Investor Group Releases Transition Planning Framework for Net-Zero Emissions
The Institutional Investors Group on Climate Change ("IIGCC") has released guidelines for corporate transition plans designed to achieve net-zero greenhouse gas emission targets by 2050, in accordance with the objectives of the 2015 Paris Agreement. IIGCC is a group of institutional investors with approximately 400 members and $40 trillion in assets under management, as of 2022. Its March 2023 report, Investor Expectations of Corporate Transition Plans: From A to Zero ("Transition Plan Guidelines"), outlines five components that IIGCC and its members deem essential for a "credible" corporate net-zero transition plan:
- Comprehensive emissions targets aligned with the net-zero emission goal;
- A strategy for achieving those targets;
- Promotion of climate goals to third parties in the company's value chains or through lobbying and trade association efforts (e.g., procuring materials from low-carbon sources, partnering with suppliers that have their own net-zero transition plans, etc.);
- Clearly define and contribute to "climate solutions" through investments in technological solutions, such as low-carbon production methods, or appropriate offset projects, with an explanation of the metrics used to measure contributions to those solutions, thereby allowing investors to test for consistency and performance; and
- Accounting and disclosure of emissions, energy consumption, and of the effect of annual global temperature rise of 1.5 degrees Celsius (the 1.5-degree scenario under the Paris Agreement) on the company's business and finances.
The Guidelines present a framework only and do not advise companies on how to achieve emission reduction targets or which technologies to support. Instead, the Guidelines emphasize the end goal of net-zero emissions and the importance to IIGCC members of credible and measurable net-zero pledges.
IIGCC's new Transition Plan Guidelines are just one example of the ongoing trend of increased scrutiny of companies' public statements related to climate change and emission reduction commitment by shareholders, regulators, enforcement agencies, and the general public. The Transition Plan Guidelines are notable, among other reasons, for their focus on developing metrics that will be useful for investors. Companies that have made or are considering making climate change or emission reduction commitments may wish to consider IIGCC's guidelines, whether as one approach to building and implementing a plan to monitor progress and achieve such commitments or to gain insight on the lens through which certain investors are viewing these issues.
Read the full Climate Report here.
