The Good, the Bad and the Useless: experts talk corporate climate plans

Three specialists discuss best and worst practices in companies’ net zero transition plans so far

If he had to guess, Matthew MacGeoch would say he’d read about 150 corporate climate transition plans over the past couple of years. 

“They’re still called all sorts of things – decarbonisation strategies, net-zero delivery plans – determined by what the marketing team decides fits with the company’s brand,” says the senior research analyst at the Climate Bonds Initiative. 

Regardless of the labeling, MacGeoch has found that, for now at least, transition plans have one thing in common: “None of them are perfect”. 

Some are better than others, though, and Real Economy Progress has spoken to three experts whose jobs require them to wade through these documents, to find out the current best and worst practices.

Targets  

The first building block of a transition plan is decarbonisation targets: short-, medium- and long-term ones.

The EU’s Corporate Sustainability Due Diligence Directive calls for five-year targets between 2030 and 2050. 

The Science-Based Targets initiative, which has become the go-to verifier of net zero targets in the private sector, says that near-term targets are between five and 10 years. 

“When companies reach their near-term target date, they must calculate new near-term science-based targets to serve as milestones on the path towards reaching their long-term science-based target,” it told REP.

Long-term targets should reflect how much companies “must reduce value chain emissions to align with reaching net-zero at the global or sector level in eligible 1.5°C pathways by 2050 or sooner”. 

Companies using SBTi must review and be prepared to update their targets every five years to make sure they’re in line with the latest climate science. 

Ali Amin, a research project manager for the Transition Pathway Initiative (TPI) at the London School of Economics, says firms should avoid using global benchmarks to determine their targets, because climate models require different sectors and regions to decarbonise at different rates, and to stay within different carbon budgets. 

“Companies need to make sure their ambition accounts for that,” he explains. “Because, technically, every company could individually be on track for ‘net zero’ by 2050, but if the sectoral and regional context is missing, we could still blow through our cumulative carbon budget.”

Scope 3 

According to TPI, Oil & Gas is one of the industries most misaligned with the goals of the Paris Agreement, which Amin says is largely down to the lack of disclosure and target-setting on Scope 3 emissions. 

The transition plan for Italian energy company Eni includes short-, medium- and long-term reduction targets for its Scope 1 and 2 emissions, for example, but only discloses its Scope 3 performance in aggregate with other emissions.    

When it issued a Sustainability-Linked Bond last year, CEO Claudio Descalzi said the deal’s success proved Italian retail investors “believed in what we are doing” when it came to “progressively moving toward decarbonised industrial processes and products”. 

But MacGeoch says the lack of clarity around the bulk of Eni’s emissions is problematic. 

“I specialise in transition plans, and I struggle to understand what it’s committing to on Scope 3, so I’m not sure how retail investors could really know its decarbonisation plan.” 

He says the firm’s transition plan shows it has “done all the box-ticking exercises and covered all the necessary points on governance and disclosure, but is missing a genuine pivot or transition away from fossil fuels”.  

Eni did not respond to a request for comment. 

Ion Visinovschi, a research analyst at environmental think-tank PlanetTracker, says the trend goes beyond the energy sector. 

Chemicals giants Dow and BASF also lack adequate Scope 3 coverage in their transition plans, he argues – the former because it simply doesn’t have a Scope 3 target, and the latter because it carves out emissions generated by the use of its products and services.  

Achieving the targets

Some sectors have clearer pathways than others when it comes to achieving their net zero goals.

This can be because the relevant technologies already exist, there is regulation or government support in place, or there’s an obvious link to cost savings at business level.  

For others, things are more speculative. Some are counting on carbon capture, utilisation and storage (CCUS) or carbon offsetting to get them to their targets. 

“In hard-to-abate industries like chemicals, there is [also] a very heavy reliance on unproven technologies in order to deliver a climate transition,” says Visinovschi. “Despite having 2050 net zero targets, some management teams provide investors with only the vaguest of roadmaps.”

China’s Huaxin Cement is an example of a business that’s bucking that trend, according to MacGeoch.  

“It’s an emerging markets’ company in a hard-to-abate sector, but it still hasn’t counted CCUS or offsets towards its targets, and it’s managed to put together a transition plan with a higher rate of decarbonisation than [Climate Bonds Initiative’s] pathways require,” he says.   

In particular, MacGeoch believes that Huaxin’s approach to new technologies is something other firms should learn from. 

“They’ve identified numerous technologies that will support their transition plan, and provided an upper and lower range for the potential each has for decarbonisation per tonne of production,” he explains. 

The plan then provides an estimate of how much funding would be needed for each of those technologies to achieve its full potential within the transition plan. 

“That’s not only helpful for external stakeholders, it provides clarity to those within the business, too, about its vision and strategic priorities,” MacGeoch suggests. 

Financing plans

The financing dimension is one of the most complicated elements of a climate transition plan, and, while MacGeoch commends Huaxin for its granularity, he also notes that the targets it set for its Sustainability-Linked Bond programme were less ambitious than those described in its transition plan. 

Planet Tracker’s Visinovschi has observed a growing number of firms starting to link their financing to the goals laid out in their transition plans, in what he describes as “a crucial positive development”. 

“Companies like Air Liquide have disclosed a relatively high investment in their transition,” he notes, while others like Colgate-Palmolive and Procter & Gamble “did not offer a number”.

Some businesses don’t want to publicise detailed information about the spending and innovation plans, citing concerns about confidentiality and competitive advantage. But many European companies have to provide granular information about their green capital expenditure as part of requirements under the new EU Taxonomy regulation, which MacGeoch says is making them “much more comfortable discussing it with broader stakeholders”. 

Similar taxonomies are being introduced elsewhere in the world, and could have similar effects.

Actually decarbonising

Amin is quick to point out that even the best climate transition plan doesn’t prove a company is on track for net zero by 2050. 

“Good disclosure doesn’t necessarily mean real-world decarbonisation, and we see a mismatch quite often between shiny reports about what companies plan to do, and their carbon performance over time,” he says. 

“So it’s crucial that the good intentions outlined in these documents aren’t seen as the ultimate goal – they also have to translate into real-world change.”