The new Corporate Sustainability Reporting Directive (CSRD) approved in November 2022, which will affect around 50,000 European companies, requires companies to disclose a decarbonization and transition plan towards net-zero emissions by 2050.
All companies affected by the Directive will have to respond to the Climate Change questionnaire E1, regardless of materiality analysis results, which includes the disclosure of a complete emissions inventory (including Scope 3) as well as a medium- and long-term reduction plan, with specific actions and goals, indicating, among other aspects, whether objectives are science-based or not.
But how advanced are companies in developing their medium- and long-term emissions reduction plans? How viable are the plans that have been developed so far?
Carbon Disclosure Project (CDP), the world’s most important climate reporting initiative with over 20 years of experience, has analyzed the Climate Change questionnaires submitted in 2022 by 18,600 organizations to determine if companies are developing sufficient, credible, and viable climate transition plans. Here are the key findings of: “Are companies developing credible climate transition plans?”.
CDP analyzes 21 key indicators that cover climate governance, financial planning, climate risks, verified GHG inventories (Scopes 1, 2, and 3) development, climate scenarios development, target setting, and commitment and relationship with the value chain.
“An action plan must have defined timelines that clearly describe how an organization will achieve its strategy to pivot its existing assets, operations, and entire business model toward a trajectory that aligns with the latest and most ambitious recommendations from climate science, i.e., halving greenhouse gas (GHG) emissions by 2030 and reaching net-zero by 2050 at the latest, thus limiting global warming to 1.5°C.”
Key report findings:
Plans
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Only 4,100 organizations (22%) declared through CDP that they have a climate transition plan aligned with 1.5°C.
It is noteworthy that 3,341 organizations have no intention of developing a 1.5°C climate transition plan. On the other hand, 6,520 announced the plan’s development within two years.
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However, only 0.4% of organizations (81 out of 4,100) have developed credible transition plans.
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Of the transition plans developed, only 1,751 were publicly available, with a well-defined mechanism for soliciting feedback, but even among leading organizations, more transparency is needed. This shows that organizations have not yet developed plans to demonstrate to capital markets, customers, users, and other stakeholders how they will mitigate climate risks and seize opportunities arising from alignment with the 1.5°C limit.
In terms of sector share, the energy generation and financial services sectors have the most transition plans, with 38% and 35 %, respectively, while the sectors with the least transition plans are clothing, fossil fuels, and hospitality.
- Only 3,315 organizations revealed a robust scenario analysis process, even though a transition plan should be based on a “solid scenario analysis to identify possible climate-related risks and substantial opportunities, improve critical strategic thinking, and help an organization understand how it could act in different future states.”
Value Chain
Only 16% of organizations revealed details of their supply chain engagement strategy, which requires organizations to disclose the type of engagement, impact description, coverage percentage on supplies, and procurement spending, and justification for the engagement.
Scope 1, 2, and 3 Accounting with Verification
- Of the 4,101 organizations that developed a climate change transition plan, approximately 43 % had a credible emissions inventory verified by a third party that was consistent with their plan.
As a conclusion of the study, it is emphasized that the need for companies to develop a credible climate transition plan is not an additional element, but an essential part of any future planning. Companies must demonstrate that they are planning for the future so that we can avoid the worst impacts of climate change and send the right signals to capital markets, which will remain profitable.
Is your company prepared for the 2023 CDP report? Do you have a credible and viable emissions reduction plan? The Global Factor team can help you develop decarbonization plans, as well as improve or start on your climate disclosure journey. We are experts in climate change and Net Zero, with 19 years of experience helping global companies achieve their sustainability goals. We have a long track record in CDP and our team of consultants consistently helps clients achieve a leadership score (A-list).
For more information, please do not hesitate to contact:
Asier Sopelana: asopelana@globalfactor.com
Jose Manuel Correa: jcorrea@globalfactor.com
Source: Global Factor
Global Factor is an international group with 19 years of experience, specialised in offering global, original, and innovative solutions in the fields of climate change adaptation and mitigation, carbon footprint, sustainability, circular economy, renewable energies, climate neutrality and carbon markets. Global Factor has an interdisciplinary team with a presence in 8 countries and has participated in more than 2,000 projects for more than 700 public and private clients, international organisations and non-profit entities in 51 different countries.
