Guidance to assesstransition plans
To reach global net zero by 2050, allindustries and organisations must
transition.

A transition plan is a time-bound andtrackable strategy and roadmap presenting
the milestones and actions for reducing
emissions with a science-based pathway
to net zero.

Key takeaways

01
01

All transition plans must contain clear, measurable andambitious targets for change.

02
02

Targets must cover the short, medium and long term with steep front
loaded emission cuts in the near term.

03
03

Carbon credits and offsets cannot be used to deliver on these short tomedium term targets.

04
04

Levers for change should be clearly identified and costed with a robust
financial plan in place.

05
05

Supply chain and consumer engagement is key for industries with large
scope 3 emissions.
PAGE 2

Executive summary
Framework for assessing corporatetransition plans

To reach global net zero by 2050, all industries andorganisations must transition.
While progress has been made in growing renewable energy infrastructure, reducing reliance on fossil fuels in theenergy generation and transport sectors, and propagating energy efficiency measures in buildings, much greater andfaster action is needed across all sectors of the economy. Fossil fuel power needs to be rapidly phased out, hard-toabate industrial sectors such as cement and steel need to be decarbonised, and agriculture and food systems need to
be transformed.
Transition plans are key to this process, and every entity, particularly high emitters, should have or be developing a
1.5 degree Paris Agreement-aligned transition plan that is credible and realistic. Unfortunately, recent research from
Sustainalytics highlights that very few companies have either developed or started to implement plans to align theiroperations with 1.5 degrees.1

A transition plan is a time-bound and trackable strategy and roadmap presenting theplans and actions for reducing emissions in line with a science-based pathway to net
zero.
Accelerated action will depend on developing, implementing, monitoring and updating robust and ambitioustransition plans. These plans will enable capital market actors to identify and direct finance to credible
investments, driving forward the global transition to net zero. The creation of transition plans also aligns with the EU
Corporate Sustainability Reporting Directive (CSRD)which includes requirements for disclosure on environmental
improvements*.2
However, identifying credible transition plans is not always straightforward as these are complex and comprehensive
strategies designed to transform the whole business to deliver on technical environmental performance targets.
Therefore, Climate Bonds has expanded its Climate Bonds Standard & Certification Scheme to include theCertification of corporates based on the ambition and robustness of their transition plans. Further information iscontained in Climate Bonds Standard Version 4.0 and the associated Checklist.
This paper is designed to provide a complementary and introductory guide to assist stakeholders understandthe basic markers of a credible transition plan, however, it cannot replace independent in-depth verification andCertification. This short guidance paper and the requirements for Climate Bonds Certification are both based on the‘5 Hallmarks of a credible transition’ from our 2022 paper ’Transition for transforming companies: Tools to assesscompanies’ transitions and their SLBs’.
These 5 Hallmarks are captured in the ‘Triple A’ framework of Ambition, Action and Accountability illustrated below.
Together these demonstrate the company is willing, able and transparent about moving toward a sustainable future.

*

CSRD (2023) article 19a “a description of the time-bound targets related to sustainability matters set by the undertaking, including, where appropriate, absolutegreenhouse gas emission reduction targets at least for 2030 and 2050, a description of the progress the undertaking has made towards achieving those targets, and astatement of whether the undertaking’s targets related to environmental factors are based on conclusive scientific evidence”.

PAGE 3

Executive summary
Framework for assessing corporatetransition plans

Figure 1: Triple A transition plan framework

AMBITION•

Performance targets

AMBITIONACTIONACTION••

Robust plans
ActionACCOUNTABILITY••ACCOUNTABILITY

Governance
Verification and disclosure

Hallmarks for transition plans
For transition plans to be credible they need to include time-bound performance targets, implementation and financeplans, and be fully transparent. The 5 Hallmarks provide the framing guidance needed to determine whether a transition
plan is sufficiently comprehensive (see Figure 2). The detailed content regarding target ambition and materiality of scopes
can be found from additional sources – more information on these is provided below under Hallmark 1.
Information about a company’s transition would ideally be contained within a comprehensive document that is publicly
available and updated annually. However, often the information is fragmented and can be challenging to both identify
and understand. Potential sources of information might include company-wide transition or climate strategy documents,
annual corporate sustainability reports, and sustainable finance frameworks, among others.
Third party certification and/or verification of a transition plan, (currently provided by Climate Bonds and Assessing
Corporate Transition (ACT) Initiative, among others) is a hugely valuable tool to support corporates in communicating
their ambition to stakeholders as well as provide investors with have confidence in the credibility of the plan. Therefore
Climate Bonds encourages third party certification for all plans. However, it is necessary for all stakeholders tounderstand what transition plans should contain and how to find additional related information.

PAGE 4

Hallmarks forTransition Plans
Triple A transition plan framework

To provide basic guidance to the market, Climate Bonds has prepared this short overview laying out the high-level requirementsof transition plans as defined against the Climate Bonds 5 Hallmarks. These Hallmarks are fully aligned with and build on
the thematic guidelines from ICMA as well as the disclosure requirements from the Task Force on Climate-Related Financial
Disclosures (TCFD) among others. The key red and green flags for each Hallmark that indicate the credibility of transition plans
have been identified. Green flags identify the main elements of a transition plan that should be present while red flags denoteomissions or aspects that could be a cause for concern and require greater scrutiny. Each of the five Hallmarks for a credible
transition should include information under the headings in Figure 2. Performance targets must include climate mitigation, andshould also include other material environmental issues.
The European Sustainability Reporting Standards (ESRS) developed by EFRAG in 2022 to deliver on the Corporate Sustainability
Reporting Directive (CSRD) provide a good overview of the types of performance targets that can be considered. The EU
Taxonomy is a good additional source of guidance for sustainable activities across multiple sectors. 3,4
Figure 2: Triple A transition plan framework and five hallmarks (Climate Bonds Initiative, 2021)

AMBITIONACTIONACCOUNTABILITYPERFORMANCETARGETSROBUST PLANSACTION

Climate mitigation

VisionInterim milestones

Adaptation & resilience

Strategic narrative

Annualverification ofprogress

NatureJust transition

Action plan
scope 1, 2 & 3 GHGs
Action plans - other
Performance Targets

GOVERNANCE
Board and senior
executive
responsibility(Re) setting andmonitoring targets
and plans

DISCLOSURE
Information to disclose
Comparability andaccessibility

Corrections

Internal policyalignment
Sensitivity analysis

HALLMARK 1

HALLMARKS 2 & 3

HALLMARKS 4 & 5
PAGE 5

Hallmark 1:

Performance Targets

Performance Targets (PTs) set out the goals
for positive change (such as the reductionin emissions over time) and should bemeasurable and material for the entity.
These are important for defining credibility
and need to cover all the relevant activities
of a company as well as propose ambitiouschange in line with science-based guidance.
Ambitious targets vary by sector and what is
considered ambitious can be found in the sectorspecific decarbonisation pathway guidance fromorganisations such as Climate Bonds, Transition
Pathway Initiative (TPI) and Science Based Targets
initiative (SBTi).

Hallmark 1: Green Flags
1. The company has set performance targets that quantify
their environmental goals for the short, medium and longterm. In the case of climate mitigation, these performancetargets relate to all (scope 1, 2 and 3) material GHG
emissions from all of the company’s operations that areunder the company’s control or influence*.4,5
Figure 3 below provides a high level overview of theemissions that should be considered for each sector. Anyemissions not included in these targets, if they are notmaterial or controllable, are explained and justified.
These targets cover the full time period until thecompany expects to reach net zero emissions, withinterim performance targets specified that enable regularmonitoring and reporting of progress.

*For example, all scope 3 emissions should be included for Oil & Gas companies, as these can be avoided by thecompany changing their business operations away from fossil fuels. All material crop production emissions should
be included for bread producers as these can be avoided by working with suppliers/changing suppliers to source
emissions free inputs.
**These sectoral pathways should not simply reflect a sector average, or best-in-class, but be forward-looking
pathways that are technologically feasible and ensure the sector will align with the overall goal of a net zeroeconomy by 2050.

2. These climate mitigation performance targets alignwith recognised, science-based sectoral decarbonisation
pathways aligned with 1.5 degree global warming
scenarios.**
These include criteria established by Climate Bonds, SBTi,
TPI, RMI, IEA, ACT Initiative, IPCC, or UTS. 6
Where sector specific pathways are not available,
SBTi’s Cross-Sectoral Approach (CSA) or best-in-classcomparisons can be used.
However, national plans or Nationally Determined
Contributions (NDCs) do not represent the scale ofemissions reductions needed to deliver a net zero global
economy by 2050 and should not be used.
3. Ideally, the company would have set performancetargets addressing for, example biodiversity, adaptation
and resilience, pollution prevention and control, and justtransition, although guidance on these latter issues is lessspecific at the time of writing.

Hallmark 1: Red Flags
1. The company’s Greenhouse Gas (GHG) performancetargets are not front-loaded to the extent that alignment
with the selected sectoral decarbonisation pathway(s) will
not be achieved in the short- to medium-term. Climate
Bonds insists that the company’s mitigation performancetargets are aligned with the sectoral pathway(s) by 2030 at
the latest, in recognition of the need to nearly halve global
emissions by 2030.
2. The company’s mitigation performance targets are
dependent on carbon offsets, which should only be used for‘last mile’ or residual emissions that cannot be eliminatedby the company and should not exceed 10% of emission
reduction efforts.
PAGE 6

Emissions scope materiality by sector
Figure 3 demonstrates the materiality of emissions scopes by sector. This is high-level and provides an overview
only, with further guidance available from CDP and the GHG protocol. Scope 3 is material for most sectors and should
be included in transition plans where possible.7

Figure 3: Scope 1, 2, and 3 emissions by sector
0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Agricultural commodities
Capital goods
CementChemicals
CoalConstruction
Electric utilities
Financial services
Food, beverage & tobacco
GeneralMetals & mining
Oil & gas
Paper & forestry
Real estate
Steel
Transport OEMS
Transport Services
Scope 1

Scope 2

Scope 3

Source: CDP

How to use transition pathways

Emissions reduction transition pathways chart the annual reductions in GHG emissions needed to align with global
carbon budgets. The pathways have been developed by organisations such as Climate Bonds, ACT Initiative, SBTi,
University of Technology Sydney, and Transition Pathway Initiative based on the latest available climate science.8
The Science Based Targets Network (SBTN) has also launched science-based targets for nature which can be used to
inform transition plan targets on a broader set of metrics.9
A transition plan should indicate targets by year (for emissions these can be either absolute emissions or emissions
intensity), for example, a reduction of X% from XXX kg/CO2eq per tonne of product to 500kg/CO2eq per tonne of productby 2030.
These targets can then be compared against the relevent sector pathway to determine whether the reductions are
sufficiently ambitious.

PAGE 7

Figure 4 gives an illustration of how a company’s decarbonisation can be mapped against a science-based
emissions reduction pathway, which must align with the 1.5-degree pathway by 2030 at the latest to be
Certifiable by Climate Bonds. This is denoted by Company Z in the diagram below. Company X andCompany Y already have emissions below the pathway and could be Certified as aligned.

Figure 4: Example emissions pathway and company alignment (Climate Bonds Initiative)

PAGE 8

Hallmark 2:
Robust plans

A company’s transition will only be credible if its
transition strategy and associated action plans
document achievable and trackable milestones
detailing how the company will deliver on its selected
performance targets.
This transition strategy needs to be fully integrated into thecompany’s wider business model and plans.

Hallmark 2: Green Flags

1. The company has a vision that aligns future activities,
assets and business model with the performance targets
selected under Hallmark 1, and which identifies themain levers of change that will enable the transition
to that vision from their current operations, assets andbusiness model.

4. All the performance targets identified in Hallmark 1
should also be addressed in the action plan.
5. Any use of carbon credits or avoided emissions are
restricted to addressing residual emissions only and arereported separately.
6. The company has a feasible financial plan detailingthe financial implications of the transition, in termsof the costs and how it will be financed. The plan also
identifies impacts on the overall financial position of
the company, including, but not limited to impacts onrevenues, costs and balance sheet. The financial plan
includes interim milestones and metrics that can betracked and monitored, using the Entity Certification
Checklist for guidance.
7. The company has identified the key sources of
uncertainty in any of the plans that are intended todeliver on the vision.

2. Any risks to other social and environmental areas suchas biodiversity or just transition have been identified andmitigated, and the vision and levers of change are compatible
with the company’s broader environmental and social
objectives, strategies and/or policies.
3. For each lever of change the company has a timebound plan of the actions the company will take or istaking to implement it. This includes interim milestones
and metrics that can be tracked and monitored.
For detailed examples of these please see theEntity Checklist here.
PAGE 9sHallmark 2

Robust plans (continued)

Hallmark 2: Red Flags
Supplemental questions:
1. The vision or associated decarbonisation levers do not address all of the activities of the company. For example,
stranded assets and activities that cannot be transitioned and need to be discontinued or phased out; scope 3 supply
chain emissions in feedstocks, raw materials, and other inputs that the company has influence over via its supplier
relationships; and procurement decisions.
2. Identified levers are not consistent with those of net zero pathways for the sector, claim much greater expected
emissions reductions compared to similar measures adopted elsewhere or are not accompanied by strong supporting
evidence for their relevance.
3. Identified actions are not concrete, and only vague descriptions are given, such as ‘accelerate our transition to cleaner
energy solutions’, ‘modernize our operations’ or ‘leverage green solutions’.
4. The timing and anticipated emissions reductions of the decarbonisation levers and associated action plans are notcompatible with the (interim) performance targets per Hallmark 1.
5. The vision, levers, action plans or finance plan are not consistent with disclosures made in sustainability and wider
TCFD reporting.

Supplemental questions:(For sectors with large scope 3 emissions such as agriculture, food retail or oil and gas).

What supply chain engagement has the entity undertaken to help reduce its upstream/
downstream emissions?

PAGE 10

Hallmark 3
ActionThis Hallmark is dedicated to ensuring that the vision and plans under Hallmarks 1 and 2
are being acted on. Hallmark 3 is a clear action plan that is already being implemented tosupport the delivery of interim performance targets, with identified metrics and indicators
to assess delivery.

Hallmark 3: Green Flags

Hallmark 3: Red Flags

1. The company is already delivering the interim
milestones and metrics identified in its action andfinancial plans.

1. Any corrective action is not sufficient to ensure thatinterim performance targets will be met.

2. Where those interim milestones or metrics are notmet, the reasons are explained and corrective action is
being taken.
3. The action plan is verified and reported on annually.

PAGE 11

Hallmark 4
Governance

The transition plan and its implementation involve large scale, entity-wide changes. Robustinternal governance structures need to be in place to ensure the changes are delivered. Hallmark
4: Governance covers the internal monitoring, accountability mechanisms, and leadership systems
needed to drive the transition.

Hallmark 4: Green Flags
1. The Board is responsible for (re)setting andmonitoring the delivery of the transition plan(including the performance targets, vision, actionplans and finance plan). This includes any changes
to the plan to correct for any under-performance or
missed milestones, plus a regular reassessment atleast every five years to reflect changing operating
conditions and market developments such as newtechnologies coming online sooner than expected.

Hallmark 4: Red Flags
1. No public commitments to net zero have been made.
2. Any interim performance target or action plan
milestone is unmet for a period longer than 12 months.

2. The company has developed the necessary internal
governance systems and monitoring mechanisms toenable effective board level oversight.
3. The Board has signed off the performance targets
and plans.

PAGE 12

Hallmark 5
Disclosure

Transparency and external verification are critical for credibility. Disclosure also enables
comparability across peers and allows global, national and sector progress to be assessed.
Disclosure should take place annually using recognised, comparable metrics such as absolute or intensity GHG
emissions. This should follow the norms required for general purpose financial reporting which obliges disclosureof any information that, if omitted, misstated, or obscured, could impact the statement’s reliability.

Hallmark 5: Green Flags
1. The company discloses key information about its performance targets and transition plans when established.
Refer to the Climate Bonds Standard and the UK Transition Plan Taskforce recommendations for examples of goodpractice public disclosure requirements.
2. The company subsequently annually discloses progress against those targets and plans, and any recalibration or
corrective action that has been taken in respect of them.
3. The company’s transition plan is assessed and audited by an independent third party.
4. The company’s GHG emissions are externally verified.

Hallmark 5: Red Flags
1. There is no commitment to annual reporting.
2. Information disclosed is not sufficient to assess progress against performance targets and action plans.

PAGE 13

Take home messages

1
2
3

Transition plans are core tools to deliver a credible and robust transition to a Paris-aligned future. In
order to ensure a transition has the targets, effective plans, financial resources and leadership needed,
the transition plan must include the core elements outlined here.
Supporting this is the external transparency provided by standardised and regular disclosure of progressagainst targets. Assessing plans is highly challenging and information will often be unavailable or difficult
to piece together from multiple fragmented sources.
Third party verification or certification should be used to avoid doubt and provide comfort to investors
and other stakeholders that plans are credible.

Connect with us

www.climatebonds.net

Endnotes
1

https://www.sustainalytics.com/esg-news/news-details/2023/04/13/morningstar-sustainalytics-launches-its-low-carbon-transitionratings

2

https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en3

https://www.efrag.org/lab6

4

https://ghgprotocol.org/calculation-tools

5

https://ghgprotocol.org/calculation-tools

6

Climate Bonds Initiative, Transition Pathway Initiative, SBTi, UTS, ACT Initiative, International Energy Agency

7

https://cdn.cdp.net/cdp-production/cms/guidance_docs/pdfs/000/003/504/original/CDP-technical-note-scope-3-relevance-bysector.pdf

8

Climate Bonds Initiative, Transition Pathway Initiative, SBTi, UTS, ACT Initiative9

https://sciencebasedtargetsnetwork.org/how-it-works/the-first-science-based-targets-for-nature/10

https://www.climatebonds.net/climate-bonds-standard-v4

Disclaimer: The information contained in this document does not constitute investment advice in any form or any invitation or inducement to engage ininvestment activityand the Climate Bonds Initiative is not an investment adviser. Any reference to a financial organisation or debt instrument or investment
product is for information purposesonly. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility
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The Climate Bonds Initiative is not endorsing, recommending or advising on the financial merits or (subject to the previous paragraph) any other aspect ofany debt instrumentor investment product or any collection of debt instruments or investment products or any asset or entity or group of assets or entities
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Version: 23102023

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