Less than 1% of companies have credible climate transition plans according to CDP.
Of the 18,600 companies which provided information to CDP, less than one in 200 companies disclosed information against 21 key indicators that CDP includes in a questionnaire which represents a credible climate transition plan. This means of 18,600 only 81 companies - a mere 0.4% - were able to disclosure against key indicators and prove that their climate transition plans are credible. While the number of organizations reporting to CDP has been rising rapidly, increasing by more than 40% in 2022, this 81 organizations is actually a decrease from the 153 companies that provided a credible climate plan the year before.
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The CDP is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions. Their 21 key indicators for climate change-related data includes everything from whether the company board has oversight of a climate plan, all the way to financial planning. According to CDP’s original release, a climate transition plan is defined as follows:
A climate transition plan is a time-bound action plan that outlines how a company will achieve its strategy to align its assets, operations, and entire business model with the latest and most ambitious climate science recommendations. They are vital for companies to remain on track and demonstrate to capital markets and consumers how they will reach net-zero.
The release from CDP goes into more detail regarding how the numbers work and where the 0.4% comes from. Of the companies last year that disclosed they have a climate transition plan, only 81 companies or 0.4% were found to have demonstrated best practices and disclosing against all 21 key indicators that denote a credible plan. While only 81 were found to touch all the key indicators, CDP highlighted that more than a third of companies disclosed sufficiently on risks & opportunities, and 24% of disclosing companies had governance structures in place to manage climate transition plans. However, only 3% of companies provided relevant, forward-looking financial details to support a climate transition and only 7% disclosed a sufficient strategy to achieve net-zero.
In summary, 2,300 or 13% of companies disclosed against many of the key indicators demonstrating that while they are not quite there yet, they are well on their way to disclosing a credible climate transition plan. Looking at a global scale, it was noted that six (out of 1448) UK based companies disclosed to all key indicators. Companies headquartered in Japan performed best with 16 organizations disclosing to all key indicators.
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“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 evidence they are forward planning in order for us to avert the worst impacts of climate change and to send the correct signals to capital markets, that they will remain profitable’. Amir Sokolowski, Global Director, Climate at CDP
Ultimately, while there is growth happening in this area as companies are getting closer and closer to a credible plan, there is still more work to be done. In order to pivot towards net zero and mitigate the worst effects of climate change, more companies must develop and disclose credible climate transition plans.
Sources:
https://www.cdp.net/en/articles/climate/new-cdp-data-shows-companies-are-recognizing-the-need-for-climate-transition-plans-but-are-not-moving-fast-enough-amidst-incoming-mandatory-disclosure
https://www.reuters.com/business/sustainable-business/fewer-than-one-200-companies-have-credible-climate-plans-says-cdp-2023-02-08/
https://www.edie.net/less-than-1-of-businesses-have-credible-climate-transition-plans-cdp-warns/
https://www.esgtoday.com/less-than-1-of-companies-have-presented-credible-climate-transition-plans-cdp/
