Over 80% of FTSE 100 companies have pledged to achieve net-zero emissions by 2050, yet only 5% have publicly disclosed their transition plans. In the evolving landscape of global business reporting on ESG performance, Tom Barnett, Principal Consultant, Sustainability & ESG Services at DNV, and Adam Khan, Sustainability Consultant at DNV, offer valuable insights into transforming net-zero pledges into effective, actionable strategies.
The Paris Climate Agreement, which aims to limit global warming to 1.5°C above pre-industrial levels by 2100, necessitates robust corporate action. With 80% of UK listed firms having committed to reach net zero by 2050, the need for detailed and credible transition plans becomes paramount. However, there is a significant gap in the conceptualization and reporting of ambitious, credible, and feasible corporate climate transition plans, for example, only around 5% of FTSE 100 companies have publicly disclosed their transition plans (EY 2023). This shortfall has sparked allegations of greenwashing and bears wider implications at both micro and macro levels:
- Companies face transition risks, including reputational damage and heightened exposure to carbon taxes, by falling short of set targets.
- The efficacy of prudential policies is undermined, eroding investor confidence in the financial market.
Different sectors’ transition pathways are under increasing scrutiny, revealing challenges and opportunities:
- In the steel sector, transition plans often hinge on carbon capture and storage technologies. However, this technology is not yet widely available. Moreover, transition plans often fail to account for carbon lock-in resulting from the continued use of existing technologies (The Smith School of Enterprise and the Environment 2023).
- In the maritime sector, the absence of a cohesive approach to decarbonization strategy is evident. The heavy dependence on carbon-neutral fuels and meeting the anticipated demand by 2030 would necessitate 30-40% of the global supply of such fuels. (DNV 2024).
- In the fashion sector, upstream activities, primarily manufacturing, account for 70% of greenhouse gas emissions. Transitioning to renewable energy in these activities will play a significant role in decarbonizing the sector. However, as most of these activities are conducted in the Global South, there are challenges in scaling up technologies due to a lack of available infrastructure (UNFCCC 2021).
To address these challenges new legislation is emerging to hold companies accountable for their environmental pledges. For instance, the Transition Plan Taskforce (TPT) launched by HM Treasury in March 2022, aims to develop good practices for robust and credible transition plan disclosures for the financial and real economy. Guided by principles of Ambition, Action, and Accountability, the TPT disclosure Framework aligns with the International Financial Reporting Standards (IFRS) definition of a climate-related transition plan and applies the same approach to materiality and the wider set of concepts, definitions and corporate reporting norms that are set out in the IFRS’s General Requirements standard (IFRS S123). As part of the 2023 Green Finance Strategy, the UK Government committed to consult on introducing requirements for the UK's largest companies to disclose their transition plans (Transition Plan Taskforce 2023).
Additionally, frameworks like the ‘Red Flag Indicators,’ developed in 2023 by WWF, the University of Oxford, and the University of Zurich, offer specific indicators to assess the integrity and consistency of a company’s net zero transition plans, monitor progress and mitigate greenwashing risks. While not yet integrated into regulatory frameworks, the development of such tools underscores the growing interest and importance of transition planning.
In navigating the complexities of decarbonization, partnering with a trusted advisor is essential. At DNV, our deep understanding of the challenges and opportunities within the energy transition, coupled with our proprietary research and expertise in clean tech, uniquely positions us to support your journey towards a sustainable future.
Get in touch with us to explore how our tailored, quantitative insights can underpin your transition plan, driving your business strategy, investments, and transparent public disclosures.
