Case study: Transition finance & credible pathways — a leading organization's implementation and lessons learned

Global energy transition investment reached a record $2.3 trillion in 2025, yet 70% of new credit financing still flows to fossil fuels rather than clean energy, according to Climate Policy Initiative's Net Zero Financial Tracker. This striking disconnect between stated ambitions and capital allocation reveals the central challenge of transition finance: how do organizations credibly shift entire business models while maintaining financial viability, stakeholder trust, and measurable climate impact? The answer lies not in pledges but in rigorous implementation frameworks—and the organizations that have mastered this transition offer critical lessons for the $400-500 billion in annual transition finance the IEA estimates is needed through 2030.

Why It Matters

The urgency of credible transition pathways has never been greater. Only 21% of listed companies have Science Based Targets initiative (SBTi) validated climate targets as of September 2025, and just 40% of executives in high-emitting industries have developed net-zero plans according to McKinsey's 2024 Global Survey on Sustainability. Meanwhile, the Glasgow Financial Alliance for Net Zero (GFANZ) reports that while over 500 major financial institutions representing $100+ trillion in assets have voluntarily developed transition plans, the gap between commitment and implementation remains vast.

The regulatory landscape is accelerating this imperative. The UK's Transition Finance Market Review published recommendations in October 2024, leading to the High Integrity Finance Council launch in February 2025. The EU's Corporate Sustainability Reporting Directive (CSRD) now requires detailed transition plan disclosures. Japan's Ministry of Economy, Trade and Industry continues releasing sectoral roadmaps for hard-to-abate industries. Organizations without credible pathways face not only regulatory risk but capital access constraints—as the CDP's "From Plans to Capital" report found, investors increasingly discriminate between genuine transition efforts and greenwashing.

The financial stakes are substantial. Transition finance debt issuance reached $1.2 trillion in 2025, up 17% from 2024, with corporate and project finance each growing 20%. Climate-themed fund assets hit $625 billion by Q3 2025, representing 12% growth in just nine months. For organizations in carbon-intensive sectors, accessing this capital pool—versus being excluded from it—can determine competitive survival.

Key Concepts

What Constitutes a Credible Transition Pathway

The OECD's October 2023 "Guidance on Transition Finance" established ten elements that define credibility:

Temperature goal alignment with Paris Agreement targets (1.5°C or well-below 2°C)
Sectoral pathway benchmarking against recognized roadmaps (IEA, METI, EU Taxonomy)
Quantified metrics and KPIs with interim milestones (2025, 2030, 2035—not just 2050)
Carbon credit transparency regarding role and integrity of offsets
Implementation strategy with specific actions and timelines
Do No Significant Harm (DNSH) environmental due diligence
Just transition provisions addressing worker and community impacts
Integrated financial planning linking capital allocation to transition activities
Governance and accountability with board-level oversight and incentive alignment
Third-party verification and transparent disclosure

The GFANZ framework organizes these into five themes: Foundations (objectives and prioritization), Implementation Strategy (products, operations, policies), Engagement Strategy (client and stakeholder engagement), Metrics and Targets, and Governance. Critically, GFANZ identifies four financing strategies: supporting climate solutions development, financing already-aligned entities, transitioning entities committed to 1.5°C pathways, and managed phaseout of high-emitting assets.

The Credibility Gap

The International Capital Market Association (ICMA) released new Climate Transition Bond Guidelines in November 2025, creating standalone use-of-proceeds instruments specifically for hard-to-abate sectors like steel, cement, and chemicals. The Loan Market Association's October 2025 "Guide to Transition Loans" established three core requirements: Paris-aligned objectives, avoidance of carbon lock-in, and science-based benchmarking. These developments reflect market recognition that transition finance requires more rigorous standards than general green finance.

However, implementation remains uneven. The World Benchmarking Alliance began assessing 400 financial institutions on just transition criteria in 2024, finding significant gaps between policy commitments and operational practices. CDP's 2024 analysis of 12,000+ companies disclosing transition planning KPIs revealed that while reporting has expanded dramatically, the quality and specificity of plans varies enormously.

What's Working and What Isn't

What's Working

Strategic divestment combined with aggressive reinvestment proves most effective. Organizations that sell carbon-intensive assets at peak valuations while simultaneously scaling clean alternatives create both the capital and capability for genuine transformation. This requires board-level commitment to a clear transition thesis rather than opportunistic asset shuffling.

Sector-specific roadmaps with technology timelines provide credible anchors. Japan's METI has released detailed sectoral pathways since 2021 that companies can reference when raising transition finance, creating a shared framework for evaluating progress. The UK's Transition Finance Council, established in 2025, is developing similar sector-specific guidance.

Science-based interim targets with annual accountability build stakeholder trust. Organizations setting only 2050 targets face justified skepticism. Those establishing 2025, 2030, and 2035 milestones—and reporting against them annually—demonstrate genuine commitment. The SBTi validation process, while imperfect, provides third-party credibility.

Integration of transition planning into core financial strategy distinguishes leaders from laggards. When decarbonization capital expenditure appears in quarterly earnings guidance and executive compensation links to emissions metrics, transition becomes embedded rather than peripheral.

What Isn't Working

Financing entities without rigorous transition plan assessment enables greenwashing. Banks that continue corporate-level financing for companies expanding fossil fuel production—while claiming transition leadership—undermine market credibility. The Bureau of Investigative Journalism found that HSBC helped oil and gas companies raise $47 billion despite net-zero pledges, highlighting this tension.

Dropped ESG loan terms during refinancing signal weak commitment. ArcelorMittal removed ESG terms from a $5.5 billion revolving credit facility in May 2024, even while receiving €3+ billion in European subsidies for green steel projects. Such moves erode confidence in corporate transition claims.

Underfunding decarbonization while prioritizing shareholder returns reveals misaligned incentives. Between 2021 and 2024, ArcelorMittal allocated just $800 million to decarbonization projects—less than 2.5% of $32.6 billion in operating cash flow—while distributing $12 billion in dividends and buybacks. The company now describes its 2030 targets as "increasingly unlikely" to meet.

Policy uncertainty enabling strategic delay has become a common excuse. Multiple European heavy industry players suspended decarbonization investments in late 2024, citing Carbon Border Adjustment Mechanism (CBAM) review uncertainty. While legitimate policy concerns exist, organizations using regulatory ambiguity to justify indefinite delay undermine collective progress.

Key Players

Established Leaders

Ørsted (Denmark) — Executed the most dramatic corporate transformation in energy history, shifting from one of Europe's most carbon-intensive utilities to the world's largest offshore wind operator. Reduced emissions by 98% from 2006-2025 while achieving 99% renewable energy generation. Provides the gold standard case study for complete fossil fuel exit.

HSBC Holdings — Published its first comprehensive Net Zero Transition Plan in January 2024, establishing sector-specific targets (34% reduction in oil and gas financed emissions by 2030, 77% reduction in power and utilities). Despite criticism over continued fossil fuel financing, represents the most detailed framework among global banks.

Iberdrola (Spain) — Early mover in renewable energy transition, now one of the world's largest wind power operators. Achieved 75% emissions reduction since 2000 while growing capacity, demonstrating that decarbonization and growth are compatible.

Enel (Italy) — Committed to full coal exit by 2027 with detailed phase-out timeline. Has securitized renewable assets to fund transition, pioneering innovative financing structures.

Emerging Startups

Persefoni — AI-powered carbon accounting platform helping enterprises measure and manage transition progress. Raised $101 million to scale climate management and accounting infrastructure.

Watershed — Enterprise climate platform enabling companies to measure, reduce, and report emissions across value chains. Provides the data infrastructure underlying credible transition plans.

Sylvera — Carbon credit ratings platform providing independent assessment of offset quality, addressing the verification gap in transition finance claims.

Normative — AI-powered emissions calculation automation platform, helping companies build the measurement foundation for credible pathways.

Key Investors & Funders

Climate Policy Initiative — Tracks 1,500 financial institutions across 67 countries through its Net Zero Financial Tracker, providing accountability infrastructure for transition commitments.

European Investment Bank — Mobilized €280 million with ArcelorMittal for research and innovation projects, demonstrating public-private transition financing models.

Breakthrough Energy Ventures — Bill Gates-backed fund investing in hard-to-abate sector decarbonization technologies, providing capital for the innovations that make transition physically possible.

TPG Rise Climate — $7 billion fund focused on climate solutions investments, representing institutional capital flowing toward transition enablement.

Examples

Ørsted: Complete Transformation in 15 Years

In 2006, DONG Energy (Danish Oil and Natural Gas) was responsible for one-third of Denmark's CO₂ emissions, with 85% coal-fired power generation. The company announced its "85:15 Vision" in 2009—targeting 85% renewable energy by 2040—and proceeded to exceed it by 21 years. Key implementation decisions:

Sold all eight fossil fuel business units, including profitable oil and gas production divested to INEOS in 2017 at peak valuations
Executed a 2016 IPO with a renewable-focused equity story, unlocking growth capital from ESG-oriented institutional investors
Signed a 500-turbine deal with Siemens, the world's largest offshore wind contract at the time
Closed the final coal plant (Esbjerg) in 2024, completing the transition

By 2025, Ørsted achieved 99% renewable energy generation, 98% emissions reduction, and 25% global offshore wind market share. The company became the world's most sustainable company according to Corporate Knights rankings—and proved that fossil fuel incumbents can achieve profitable, complete decarbonization within a single business cycle.

HSBC: Structured Framework with Implementation Challenges

HSBC's January 2024 Net Zero Transition Plan established a comprehensive framework with sector-specific targets across oil and gas (34% financed emissions reduction by 2030), power and utilities (77% reduction), and hard-to-abate sectors. The bank launched a Transition Finance Lab with the LSE Grantham Institute to develop innovative financing structures for challenging sectors.

By the end of 2024, HSBC had mobilized $393.6 billion toward its $750 billion-$1 trillion sustainable finance target, demonstrating scale. However, the approach reveals tensions: the bank shifted from fixed targets to target ranges in November 2025 (oil and gas now 14-30% reduction vs. fixed 34%), acknowledging "uneven pace of transition." Critics note continued corporate-level financing for fossil fuel expansion, highlighting the gap between framework sophistication and operational practice.

ArcelorMittal: The Cautionary Tale

Europe's largest steelmaker illustrates how transition finance can go wrong. Despite receiving €3+ billion in European subsidies—including €1.3 billion in German state aid in 2024 alone—ArcelorMittal suspended part of its European decarbonization plan in November 2024. The company's electric arc furnaces now produce 25% of output (up from 19% in 2018), and absolute emissions dropped 46% from 2018's 188 million tonnes. Yet this progress came primarily from production cuts rather than genuine transformation.

The company allocated just $0.3-0.4 billion of its $4.5-5 billion 2025 capital budget to decarbonization, dropped ESG terms from major loan facilities, and delayed hydrogen-based direct reduced iron (H-DRI) projects indefinitely. The contrast between public subsidy receipt and private capital allocation reveals how transition finance can be captured without delivering intended outcomes.

Action Checklist

Establish science-based interim targets for 2025, 2030, and 2035 with sector-specific pathways benchmarked against IEA, METI, or EU Taxonomy standards
Align board compensation structures with transition milestones, embedding climate metrics in 30%+ of executive incentive packages
Conduct asset-by-asset stranding risk assessment, identifying managed phaseout candidates and divestiture timing
Integrate transition capital expenditure into quarterly financial guidance, making decarbonization investment as visible as growth capex
Develop supplier engagement program covering Scope 3 emissions, targeting top 50 suppliers representing 80%+ of value chain emissions
Establish just transition provisions for affected workers and communities, including reskilling budgets and community investment funds
Commission third-party verification of transition plan credibility, using SBTi, CDP, or equivalent frameworks
Publish annual transition progress reports with granular metrics against stated targets, enabling stakeholder accountability

FAQ

Q: How do we determine which sector-specific pathway to benchmark against? A: Use the most stringent pathway relevant to your primary operations and geographic exposure. For European operations, the EU Taxonomy provides prescriptive thresholds. For global operations in hard-to-abate sectors, reference IEA Net Zero by 2050 pathways and cross-check against regional frameworks (Japan METI, UK Transition Finance Guidelines). Where pathways diverge, disclose which you're following and why—transparency about methodology choice builds credibility even when standards aren't perfectly aligned.

Q: What distinguishes genuine transition finance from greenwashing? A: Four markers separate credible transition from greenwashing: (1) Interim milestones, not just 2050 targets—organizations with only long-term commitments can indefinitely defer action; (2) Capital allocation alignment—if decarbonization capex represents <5% of total investment while shareholder returns grow, skepticism is warranted; (3) Phaseout commitments, not just growth promises—genuine transition requires retiring high-emitting assets, not just adding clean capacity; (4) Third-party verification—self-reported metrics without external validation lack credibility.

Q: How should organizations handle the tension between continued fossil fuel operations and transition claims? A: The GFANZ framework acknowledges this tension through its four financing strategies, including "managed phaseout" of high-emitting assets. Organizations can credibly maintain existing operations during transition if they: (a) set binding phase-out dates aligned with 1.5°C pathways, (b) demonstrate declining production trajectories, (c) avoid new capacity investments that extend asset life beyond climate-compatible timelines, and (d) allocate operating cash flows toward transition investment rather than fossil fuel maintenance capex.

Q: What role should carbon credits play in transition plans? A: Credits should complement, not substitute for, direct emissions reductions. The OECD's transition finance guidance explicitly requires carbon credit transparency—organizations must disclose intended use, quality criteria, and additionality standards. Best practice limits credits to <10% of reduction claims, reserves them for genuinely hard-to-abate residual emissions, and uses high-integrity credits verified by independent standards (Gold Standard, Verra with enhanced due diligence). Over-reliance on credits—or opacity about credit quality—signals weak commitment to operational transformation.

Q: How long should a credible transition take for different sectors? A: Sector context determines feasible timelines. Power generation can achieve 80%+ decarbonization within 10-15 years through renewable buildout and coal retirement (Ørsted completed in 15 years). Buildings and ground transportation require 15-20 years given asset turnover rates. Heavy industry (steel, cement, chemicals) faces 20-25 year horizons given technology development and capital stock replacement needs. Aviation and shipping may require 25-30 years given fuel infrastructure and fleet replacement cycles. Organizations should benchmark against sector-specific IEA pathways and justify any deviations.

Sources

BloombergNEF, "Global Energy Transition Investment 2025," January 2026
Climate Policy Initiative, "Tracking the Transition: Global Private Financial Institutions' Progress Toward Net Zero," 2024
CDP, "From Plans to Capital: Unlocking Credible Transition Finance at Scale," 2024
OECD, "Guidance on Transition Finance: Ensuring Credibility of Corporate Climate Transition Plans," October 2023
Glasgow Financial Alliance for Net Zero, "Financial Institution Net-Zero Transition Plans Recommendations and Guidance," 2024
ICMA, "Climate Transition Bonds Guidelines," November 2025
HSBC Holdings, "Net Zero Transition Plan," January 2024 and November 2025 updates
ArcelorMittal, "Sustainability Report 2024"
McKinsey & Company, "Ørsted's Renewable-Energy Transformation," 2020
IEA, "Scaling Up Transition Finance," 2025