TPI Strategic Advisory Committee reflection: State of the Corporate Transition 2025

TPI State of the Corporate Transition 2025: headlines for investors

TPI’s annual analysis of companies’ progress on net zero, this year renamed the State of the Corporate Transition 2025 report, continues to deliver powerful and actionable insights to investors. As the TPI’s Strategic Advisory Committee (SAC), we want to elevate some of the key messages to our fellow investors about key findings that particularly resonated with us.

The 2020–24 data show continued high-level and long-term commitment. Anti-ESG pressure over the last several years and high-profile exits from net zero coalitions has sometimes perpetuated a story that companies are backsliding on climate commitments. The high-level findings of the report do not support this narrative, although we note that they do not capture the more recent impact of any changes in 2025. For example:

• Alignment on Management Quality has remained steady. This is despite the TPI Centre adding 1,000 companies which had lower scores on MQ compared to the analysed universe. These scores are due in large part to having a higher proportion of smaller cap companies and companies from emerging markets, which tend to have lower MQ scores. Many of the 1,000 companies evaluated in the previous assessment cycle have improved their scores.
• Long-term alignment on Carbon Performance has increased. The share of companies aligned with the 1.5°C benchmark has tripled since the 2020 assessment - 9% to 30% in the most recent cycle (2024).

High-level and long-term commitment contrasted with a lack of near-term alignment

Despite the high-level and long-term commitments described above, the majority of companies assessed are not aligned with the Paris Agreement goals and are projected to exceed the carbon budget for both the 1.5°C and 2°C targets. This lack of alignment is due in part to the disconnect between long-term commitment and near-term action.

The SAC looked at key indicators and the assessment of alignment and we note multiple areas investors committed to net zero should consider as they prioritise focus areas for their climate stewardship programmes:

• Alignment of future capital expenditure with decarbonisation goals remains the lowest scoring MQ indicator and showed no improvement between 2023 and 2024. This finding reinforces that, while companies are continuing to improve their policies and governance, these policies are not yet translating into changes in capital expenditure that will be necessary to deliver decarbonisation goals.
• Corporate policy engagement is the lowest scoring indicator on MQ Level 3. Only 27% of companies satisfy this indicator, significantly lagging others: the next lowest score is for the disclosure of Scope 3 emissions at 43% of companies, with remaining indicators all met by at least 60%.
• Companies’ longer-term decarbonisation plans appear dependent on new technologies. We believe the lack of capital expenditure and corporate policy engagement in the near term leaves companies reliant in the longer term on often unproven technologies (as explored in Figure 4.1 of the report). This finding is especially relevant given that the (often) significant emissions reductions made by many companies to date have relied on capturing ‘low-hanging fruit’ and that additional decarbonisation will require both more concerted action and investment in new low-carbon processes. The report summarises it well:

So where does this leave investors?

The need to focus on key near-term action. The SAC consists of investors who believe in the mission of TPI and actively use the data to support their own investment activities. In thinking through how we want to use the information from this report, we see multiple areas of continued interest, and in particular:

• Customise how you use indicators. As supported by the above points, we certainly view the capital expenditure and corporate policy engagement indicators as important areas of focus for future climate stewardship. There was less focus in this edition of the report on the offsets indicator; further convergence of industry views may be needed on appropriate usage before it becomes an area of focused engagement.
• Sector divergence. Our membership agree that the differentiated views of sectors is a helpful development from TPI and could differentiate how investors think about corporate or sector engagement and climate risk assessment. Some sectors have: a) a stronger trajectory of emissions reduction and/or b) an easier path forward for decarbonisation, based on proven technologies, than others. This analysis is helpful when we start to think about overall portfolio alignment.

TPI State of Transition Report remains an insightful and sobering look at the transition

Our overall conclusion from reviewing the State of the Corporate Transition 2025 report is that the data presented are relevant, actionable and insightful for asset owners and asset managers in addressing the investment risk that the transition represents. It highlights today’s transition-related realities and reaffirms the need for continued progress. We hope that you also find in it something that will improve how you think about and act on the transition.