- Compared to the 2024 assessment, there has been an increase in the number of companies that have set long-term net zero targets. However, short- and medium-term commitments remain lacking.
- Most companies continue to fail to disclose transition plans detailing how they intend to achieve their targets.
- There is a disconnect between the targets or ambitions that companies are setting and their actual emission reductions reported.
This year’s
report is based on Management Quality (MQ) coverage of over 2,000 companies, with Carbon Performance (CP) coverage of around 550.
Broadly speaking, despite increasing coverage by 1,000 companies over the previous assessment, the average MQ score has remained largely unchanged at Level 3 - meaning companies integrate climate change into operational decision-making. While the average score of newly assessed companies is slightly below this level, encouragingly, the average score of the companies assessed previously has increased.
Established targets, when they exist, are largely long-term, with a lack of short- and medium-term targets to convince investors that companies are truly committed or have a plan to achieve those 2050 goals. The cumulative emissions on the pathway to 2050 impact the climate, so investors expect companies to establish and achieve short- and medium-term targets.
Investors are increasingly focusing on transition planning and associated capital expenditure that will support that transition. This is assessed by TPI’s MQ Level 5 indicators, which focus on elements of transition plans. Unfortunately, no company fulfils all Level 5 criteria, an indication that corporate transition planning appears to be in its early stages. For example, companies are failing to align their capital expenditure plans with their climate goals, potentially resulting in a failure to invest in technology to support sector specific transitions and reductions in emissions.
The
report also reviewed how credible the ambitions of companies are by assessing three factors:
- MQ level 5 where, as noted, the indicators give greater insight into the companies transition plans and whether they are credibly implementing them.
- Historic emissions intensity trends, looking at companies’ recent emission intensity (between 2020 and 2023) and whether they have been falling in line with the Paris agreement goals. This provides an indication of what companies are saying they are going to do versus what they have actually delivered in terms of emissions reductions.
- Decarbonisation levers, a novel assessment of the technologies that companies intend to use to decarbonise and their commercial feasibility.
The analysis noted that the auto and electricity utilities sectors had the greatest reduction in emissions between 2020 and 2023; this is likely to be because low carbon technology in these sectors is more proven and available. In contrast, the oil and gas sector made “the slowest progress in reducing its emissions intensity” over the same period.
There are concerns that companies may be delaying reducing emissions, and many are relying on unproven technologies. Most of the sectors assessed will need to cut emissions at a faster rate than they have achieved historically and either reduce their reliance on or significantly increase investment in, currently unproven technologies.
This
State of the Corporate Transition 2025 report highlights that whilst there has undoubtedly been some progress, efforts must be rapidly scaled up if we are to achieve net zero by 2050. Investors must continue to encourage companies to act on climate change: to move faster in cutting emissions, to allocate capital towards achieving their climate goals and to publish credible transition plans detailing how they will meet their targets.
This is in the interests of companies themselves, their investors and society as a whole.
