With the UK mulling mandatory requirements for corporates, financial institutions and asset owners, Sustainable Investor surveyed experts on the current value of transition plans.
The ability of asset owners to support the transition to a low-carbon economy – protecting the long-term interests of beneficiaries – rests largely on whether they can assess and influence the decarbonisation efforts of portfolio companies.
They were helped in this by governments adopting the recommendations of the Task Force on Climate Related Financial Disclosures (TCFD). But these reporting requirements told investors where firms had been – in terms of their carbon footprints – not where they were going.
To meet their own net zero commitments – and to drive decarbonisation in the real economy – asset owners needed more detailed forward-looking information on the plans of companies. All the better if these transition plans provided consistent and comparable information – sectoral differences notwithstanding – that demonstrated clear, deep thinking on the scale of the changes needed to strategy and operations.
The UK has taken the lead in the development of transition plan best practice, supporting the work of the Transition Plan Taskforce (TPT), which issued its disclosure framework and sector-specific guidance before its work was subsumed by the International Sustainability Standards Board last year.
Also in 2024, the Transition Finance Market Review called for widespread, credible and comparable transition planning to underpin the credibility of the UK’s transition finance market. Following on, the Department for Energy Security and Net Zero is consulting on proposals for mandatory transition plans for the largest corporate and financial institutions. In parallel, the Department for Work and Pensions is talking to the UK pensions industry on transition reporting for pension funds, with recommendations expected in early 2026.
The current pace of transition in the most carbon-intensive sectors suggests further scrutiny is needed. According to the latest Climate Action 100+ Net Zero Company Benchmark, despite some encouraging progress, “significant gaps and lack of details remain, particularly regarding capital allocation”.
Sustainable Investor spoke to a range experts to assess the value of current transition plans and the prospect of mandatory requirements:
Q1: What are the key strategies / tactics of institutional investors when it comes to the transition to a low carbon / net zero economy?
Lauren Juliff, Climate and Sustainability Product Lead, Storebrand Asset Management:
“Most climate risk management strategies are built on the belief that portfolios must decarbonise. Under the EU’s Benchmark Regulation, the Paris-aligned Benchmark, for example, requires portfolios to decarbonise by 7% p.a.. But even complete and accurate data, reported according to the GHG Protocol standard for Scope 1, 2 and 3 emissions, will not necessarily indicate which companies are most exposed to financially material climate-related risks.
“Scope 3 emissions are problematic for a decarbonisation strategy due to the bundling of different sources of emissions in one metric. Within Scope 3, the ‘use of products’ category is dominant and potentially a misleading indicator of the climate risk for a global equity portfolio. Scope 1+2+3 emissions is not always a good measure of climate risk – and what gets (mis)measured gets (mis)managed.
“A portfolio decarbonisation approach can be useful for addressing climate-related investment risk but it requires a nuanced understanding of emissions exposures. It must also offer the opportunity to discern between climate positive and negative exposures, where climate risk is determined by a range of metrics including forward looking alignment with solutions. Otherwise, portfolio decarbonisation can lead to unintended consequences such as avoiding climate solutions companies or emerging markets.
“Transition alignment is about more than decarbonising a market cap weighted global equity portfolio in a systematic and indiscriminate manner. There is no single defined transition pathway, and data is both imperfect and evolving, so we must allow for developments over time and flexibility in approach.”
Dr Adrian Fenton, Senior Investor Strategies Programme Manager, Institutional Investors Group on Climate Change (IIGCC):
“Institutional investors adopt several key strategies in their transition to a low carbon and net zero economy, as identified by the IIGCC’s Net Zero Investment Framework (NZIF). These include:
- Setting internal direction and structuring portfolios to align with net zero goals.
- Driving improved alignment of investment assets with climate objectives.
- Advocating for a supportive external environment that facilitates alignment efforts.
“A net zero strategy should focus on two primary objectives: transitioning portfolios in line with the Paris Agreement’s mitigation goals while prioritising real economy decarbonisation; and increasing investments in climate solutions that enable this transition. Anecdotally, a small percentage of assets – usually in hard-to-abate sectors – often account for the majority of an investor’s financed emissions.”
Jessica Bennett, Head of Transition Analytics, Bloomberg:
“Assessing companies through the lens of a low-carbon transition is inherently complex. It’s a forward-looking exercise with many variables that can shift over time. The widely adopted tactic used for understanding its impact is transition risk assessment: understanding how emerging technologies, evolving regulation, and shifting consumer preferences may affect the profitability and resilience of portfolio companies.
“This forms the foundation of many a transition strategy, but investors are increasingly going beyond risk mitigation to capture growth opportunities linked to the transition. This includes identifying companies at the forefront of electrification, clean power generation, low-carbon materials, and enabling technologies such as grid modernization or energy storage. These considerations show up in company screening, engagement priorities, and even in strategic allocation of capital toward industries positioned for long-term sustainable growth.
“GHG emissions remain a key component of a transition assessment, but integrated with business fundamentals. That means assessing not just exposure to carbon pricing or policy changes, but also a firm’s strategic adaptability — its ability to generate competitive returns in a low carbon economy.”
Q2: What are the key characteristics investors are looking for when assessing the credibility of transition plans of portfolio firms in the most carbon-intensive sectors?
Dr Adrian Fenton, IIGCC:
“Key characteristics investors look for when assessing the credibility of transition plans in the most carbon-intensive sectors include:
- Clear, comprehensive, and net zero-aligned emissions targets covering all material scopes and gases, with short-, medium-, and long-term deadlines.
- A credible strategy demonstrating how the company plans to achieve these targets, supported by detailed capital expenditure (capex) plans aligned to net zero commitments.
- Robust engagement commitments showing how the company will support achievement of targets through dialogue with stakeholders.
- Disclosure of sector-specific risks and opportunities, which is vital for hard-to-abate sectors given their unique challenges.
- Inclusion of investments in ‘climate solutions’ such as low-carbon technologies or infrastructure, which is increasingly highlighted in NZIF 2.0.
- Granular, sector-tailored metrics that allow investors to track progress meaningfully.
“Together, these characteristics help investors determine whether transition plans are realistic, forward-looking, and sufficiently detailed to foster real-world decarbonisation outcomes.”
Jessica Bennett, Bloomberg:
“Credibility in a company’s transition plan starts with governance. Investors look for clear board and executive-level oversight, including whether management incentives are tied to sustainability or emissions-reduction targets. The ambition and transparency of targets, and the company’s track record in reducing GHG emissions, are foundational indicators. These qualitative factors tend to align with established market frameworks such as the TPT, TCFD, or Climate Action 100+ Net Zero Company Benchmark, but every investor has their own checklist for what matters.
“On the quantitative side, capital allocation is the clearest signal of intent. Disclosed spending on renewables, low-carbon R&D, and transition-enabling technologies provides tangible evidence that the company is backing its strategy financially. Industry-specific metrics like EV production trends for automakers, renewable generation share for utilities, or low-carbon fuel intensity for energy producers are starting to be integrated. Evaluating these through peer comparisons and progress over time helps investors judge whether firms are delivering on commitments, or just setting targets.”
Tessa Younger, Stewardship Lead, CCLA Investment Management:
“Investors look for transition plans that are embedded in a company’s business strategy. Credible plans show how goal-setting is being put into action. It’s especially useful when companies provide a clear visual roadmap, for example a chart showing how each action will reduce emissions across Scopes 1, 2 and 3 to 2030 or 2050, as this demonstrates they’ve thought through a workable path to a low-carbon business. Investors also look for alignment with capital allocation, so it’s clear the company not only knows how it will get there but is investing accordingly.”
Maria Nazarova-Doyle, Global Head of Sustainable Investment, IFM Investors:
“Some of the key indicators of the quality of transition plans include: whether there are interim targets and milestones in place, whether both transition and physical risks are adequately accounted for and an adaptation plan is integrated into the transition plan, whether the decarbonisation trajectory is supported by planned capex, how does the trajectory of an asset compare to the sector pathway for that industry, how robust is the scenario analysis, what is the governance around decarbonisation and climate risks and opportunities, and how transparent is reporting on progress against the plan.”
Q3: How valuable is currently available transition guidance in helping investors assess the credibility of portfolio companies’ transition plans?
Jessica Bennett, Bloomberg:
“The availability of transition guidance has grown significantly. To the extent these frameworks improve standardisation and comparability of company plans – and improve disclosure, so a broader set of companies can be assessed – they’re valuable. Frameworks like the TPT, TCFD, and emerging ISSB disclosure standards are helping to create a more consistent baseline for what a ‘credible’ plan looks like.
“For investors, a shared vocabulary around governance, strategy, metrics, and targets helps analysts compare plans across sectors and geographies. The TPT framework, in particular, is useful because it emphasises integration of transition planning into core corporate strategy, rather than just sustainability reporting.”
Felix Fouret, Transition Research Lead, London Stock Exchange Group (LSEG):
“The different frameworks are all valuable information for investors, and it is very welcome that they are almost all aligned with each other. My personal critique is that they were designed a little too exhaustively, giving the impression they are trying to replace what sustainability and climate reports already provide, i.e. information to investors on governance, risk management, GHG emissions, etc..
“They should focus more on the decarbonisation strategy itself and provide companies/sectors/investors with valuable information on what are the actions to decarbonise, their feasibility today/tomorrow – economically and technically, what are the real role of offsets, are their credible contribution to the net zero pathway, etc..”
Maria Nazarova-Doyle, IFM Investors:
“I believe we currently have all we need in terms of existing guidance on transition plans – specifically, through the work of the TPT. The next step would be to see whether the government will make these mandatory, as a minimum for high-emitting sectors. Additionally, the ongoing work by the Transition Finance Council (TFC) on transition finance guidelines will help investors and other capital providers assess whether an investment they are making is aligned to best practice for transition finance, helping to improve transparency and accountability in this area, which is expected to lead to more capital flowing into hard-to-decarbonise sectors where this financing is greatly needed to enable an orderly transition.”
Q4: What is your assessment of the quality and variance of transition planning in portfolio companies, including biggest information gaps?
Nico Fettes, Climate Research Director, Clarity AI:
“In our view, there are still major gaps in the comparability of quantitative data, for example, in how companies report their emission-reduction targets. Firms disclose targets with varying coverage across scopes, and in the case of intensity-based targets, units and calculation methods differ. Harmonising such data is possible, but it creates additional work and a lack of transparency.
“Another key gap relates to transition-oriented capital investments. Overall, such data is rarely disclosed outside the EU, where it is subject to reporting requirements under the EU Taxonomy. Even when available, it is often scattered across multiple reporting formats, making it difficult to compile and assess. This data gap is a major obstacle to the external evaluation of transition plans and should be addressed through clearer and more consistent regulatory requirements.
“External dependencies are often not yet explicitly included as a separate category of indicators in transition analyses. However, they implicitly play a role in two areas: first, in the analysis of decarbonisation levers, since many companies are dependent on suppliers and new technologies (e.g., CCS, hydrogen) to achieve their emission targets.
“Second, in the assessment of policy engagement and lobbying activities, where the focus is usually on whether lobbying activities are detrimental to climate policy. However, it is equally important to examine whether companies are attempting to reduce external dependencies through lobbying, for example by actively promoting the development of a hydrogen infrastructure. This aspect is rarely considered by transition plan analysis in the market.”
Tessa Younger, CCLA Investment Management:
“Plan quality varies widely. Some have transition planning integral to strategic decision making, while others have more limited disclosure focussed on targets and current performance. The biggest gaps are around measures to tackle Scope 3 emissions, capital alignment, and how firms identify and react to external dependencies such as policy or technology change. As climate change is a systemic issue, companies should also make sure their trade associations support, not undermine, their own climate goals.”
Felix Fouret, LSEG:
“Based on an assessment of the transition plan indicator that we provide for the Climate Action100+ Net Zero Benchmark, we note that plans are already sector specific in their design. Companies in the automative sector already display their plan in a very different way to those in the cement sector. The former provide very long and detailed plans on EV development and the future of transport while the latter usually provide very short, and graphic, decarbonisation pathways that shows mainly the contribution of CCUS and the gain in clinker production efficiency. Both give valuable information to investors and show their credibility in their disclosures.
“Within sectors, quality of information can vary a lot. For example, two companies can state that one future technology will abate the bulk of their emissions in the next 20 years. One will provide details on how they will achieve the development of this technology (investments, timelines, partnerships); the other one will just name this future technology as the silver bullet.
“According to the 2024 benchmark, only 26% of the 160 biggest emitters fully quantified their decarbonisation strategies to explain how they intend to meet their GHG reduction targets. This means few companies have thought through the whole journey of decarbonisation yet, or know exactly the contribution of each measure they intend to implement in the upcoming years, and thus if they will really reach their net zero goal.”
Q5: From the institutional investor perspective, how important are mandatory transition plans and how should a balance be struck between reporting transparency and effort?
Elise Attal, Head of European Policy, UN Principles for Responsible Investment:
“Existing transition guidance offers investors a robust foundation for assessing the credibility of corporate transition plans. Governments and regulators need not reinvent the wheel, but build on these voluntary initiatives to ensure consistent expectations and data provision aligned with global standards such as the ISSB and IFRS. This avoids duplication, enhances comparability, and ensures investors have the consistent, high-quality information they need to allocate capital effectively.
“Mandatory disclosures for credible transition plans should include quantifiable metrics which clearly describe the entity’s goals, enable benchmarking, and support ongoing monitoring of progress. In particular, entities should provide details on their targets, such as the target type (e.g. emissions reductions, portfolio allocation/exposure, and/or capital allocation); the target scope (e.g. portfolio or sector coverage, absolute emissions or emissions intensity, emissions scopes, and time horizon); and the underlying assumptions (e.g. decarbonisation pathways, policy dependencies).”
James Alexander, CEO, UKSIF:
“From our work with members, we know transition plans are increasingly necessary to make investment decisions; credible plans are vital to unlocking capital, increasing competitiveness, and driving economic growth.
“Clear, comparable transition plans give investors the transparency they need to align their portfolios with their sustainability goals and help the companies preparing plans to implement the strategies that will ensure their long-term success as the economy transitions.
“Investors need clarity and consistency. This is why it is essential that the UK government delivers on its commitments to implementing transition plans and Sustainability Reporting Standards without delay.”
Jordan Griffiths, Senior Sustainable Investment Consultant, Barnett Waddingham:
“At the corporate level, mandatory transition planning and disclosures are essential to promote greater transparency, accountability, and ensure investor capital is allocated most efficiently.
“At the asset owner level, there may be circumstances where the burden of creating, implementing, and reporting against a transition plan is not proportionate or value-adding. This could be due to factors including size, timeframes, or asset classes invested in. Such factors should be considered when mandating transition planning for asset owners.
“Unlike corporates, asset owners don’t directly control the climate policies of the companies they invest in, though they can have influence through stewardship. There may be difficulty implementing a transition plan, especially where actions such as divestment are limited by liquidity constraints or conflict with other objectives such as diversification. For this reason, we believe more flexibility should be given to asset owners when creating and implementing transition plans.”
Maria Nazarova-Doyle, IFM Investors:
“In our response to the UK government’s consultation, we advocated for making disclosure mandatory every three years, initially starting with high-emitting sectors. This way we believe the effort will be, on balance, justified. Transition plans aren’t just a disclosure tool; it’s a real action tool that enables companies to do the deep thinking and planning required to implement their transition to net zero. It helps both the companies and their investors to better identify climate risks and opportunities and plan actions to mitigate the former, while capitalising on the latter.”
Q6: What role should sector-specific transition pathways play in guiding corporates’ transition plans and investors’ expectations of them?
Leo Donnachie, Senior Policy Manager – Sustainable Finance (IIGCC):
“Sector transition pathways play a crucial role by acting as a robust benchmark for both corporates’ transition plans and investors’ expectations. These pathways serve as a bridge between broad, economy-wide emissions reduction targets and the growing number of individual transition plans developed by companies and financial institutions. They provide a clear decarbonisation trajectory for specific sectors, helping investors and stewards benchmark company plans against sectoral targets and better understand any differences or gaps.
“In addition, these pathways support stewardship by informing engagement efforts. Investors can use them to challenge companies on how their transition plans align with sector goals and identify laggards for targeted engagement. This enhances the overall credibility and decision-usefulness of transition plans across portfolios.”
Jordan Griffiths, Barnett Waddingham:
“Without considering sector-specific factors in transition planning, you risk comparing apples and pears. Hard-to-abate sectors such as energy and industrials have very different characteristics and challenges compared to companies in low-emitting sectors.
“Over time, the evolution of each sector along its net zero pathway will differ due to sector-specific innovation, events, and other changes. For example, the growth and use of AI within the technology sector has implications for both its carbon footprint and its ability to help tackle climate change challenges.
“Even when using sector-specific transition pathways, consideration should still be made for different types of companies within the same sectors. This nuanced approach ensures realistic and achievable expectations that reflect the actual transition challenges and opportunities facing different industries.”
Felix Fouret, LSEG:
“They are absolutely key to making the transition plan a successful story. They help to harmonise, and thus compare, information between sectors peers; they inform companies and investors on the upcoming technological blocking point sectors might face; they also allow investors to build credible benchmarks to assess investees transition plans.”
Maria Nazarova-Doyle, IFM Investors:
“Sector transition plans are important indicators of the shape and speed of the transition, the costs, the technology, and any other enablers and blockers linked to the expectations for a particular sector. These plans should be government-owned to ensure they add up to the overall transition plan for the economy and are supported by enabling policy measures.
“As the ongoing work by the TFC shows, it is also important that sectoral plans are backed by sound financing plans, outlining the amount of finance needed, at what stage and from what sources. For investors, sectoral plans serve as a guide, helping to better assess risks, opportunities and any associated costs of the transition and the relative position of their investment vs the expectation for the sector. I believe they also help boost investor confidence in making long-term investments.”
