight key elements that CDP argue are core components of a climate transition plan, these elements are aligned to frameworks such as TCFD.
As AGM season gets underway, it is vital companies see commit to taking action on their pledges and develop clear and credible climate transition plans, underpinned by science-based targets.
Nicolette Bartlett, Chief Impact Officer, CDP, said: “Currently one third of organizations disclosing through CDP reported developing a low carbon transition plan. This does not match the appetite from investors, customers and employees and governments who are pushing for more scrutiny since COP26. Critically, these plans also need to be assessed to ensure they meet stakeholder expectations and are actually delivering against climate needs. Are they science-based? Are they effectively tracked in a manner that would allow stakeholders to assess progress? How do they compare to the progress of their peers? All of these enable a vital accountability mechanism”.
The report, ‘Are companies being transparent about their transition’, shines a spotlight on the best and worst-performing industries when it comes to creating climate transition plans. Transportation and apparel were the worst performing sectors, with less than 0.3% disclosing against the 24 key indicators which legitimize a climate transition plan.
Those industries arguably facing the most scrutiny – namely financial services, power and fossil fuels – have the highest rates of climate transition plan disclosure, even though only 5% of organizations in each of these sectors reported against the 24 key indicators.
The report also highlights investment trends, revealing that only 45% of companies disclose all details of their investment in low-carbon R&D. Power and infrastructure had strong disclosure against this average, with 66% and 59% of companies disclosing, respectively.
Notable sectors with weak disclosure were transportation services (41%) and manufacturing (37%), inferring that companies are not investing in enough innovation to tackle the climate crisis.
According to The Climate Transparency 2021 report the G20 is responsible for approximately 75% of GHG emissions, but more work is needed as only 4% of organizations in these countries are disclosing to all the key indicators.
Of the 117 countries whose companies disclosed in 2021, Spain, France and Japan had the highest proportion of organizations disclosing to all the key indicators, yet at only 4%, 3% and 2% respectively. Indonesia, Saudi Arabia, Argentina and China had the lowest numbers of disclosing companies.
Whilst the overall number of companies with credible transition plan has increased from 2020, this report shows that corporates have much further to go. To help, CDP has produced a discussion paper outlining six guiding principles for developing a climate transition plan.
CDP has also produced a technical note to help companies respond to the 2022 questionnaire in relation to climate transition plans.