The Climate Bonds Initiative (CBI) has called for greater alignment on corporate transition planning to help financial companies assess firms, following a joint review of global frameworks conducted with the IIGCC and Sustainable Markets Initiative.
The non-profit said co-ordination was needed as the current proliferation of transition planning frameworks is causing confusion in the market.
The report assessed 13 frameworks from various sources, including the CA100+ benchmark, CBI’s standards and the UK Transition Plan Taskforce recommendations.
While there is a high degree of alignment between the frameworks at a high level, it said, the number of frameworks and their differences at a granular level made their usage confusing. This slows investment into sectors and companies showing real promise and progress on transitioning.
The CBI’s mapping found a broad consensus on the core principles for setting targets, devising strategies and ensuring accountability, but key differences in how these principles are interpreted.
For instance, while there is significant agreement on the need to benchmark emissions targets against credible pathways, there is divergence on which pathways these should be. There is also significant variance on the need for Scope 3 emissions to be included, as well as materiality and the role of offsets.
Similarly, the report notes that only half of the frameworks assessed address the Just Transition and fewer look at other environmental goals such as biodiversity. Just one – the Climate Action 100+ benchmark – promotes Just Transition performance targets.
The CBI carried out the mapping process with the support of the IIGCC and Sustainable Markets Initiative, and funding from Climate Arc. GFANZ and representatives from other investment firms provided “methodological” feedback.
Categories and portfolios
According to the report, corporate transition planning and implementation can be divided into “broadly classified into five or six categories”. These mark steps in the transition journey, from having no commitment at all to reaching net zero.
However, CBI noted that the labels used for these categories vary greatly and that definitions and terminology should be better harmonised to improve interoperability.
Looking to the portfolio tools, the CBI said three of these categories – setting a credible transition plan, already being on a Paris-aligned pathway and reaching near-zero emissions – would make a company eligible for inclusion in a “transition” portfolio.
The report is the first step in a broader project designed to allow asset owners and managers to better analyse the transition progress of their portfolios and to build consensus around existing frameworks.
The next step will be a “practical tool for allocating corporates in investment portfolios to appropriate categories of transition”, CBI said, with trials taking place in early 2024 before a second iteration after feedback.