Introduction

Investors globally are increasingly committed to aligning their portfolios with the Paris Agreement’s objective of limiting the global average temperature increase to 1.5ºC, consistent with their obligation to deliver long-term performance. The report acknowledges the need for comprehensive aligned emissions targets and outlines how investors need confidence that net-zero pledges made by assets are credible.

Key components of a credible transition plan

The report defines five key components of a credible transition plan aligned with the NZIF, relevant to companies of different sizes and geographies:

• Comprehensive aligned emissions targets
• Credible strategy to deliver the targets
• Evidence-based targets
• Transparent and systemic governance
• Enhanced disclosure of neutralising measures

The report emphasises that investors increasingly look at how strategies to deliver targets can be assessed. To make the key components meaningful requires considering them as a series of constituent sub-components and metrics. Simplicity, practicality, and robustness underpin the development of sub-components. These guiding principles aim to make disclosure requirements rational, avoiding duplication. The report specifies how investors and users can apply critical metrics in assessing corporate decarbonisation alternatives.

Design and principles underpinning the development

The report affirms the principles that guided the development of this guidance. The underpinning characterisations of the guideline include simplicity, practicality, robustness, credibility, science-based materiality, and strategic flexibility. Companies risk inundation from new regulations and climate frameworks, while investors risk inundation from data.

Corporate transition plan by component

The report outlines how companies can prepare and disclose a transition plan by listing a series of sub-components as follows:

• Comprehensive aligned emissions targets: The plan should cover all material emissions scopes/gases/operations, with short, medium, and long-term targets that are absolute and intensive.
• Credible strategy to deliver the targets: The plan should have quantifiable decarbonisation actions consistent with a 1.5ºC scenario, aligning capital allocation, tackling operational emissions and taking sector-specific actions.
• Evidence-based targets: Setting Science-Based Targets (SBTs) and quantifying the pathway to net-zero emissions.
• Transparent and systemic governance: The system of governance should fully integrate decision-making processes across all levels of management. The plan should have proper organisational structures, policies, and procedures that clarify responsibilities, decision-making authorities and accountabilities.
• Enhanced disclosure of neutralising measures: Besides Scope 1, 2, and 3 emissions, focusing on Scope 3 emissions like suppliers, joint ventures, and investments has become increasingly critical for companies to disclose.

Conclusion

The report recommends uniform reporting metrics should guide companies’ climate-related disclosures while keeping in mind the size of the transition goals companies should set. Additionally, the report highlights the need for policy engagement, finance and investment, and close monitoring and reporting of progress. This guidance will be useful to companies looking to develop and articulate their transition strategies. The guidance aims to harmonise disclosure requirements from diverse frameworks, covering different geographies and sectors. Ultimately, this guidance serves to increase the credibility of the NZIF pledge, laying the foundation for a credible, low-carbon future.