Assessing Climate Transition Plans: Leveraging Data to Serve Investors’ Strategies

Key Insights

The Net Zero Investment Framework (NZIF) arguably put it best with its contention that, if responsible investors want to be of any consequence, their climate strategies should focus on, “‘financing reduced emissions’ rather than ‘reducing financed emissions.’”¹ In other words, by financing issuers that are on a robust decarbonization path, investors can contribute to reducing both real-world greenhouse gas (GHG) emissions and climate-related systemic risks, while removing constraints on their investment universe and, hopefully, improving expected returns.

To do so, investors must assess the credibility of climate transition plans. This need has become widely acknowledged, to the point where assessment requirements are being included in sustainable finance regulation (beyond disclosure requirements), banking supervision, and labels.^{2, 3, 4, 5}  

Despite this consensus, evidence of systematic forward-looking assessments of issuers’ climate transition plans remains scarce.^{6, 7} Many investors are tracking the share of companies with validated targets from the Science Based Targets initiative (SBTi), which is good, but far from sufficient.⁸ To paraphrase economics Nobel Prize winner Robert Solow, transition plans are everywhere but in statistics. 

Why Aren’t More Investors Shifting Their Strategies?

First, net zero alliances and climate frameworks such as the Net Zero Asset Owner Alliance have historically focused on reducing financed emissions, sometimes setting very rigorous and steady decarbonization pathways to follow.⁹ However, tilting portfolios away from carbon-intensive assets and towards companies that are net zero aligned, results in so-called paper decarbonization.¹⁰

Second, investors’ climate strategies were largely influenced by the tools and metrics available — mainly carbon footprinting and implied temperature rise — which are backward-looking.

Third, the strength of inertia can’t be underestimated. Adapting a strategy takes time, especially when investors have put a lot of resources and effort into integrating GHG measurement and reporting tools, setting targets, building financial products, agreeing on mandates, etc., all of which are often based on portfolio decarbonization and existing frameworks and tools.

Hurdles to Assessing Climate Transition Plans

Another possible explanation for the lack of transition plan assessments relates to the challenges of adopting a new analytical framework. Conducting assessments of climate transition plans at-scale requires specialized knowledge, time, and resources, which investors may lack.

Additionally, labels and frameworks do not always provide enough clarity on what should be assessed. For instance, the Net Zero Banking Alliance (NZBA) Guidance for Climate Target Setting only states that, “banks should disclose how they will evaluate their clients’ transition plans.”¹¹ The German FNG Transition label formulates a tautology: transition investments can be investments in “companies with a credible transition plan.”¹²

Even when clarity is given, investors then need to identify which key performance indicators (KPIs) match the various frameworks. This is where data providers can help, if they offer a robust and transparent methodology. 

What’s more, investors are navigating a sea of diverging guidance, reporting frameworks, assessment tools, and labels. In 2023, the World Wide Fund for Nature (WWF) counted no less than 28 frameworks,¹³ and the number has since grown, as shown in Table 1 below. 

Table 1. Overview of Select Climate Transition Plan Frameworks

^{Source: World Benchmarking Alliance.}  

^{Note: This list is compiled from various sources and is non-exhaustive.} 

Many financial market participants are challenged by the fact that these frameworks are not aligned. They diverge with respect to assessment items and granularity. This misalignment can hinder reporting by companies and analysis of transition plans by investors.

Better alignment among assessment methods is of particular relevance to investors wanting to finance reduced emissions. For instance, the NZIF 2.0 refers to the Transition Pathway Initiative as a possible data source,¹⁴ and the latter provides a mapping between its management quality indicators and the NZIF recommendations.¹⁵

More broadly, investors can focus on six assessment items which can be used with most climate frameworks, according to the World Benchmarking Alliance.¹⁶

Table 2. Assessment Items Common Among 28 Climate Transition Plan Frameworks

^{Source: World Benchmarking Alliance.}

These six assessment items are aligned with the six “universal factors” that are recommended to assess the credibility of transition plans, according to the draft Transition Finance Guidelines published by the UK Transition Finance Council.¹⁷ These universal factors are engagement, disclosure, governance, financial viability, implementation, and interim targets and metrics. 

How Investors Can Act Now

Morningstar Sustainalytics’ Low Carbon Transition Ratings (LCTR) provide 85 risk management indicators, which are aligned with the aforementioned frameworks, and can be used to accommodate investor preferences and serve a variety of needs. These needs can be classified into four broad categories:

1. Meeting the demands of a given framework or label: In this case, investors need to ensure alignment with a specific framework they have committed to, such as the French SRI label or the NZIF 2.0. A growing number of asset managers are actually setting targets based on NZIF portfolio alignment, and could use, to that end, the NZIF solution developed by Morningstar Sustainalytics.
2. Feeding a proprietary ESG tool: Investors may want to enhance their own in-house ESG tool by incorporating data that addresses issuers’ ability to decarbonize over the long term and manage climate-related transition risks. An example of this is Lombard Odier’s sustainable investment framework, which assesses, among other things, the existence of a “clearly articulated and ambitious transition strategy to sustainable activities.”¹⁸
3. Creating a proprietary and dedicated climate transition assessment: Some investors have developed or need to build in-house tools focused on the assessment of issuers’ climate transition readiness. For instance, Spanish bank BBVA has developed a transition risk indicator which assesses exposure to transition risks, ambition, and credibility of transition plans,¹⁹ while Dutch Bank ING is using its own “client transition plan” score.²⁰
4. Informing specific activities, such as banking advisory, research, and stewardship: These activities require granular data to identify on which specific items a discussion could be held. Alliance Bernstein, for instance, has developed a new framework that broadens the scope of risk called ESD, which stands for “Emerging, Strategic, and Disruptive.” In the automotive industry, those risks include, among others, carbon pricing mechanisms.²¹

Relevant Data to Leverage for the Assessment Transition Plans

To show how LCTR data can be leveraged, below are examples of risk management indicators that relate to the assessment items shown in Table 2 above.

Table 3. Description of Selected Morningstar Sustainalytics Low Carbon Transition Ratings Management Indicators

^{Source: Morningstar Sustainalytics. For informational purposes only.}

The LCTR also offers very granular data. Listed below are some examples of underlying criteria for the indicator assessing GHG reduction program in supply chains, as referenced in the table above:

• The company engages with tier 1 suppliers and requires them to have their own GHG emissions reduction target.
• The company collaborates with investors and other stakeholders to support supply chain decarbonization.
• The company collaborates with peers and competitors to aid in supply chain decarbonization.

Conclusion

The need to carry out forward-looking assessments of climate transition plans, moving beyond analyzing commitments, is undeniable. It makes economic sense for investors, is recommended by international organizations and standards, and is making its way into regulation and supervision.

By leveraging transition risk and management data, such as Sustainalytics’ Low Carbon Transition Ratings, investors can build and use a proprietary assessment tool that is aligned with leading climate transition frameworks and labels, while retaining enough flexibility to accommodate the specificities of each investor.

References

1. Institutional Investors Group on Climate Change. 2024. Updated Net Zero Investment Framework, the most widely used net zero guidance by investors, published as 'NZIF 2.0'. June 24, 2024. https://www.iigcc.org/media-centre/updated-nzif-2.0.  
2. European Insurance and Occupational Pensions Authority. 2024. ESAs propose improvements to the sustainable finance disclosure regulation. June 18, 2024. https://www.eiopa.europa.eu/esas-propose-improvements-sustainable-finance-disclosure-regulation-2024-06-18_en. 
3. European Banking Authority. 2025. The EBA publishes its final Guidelines on the management of ESG risks. January 9, 2025. https://www.eba.europa.eu/publications-and-media/press-releases/eba-publishes-its-final-guidelines-management-esg-risks. 
4. Label ISR (English translation). 2024. Label Standards. March 1, 2024. https://www.lelabelisr.fr/wp-content/uploads/EN_Referentiel-Label-ISR-mars24-1.pdf. 
5. FNG Siegel 2025. Results of further development of the FNG-Label and the start of this year's application period. https://fng-siegel.org/application/. 
6. Climate Transparency Hub. 2025. English version available for the 2024 report on ’29 LEC’ / SFDR reports of French investors. May 5, 2025. https://climate-transparency-hub.ademe.fr/ressource/english-version-available-for-the-2024-report-on-29-lec-sfdr-reports-of-french-investors/.
7. Webb, D. 2024. “Banks place client transition readiness under increased scrutiny”. Responsible Investor. March 18, 2024. https://www.responsible-investor.com/banks-place-client-transition-readiness-under-increasing-scrutiny/. 
8. Bioy, H. 2025. “Setting SBTi Targets is Good, but Far from Sufficient.” February 21, 2025. https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/setting-sbti-targets-is-good--but-far-from-sufficient. 
9. United Nations Environment Programme Finance Initiative. 2024. NZAOA Target-Setting Protocol Fourth Edition. April 2024. https://www.unepfi.org/industries/target-setting-protocol-fourth-edition/. 
10. Gosling, T. and Mitchell, J. 2025. “Dr. Tom Gosling, London Business School, on Whether Investors Can Save the Planet.“ November 30, 2023. A Sustainable Future Podcast. https://www.man.com/insights/ri-podcast-tom-gosling.
11. United Nations Environment Programme – Finance Initiative. 2025. Guidance for Climate Target Setting for Banks – Version 3. April 2025. https://www.unepfi.org/industries/banking/guidance-for-climate-target-setting-for-banks-version-3/. 
12. FNG Siegel 2025. Results of further development of the FNG-Label and the start of this year's application period. https://fng-siegel.org/application/.
13. Bingler, J., Colesanti Senni, C., Fixler, D., & Schimanski, T. 2023. “Net Zero Transition Plans: Red Flag Indicators to Assess Inconsistencies and Greenwashing.” World Wide Fund for Nature. September 2023. https://wwfint.awsassets.panda.org/downloads/red-flag-indicators-for-transition-plan-inconsistencies-and-greenwashing-26-sept.pdf. 
14. Institutional Investors Group on Climate Change. 2024. Updated Net Zero Investment Framework, the most widely used net zero guidance by investors, published as 'NZIF 2.0'. June 24, 2024. https://www.iigcc.org/media-centre/updated-nzif-2.0.
15. Transition Pathway Initiative. 2023. TPI’s methodology report: Management Quality and Carbon Performance. November 2023. https://www.transitionpathwayinitiative.org/corporates. 
16. Poivet, R. 2024. “Assessing the credibility of a company’s transition plan: framework and guidance.” World Benchmarking Alliance. September 25, 2024. https://www.worldbenchmarkingalliance.org/research/assessing-the-credibility-of-a-companys-transition-plan-framework-and-guidance/.
17. United Kingdom Transition Finance Council. 2025. "Consultation on entity-level Transition Finance Guidelines." August 18, 2025. https://www.theglobalcity.uk/sustainable-finance/opportunities/transition-finance/transition-finance-council/guidelines.
18. Lombard Odier. 2025. Sustainability at Lombard Odier. Accessed on June 29, 2025. https://am.lombardodier.com/professional/sustainability.html. 
19. BBVA 2024. Non-Financial Information Statement. https://shareholdersandinvestors.bbva.com/microsites/cuentasanuales2024/en/#page=1. 
20. ING. 2024. Five things to know from our Climate Progress Update 2024. September 19, 2024. https://www.ing.com/Newsroom/News/Five-things-to-know-from-our-Climate-Progress-Update-2024.htm. 
21. Mundy, S. 2025. “‘ESD’: an investor framework for an era of upheaval.” Financial Times. June 23, 2025. https://www.ft.com/content/467a4dfa-c240-4d66-94cf-8922d33421e7.