Overview:
The credibility of a company’s transition and decarbonization plan/strategy is being considered much more in detail by investors in relation to Sustainable Finance.
Even in the case of green bonds, investors expect to see some form of overall transition strategy (at a high level).
In the case of Sustainability Linked Instruments, there is definitely the expectation that for hard to abate sectors there is a robust transition strategy that is credible, and targets are ambitions.
How do we assess ambition of decarbonization targets ?
There are a number of tools in the market to help us make this assessment and judge whether a decarbonization target his ambitious or otherwise.
Lets take a look below:
1. Science Based Target Initiative (SBTi)
This is the key tool and thinking behind many aspects off GHG targets in the market. Overall SBTi has two approaches to setting science-based targets.
The first one is a contraction approach whereby a company needs to reduce absolute emissions by 4.2% per annum to be aligned to a 1.5 degree scenario or a 2.5% per annum to be aligned to a 2.0 degree scenario.
In addition to this SBTi also have a number of sector approaches and methodologies which we can consider more on carbon intensity levels (and targets for future years) for a respective industry sector.
![](http://www.sustainablefinancekx.com/wp-content/uploads/2021/10/blog_tools_02.jpg)
2. Transition Pathway Initiative:
This is an asset owner initiative which provides benchmarking for certain hard to abate sectors such as chemicals, cement, and steel.
A user can clearly see whether a company aligns or not to a 2.0 degree, 1.5 degree scenario or Paris Pledge (NDC scenario) decarbonization target for respective forward looking years.
The tool and graphics are excellent and easy to read. We highly recommend this as there is even a set of trajectories for diversified mining.
3. ACT:
The ACT initiative and tool we have only recently discovered, and it is being added to and expanded all the time.
There are a number of sectors which are covered by ACT such as cement, general manufacturing, aluminum, glass and automotive.
The sector papers and respective methodologies even have carbon reduction trajectories that are very useful resources, and especially the background issues + key questions/focus for a particular industry.
4. IEA ETP 2017:
This is one of the most important references in the market, albeit a few years old is the IEA’s ETP 2017 model.
A number of sectors have transition pathways with respective carbon intensity levels are outlined in this document. Many of which are not covered in the other tools we have mentioned in this blog.
5. Sector Decarbonization Plans:
6. EU Taxonomy:
![](http://www.sustainablefinancekx.com/wp-content/uploads/2021/10/blog_tools_03.jpg)
What to read more ?
This is the first part of a 2 part series on Transition Strategies. See the second part here.