Net Zero transition plans are ‘low priority’ for organisations

net zero

Only 20 per cent of organisations consider ESG information when making net zero decisions and instead rely on traditional financial considerations.

That’s according to a recent survey by Accounting For Sustainability Finance Leaders’ Sustainability Barometer that found few organisations have in place a credible net zero transition plan.

Net zero commitments now cover 91 per cent of global GDP, 83 per cent of global emissions and 40 per cent of the largest 2000 companies. While encouraging, as the UN’s latest report on the emissions gap highlights, in spite of the many commitments made, we are still on track for a 2.8°C world, with devastating consequences on lives and livelihoods.

“Targets are only action in theory they are not yet action in practice,” said Alistair Phillips-Davies, chief executive, SSE. “That’s why a Net Zero Transition Plan is so important. A good plan not only outlines targets, it also explains how we intend to achieve them.”

A credible transition plan is important to hold organisations to account on progress, and will help investors understand and monitor progress in investee companies. Not only is it a useful tool for organisations to achieve their net zero ambitions, but the mandatory publication of transition plans is becoming an increasingly regulated area. The UK Government has announced that transition plans will be mandatory for certain UK organisations and it is likely that other jurisdictions will follow suit.

In 2021, analysis by CDP found that of the 13,100+ companies that disclosed information to CDP (worth 64 per cent of global market capital, $64tn), only one third are developing a transition plan and only six per cent fully disclosing details of their net zero target.

The absence of widespread transition plans may be to the gap between sustainability ambitions and action. Accounting For Sustainability’s recent Finance Leaders’ Sustainability Barometer there remains a sizable gap between ambition and action. 93 per cent of those surveyed agree it’s very important for their business to transform financial decision making to reflect ESG issues, and specifically on climate, 61 per cent of the AFS survey respondents said providing solutions to tackle climate change was the biggest sustainability-related opportunity for their organisation. However, almost one in five (19 per cent) reported they do not consider ESG information when making decisions, instead relying almost exclusively on traditional financial considerations.

The same CDP analysis mapped their climate change questions to CDP’s definition of the key elements of a credible transition plan. It found that although one third are developing a transition plan, only 135 of the 13,100+ companies that disclosed through CDP reported against all of the 24 key indicators that CDP denotes as a credible climate transition plan. This highlights a challenge on the quality of transition plans for those that are disclosing, potentially driven by a lack of clarity on what a ‘good’ transition plan should look like. Do organisations understand what a credible transition plan should include?

To address this question guidance has been recently developed. The main guidance is as follows:

GFANZ published its ‘Final Report – Financial Institution Net-zero Transition Plans’ on 1 November 2022. This guidance provides financial institutions with a framework for practical action and disclosure. In September 2022, GFANZ released its ‘Expectations for Real-economy Transition Plans’ which includes the same framework themes as for financial institutions. This consistency is to ensure that companies provide transition plans in a format that is most relevant for financial institutions.

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