Transition Pathway Initiative: Credible climate transition plans still ‘very rare’

Detailed and actionable climate transition plans aligning business practices, capital expenditure and decarbonisation goals are still “very rare” among the world’s 1,000 largest emitters, according to new research by the Transition Pathway Initiative (TPI).

TPI Centre, which is part of the London School of Economics’ Grantham Research Institute on Climate Change and the Environment, analysed the climate targets and transition plans of more than 1,000 of the world’s highest-emitting companies, which are collectively worth around US$39 trillion.

Despite a notable increase in the number of companies with 1.5ºC-aligned 2050 corporate climate targets, which went from 7% in 2021 to 30% this year, TPI Centre warns that short and medium-term targets are mostly misaligned, indicating that most firms plan to “postpone deep emissions cuts until the 2040s”.

This is not the first time analysts warn that quality is still lacking in climate targets: according to the Net Zero Tracker, more than half of the world’s 2,000 largest publicly listed companies now have a net zero target, but only 4% meet the UN Race to Zero criteria.

Using a new ‘cumulative benchmark divergence’ methodology, TPI estimates that the world’s highest-emitting companies will cumulatively exceed their 1.5°C emissions intensity budget between 2020 and 2050 by 61%, an excess driven largely by the oil and gas sector. (Another recent report found that listed companies are just two years away from exhausting their 1.5ºC carbon budget.)

Overall, targets in the mining, steel and electricity sectors are most aligned with 1.5ºC or below 2ºC at 50%, 46% and 41% respectively, while food producers (8%) and oil and gas firms (6%) are the least aligned.

Fewer than 5% of the world’s highest emitters meet top quality criteria for credible transition plans.

Read CSO Futures’ article series on climate transition planning for Chief Sustainability Officers:

• Transition planning for compliance
• Transition planning for finance
• Transition planning for transformation

Climate policies positively influence corporate targets

The report also found that companies based in high-income regions, especially Australasia, Europe and Japan, score better than those located elsewhere – which is likely due to differences in regulation, availability of resources, industry composition, and corporate governance norms.

However, TPI Centre has identified correlations between the quality of companies’ climate strategies and certain types of national climate policies, including the presence of national net zero targets, carbon pricing mechanisms and mandatory sustainability disclosures.

“TPI’s analysis shows that many companies in high emitting sectors are failing to implement adequate transition processes and targets. It also identifies a clear interdependency between local climate policy and company states of transition,” said David Russell, Chair of Transition Pathway Initiative.  

“Investors therefore need to redouble their efforts to engage with both companies and policy makers to encourage appropriate and urgent responses to the systemic risk that climate change poses.”