Separating Green From Greenwash: Key Questions For Evaluating Net-Zero Commitments: Part 2

This is the second article in a three-part series on understanding decarbonization commitments. This article focuses on transition plans. The first article explored how commitments are defined and the next article will cover climate scenarios.

Transition plans

1. Does the firm have a clear transition plan?

Writer Antoine de Saint-Exupéry said “a goal without a plan is just a wish.” The same could be said for climate commitments without clear transition plans. A transition plan is the detailed roadmap of targets and actions that a firm will pursue on its journey to net zero. It provides transparency and accountability to internal leadership and external stakeholders, which is why regulators, investors, and activists have taken increasing interest in net zero transition plans.

The Taskforce on Climate-related Financial Disclosures (TCFD) is the de facto standard for climate-related financial risk reporting and has incorporated transition planning into their latest disclosure guidance. The TCFD suggests transition plans should be actionable and specific, integrated into firmwide strategy and governance, anchored in quantitative metrics, regularly reviewed, and reported to shareholders. Climate Action 100+, an investor-led initiative, and CDP, which supports global emissions disclosures, both have effective frameworks for transition planning. These frameworks expect credible transition plans to consider multiple time horizons, set interim decarbonization targets, and be explicit about capital allocation and investments required to transform the business.

2. How are offsets being used?

Many net-zero commitments and transition plans mention the use of carbon offsets. Offsets are emissions reductions or removals used to compensate for emissions produced elsewhere. In recent years, offsets have faced criticism for providing a “license to pollute” and failing to capture the emissions claimed. However, high quality, certified offsets can be valuable tools to fight climate change.

In net-zero commitments, offsets can be part of a firm’s climate strategy but must not replace dedicated efforts at reducing the firm’s emissions. For transparency, offsets should be reported separately from emissions reductions.

Most alliances and initiatives take a conservative stance on using offsets to meet net-zero commitments. NZBA states that in reaching the end state of net zero, offsets should be limited to “balanc[ing] residual emissions where there are limited technologically or financially viable alternatives to eliminate emissions.” Furthermore, all offsets should be “additional and certified,” with additional referring to the need for the offset to further reduce emissions (e.g. buying an existing forest does not count, planting a new one could). In evaluating net-zero commitments, any use of offsets should be thoughtfully scrutinized.

3. What are the checkpoints on the road to net zero?

While transition plans may have a common long-term destination (net zero by 2050), ambitious near-term targets are essential to a credible plan. For models included in recent IPCC assessments, 1.5˚ C-aligned scenarios required an average reduction of 45% in carbon dioxide emissions by 2030. Numerous governments have pledged reductions of 50% by 2030, a figure also used by Race to Zero.

However, climate change demands immediate action, which makes near-term targets critical to determine which organizations are and are not meeting their commitments. The NZAOA requires 2025 targets on four pillars: sub-portfolio, sectors, engagement, and financing the transition. While single targets can be misconstrued, these pillars offer a more complete view of a firm’s net zero progress. In addition, while some commitments may specify intensity-based targets (emissions per a given economic unit) or absolute reduction targets, reporting progress against both methodologies improves transparency.

The quality of the target also matters. That is why net zero alliances such as NZAOA, NZBA, and others have developed target-setting protocols. An institution’s targets should adhere to an established target-setting protocol and be certified by the Science-Based Targets Initiative (SBTi), which provides guidance on appropriate pathways and practices in target setting.

4. What does the plan say about nature and the just transition?

The climate system is connected to a variety of other environmental support systems also facing pressure from human activities. These include biodiversity, freshwater resources, marine ecosystems, clean air, and many others. Transition plans cannot afford to ignore other nature-based considerations. Transition activities must be sustainable both in terms of net emissions and in their impacts on the wider environment.

The net-zero transition will also bring widespread changes across economies. A green future must be a future that works for all. Transition plans must consider the workers who will be displaced by changing economic realities and protect the rights of indigenous people. Furthermore, transition plans should account for different human development and environmental challenges within each region of operation. An unswerving commitment to a just transition should be evident from a firm’s transition plan.