Deep dive: Net-zero strategy & transition planning — the hidden trade-offs and how to manage them

By 2025, over 4,000 companies globally have published net-zero commitments, yet fewer than 4% of those in emerging markets have transition plans that meet credible science-based criteria. This gap between ambition and execution represents one of the most consequential challenges in climate finance today. For decision-makers navigating this terrain, understanding the hidden trade-offs—between speed and rigor, between global standards and local realities, between short-term costs and long-term value creation—is essential for building strategies that actually deliver emissions reductions rather than merely signaling intent.

Why It Matters

The stakes for net-zero transition planning in emerging markets have never been higher. According to the International Energy Agency's 2024 World Energy Outlook, emerging and developing economies account for more than two-thirds of global CO₂ emissions growth, yet receive only 15% of global clean energy investment. This asymmetry creates both a crisis and an opportunity: without credible transition pathways in these regions, global climate targets become mathematically unachievable, but the first movers who establish robust frameworks stand to capture significant competitive advantages.

The financial materiality of transition planning has crystallized rapidly. In 2024, the Task Force on Climate-related Financial Disclosures (TCFD) reported that 89% of institutional investors now consider transition plan quality when making allocation decisions. For companies in emerging markets, this translates directly to cost of capital: research from the Climate Bonds Initiative shows that firms with credible transition plans access green bonds at spreads 40-60 basis points tighter than peers without such plans.

Regulatory momentum is compounding these market pressures. The European Union's Corporate Sustainability Reporting Directive (CSRD) will require approximately 50,000 companies—including thousands of emerging market firms with EU operations or supply chain relationships—to disclose detailed transition plans starting in 2025. Simultaneously, the International Sustainability Standards Board (ISSB) has established baseline disclosure requirements that are being adopted across Asia, Africa, and Latin America. For emerging market companies, the question is no longer whether to develop transition plans, but how to do so in ways that balance credibility with operational feasibility.

The unit economics of transition planning reveal a fundamental tension. Comprehensive Scope 3 emissions mapping—covering supply chain and product lifecycle emissions—can cost $500,000 to $2 million for a mid-sized manufacturing company. Ongoing MRV (monitoring, reporting, and verification) systems add $100,000 to $400,000 annually. For companies in markets where average profit margins run 5-8%, these costs represent material investments that must be weighed against uncertain regulatory timelines and customer requirements.

Key Concepts

Net-Zero Target: A commitment to reduce greenhouse gas emissions to as close to zero as possible, with any remaining emissions balanced by removals from the atmosphere. Credible net-zero targets align with limiting global warming to 1.5°C, require near-term milestones (typically 2030), and specify the role of carbon removal versus direct emissions reduction. The Science Based Targets initiative (SBTi) requires at least 90% absolute emissions reduction before offsetting.

Transition Plan: A time-bound action plan outlining how an organization will pivot its existing assets, operations, and business model toward a trajectory aligned with climate science. Unlike static emissions inventories, transition plans are dynamic documents that specify capital allocation decisions, technology adoption timelines, and governance mechanisms for course correction. The UK Transition Plan Taskforce (TPT) framework has emerged as the leading standard, requiring disclosure of strategic ambition, implementation actions, and engagement strategies.

MRV (Monitoring, Reporting, and Verification): The systematic framework for tracking emissions data, disclosing it according to standardized protocols, and having it independently verified. In emerging markets, MRV challenges often stem from data infrastructure gaps—suppliers may lack metering equipment, grid emission factors may be outdated, and verification bodies may have limited local presence. Digital MRV solutions using IoT sensors and satellite monitoring are increasingly bridging these gaps.

Benchmark KPIs: Sector-specific performance indicators that enable comparison of transition progress across companies. The Transition Pathway Initiative (TPI) has established carbon intensity benchmarks for 16 high-emitting sectors, allowing investors to assess whether a company's trajectory aligns with Paris Agreement goals. For emerging market firms, benchmark KPIs often require adjustment for local grid carbon intensity and development context.

CSRD (Corporate Sustainability Reporting Directive): The EU regulation mandating detailed sustainability disclosures, including transition plans, for approximately 50,000 companies. Non-EU companies with significant EU revenues (>€150 million) or EU subsidiaries fall within scope. CSRD requires disclosure according to European Sustainability Reporting Standards (ESRS), which specify granular requirements for transition plan elements including governance, strategy, metrics, and targets.

What's Working and What Isn't

What's Working

Sector-specific transition frameworks are reducing ambiguity. The emergence of industry-specific guidance—such as the Net Zero Steel Pathway from the Mission Possible Partnership and the Net Zero Banking Alliance guidelines—has given emerging market companies clearer roadmaps than the generic frameworks of earlier years. Indian steel manufacturer JSW Steel has leveraged the steel pathway framework to develop a transition plan that specifies technology adoption milestones (electric arc furnace conversion by 2035) and capital allocation ($3.2 billion in green capex through 2030). This sector-specific approach has enabled JSW to secure $500 million in sustainability-linked financing at favorable terms.

Blended finance structures are unlocking transition capital. The Just Energy Transition Partnerships (JETPs) model—pioneered in South Africa and expanded to Indonesia, Vietnam, and Senegal—has demonstrated that combining concessional development finance with private capital can overcome the unit economics challenge. Indonesia's $21.5 billion JETP package, finalized in 2024, includes $10 billion in private sector commitments structured around specific coal phase-out milestones. This approach de-risks early-stage transition investments and provides the patient capital that emerging market transitions require.

Digital MRV technologies are closing data gaps. Satellite-based emissions monitoring, combined with IoT sensor networks, is enabling emerging market companies to build credible emissions inventories without the expensive ground-up data collection traditionally required. Pachama's forest carbon verification platform, GHGSat's methane monitoring satellites, and Watershed's supply chain carbon accounting software are being deployed across Latin America, Southeast Asia, and Africa. Brazilian agribusiness Cosan used satellite-based land use monitoring to verify zero-deforestation commitments across 2 million hectares, providing the MRV infrastructure for its transition plan.

What Isn't Working

Scope 3 accounting remains the critical bottleneck. Despite advances in digital MRV, supply chain emissions (Scope 3) continue to frustrate transition planning in emerging markets. The average multinational has over 5,000 Tier 1 suppliers, and in emerging markets, many of these lack the capacity to provide emissions data. A 2024 CDP analysis found that only 23% of suppliers in emerging markets responded to customer climate disclosure requests, compared to 67% in developed markets. Without reliable Scope 3 data, transition plans cannot credibly address the largest emissions categories for most companies.

Carbon offset dependency undermines transition credibility. Many emerging market transition plans rely heavily on carbon offsets to achieve net-zero claims, but this approach faces increasing skepticism from regulators and investors. The SBTi's 2024 guidance explicitly limits offset use to "neutralizing" residual emissions after >90% absolute reduction, yet analysis from the NewClimate Institute found that 65% of emerging market corporate net-zero plans assume offset use exceeding this threshold. This gap between current plans and emerging standards creates material transition risk.

Short-term cost pressures override long-term planning. The unit economics of transition planning create perverse incentives in capital-constrained environments. When quarterly earnings pressure conflicts with multi-decade transition investments, short-term considerations typically prevail. A 2024 survey by the Asia Investor Group on Climate Change found that 72% of emerging market companies cited "insufficient financial returns" as the primary barrier to transition plan implementation. Without mechanisms to recognize the long-term value of transition investments, voluntary adoption will remain limited to first-movers with strong balance sheets.

Key Players

Established Leaders

Tata Group (India): India's largest conglomerate has committed $90 billion to net-zero transition across its portfolio companies, with detailed transition plans for Tata Steel, Tata Power, and Tata Motors. The group's approach integrates captive renewable energy development, green hydrogen production, and electric vehicle manufacturing into a coherent cross-subsidiary strategy.

Eskom (South Africa): The state utility's Just Energy Transition Investment Plan represents the most detailed coal-to-renewables transition roadmap in the emerging world. Despite implementation challenges, Eskom's framework for retiring 22GW of coal capacity while adding 35GW of renewables provides a template for other coal-dependent emerging market utilities.

Petrobras (Brazil): The Brazilian oil major has developed one of the most credible transition plans among national oil companies, targeting 30% emissions intensity reduction by 2030 and $4.4 billion in low-carbon investments. Petrobras's approach of monetizing existing assets while building renewable capacity offers a pragmatic model for fossil fuel majors.

Reliance Industries (India): Reliance has committed $75 billion to green energy transition, including green hydrogen production, solar manufacturing, and battery storage. The company's vertical integration strategy—controlling the full value chain from solar cells to hydrogen electrolyzers—addresses supply chain risks that hamper other transition plans.

Sasol (South Africa): The chemicals and energy company has published a detailed decarbonization roadmap targeting 30% Scope 1 and 2 reductions by 2030, with technology pathways including green hydrogen, carbon capture, and renewable power purchase agreements. Sasol's approach of breaking its transition into discrete, financeable projects has attracted international climate finance.

Emerging Startups

Sinai Technologies (Kenya/USA): Provides carbon management software tailored for emerging market supply chains, with particular strength in agricultural and manufacturing sectors. The platform enables SMEs to measure emissions and generate verified carbon credits, addressing the Scope 3 data gap.

CarbonChain (UK/Global): Specializes in supply chain emissions tracking for commodities, using trade data and shipping information to estimate embedded carbon. The platform serves mining, metals, and agricultural companies operating in emerging markets.

Watershed (USA/Global): Enterprise carbon accounting platform that has expanded aggressively into emerging markets, offering localized emission factors and supplier engagement tools. The company's API-first approach enables integration with existing enterprise systems.

Persefoni (USA/Global): Climate management and accounting platform that has partnered with regional banks and stock exchanges in emerging markets to standardize transition plan disclosure. The company offers ISSB-aligned reporting templates.

Emitwise (UK/Global): Supply chain emissions intelligence platform using machine learning to estimate supplier emissions where primary data is unavailable. Particularly relevant for emerging market companies with limited supplier data infrastructure.

Key Investors & Funders

Climate Investment Funds (CIF): The $12 billion multilateral climate fund has pioneered Just Transition financing mechanisms, with major programs in South Africa, India, and Indonesia. CIF's Accelerating Coal Transition program has committed $2.5 billion to coal phase-out projects.

International Finance Corporation (IFC): The World Bank's private sector arm has deployed $13 billion in climate finance annually, with dedicated transition finance facilities for emerging market corporates. IFC's Transition Finance guidance has influenced regional development bank approaches.

Asian Development Bank (ADB): The ADB's Energy Transition Mechanism (ETM) targets early coal plant retirement across Southeast Asia, with $1.5 billion mobilized for Indonesia and Philippines pilots. The ETM model combines concessional loans with carbon credit monetization.

Breakthrough Energy Ventures: Bill Gates's climate investment fund has backed multiple emerging market transition technology companies, including green hydrogen producers and carbon capture developers. The fund's "Catalyst" program provides first-of-kind project financing.

HSBC: The bank has committed $1 trillion to sustainable finance by 2030, with significant allocations to emerging market transition finance. HSBC's transition finance frameworks for hard-to-abate sectors have set market standards.

Examples

1. Indonesia's Coal Phase-Out Transition (2024-2035)

Indonesia's Just Energy Transition Partnership represents the largest emerging market transition financing package, with $21.5 billion committed from G7 nations, multilateral development banks, and private investors. The plan targets peaking power sector emissions by 2030—seven years earlier than previous trajectories—and achieving net-zero power by 2050. Key metrics include: retirement of 9.2GW coal capacity by 2030, addition of 34GW renewable capacity, and retraining of 50,000 coal sector workers. The hidden trade-off: achieving accelerated timelines requires allowing PLN (the state utility) to maintain some coal plants beyond economic life, creating stranded asset risks that public finance must absorb. Early results show 2.1GW of coal retirement commitments secured and $4.5 billion in renewable energy investments triggered.

2. South Africa's Komati Power Station Conversion

Eskom's Komati Power Station became the first coal plant globally to undergo managed transition under a Just Energy Transition framework. The 1,000MW facility ceased coal operations in 2024, with 245MW of solar PV and battery storage under construction on the same site. The project preserved 300 jobs through retraining programs and added 1,200 construction jobs. Key metrics: $500 million total investment, 35% cost reduction versus greenfield solar development (due to existing grid connection), and verification of 3.2 million tonnes CO₂ annual emissions reduction. The trade-off: the conversion timeline extended 18 months beyond initial projections due to grid integration challenges, highlighting the infrastructure dependencies that transition plans must address.

3. India's Green Steel Corridor Initiative

A consortium of Indian steel manufacturers—including JSW Steel, Tata Steel, and ArcelorMittal Nippon Steel—has launched the Green Steel Corridor, a shared infrastructure initiative to supply green hydrogen and renewable power to steel plants in Karnataka and Odisha. The initiative addresses a critical blocker: individual steel plants cannot economically develop captive hydrogen production, but shared infrastructure achieves unit economics that work. Key metrics: 1.5 million tonnes annual green steel capacity by 2028, $2.8 billion investment, and 40% emissions intensity reduction versus conventional blast furnace production. The hidden trade-off: the consortium structure requires complex governance arrangements and demand offtake commitments that have delayed implementation by 12 months. However, the model demonstrates how collective action can overcome individual firm constraints in transition planning.

Action Checklist

• Conduct materiality assessment to identify which Scope 1, 2, and 3 emissions categories drive transition risk and opportunity for your specific operations
• Map current operations against sector-specific transition pathway benchmarks (TPI, SBTi, or industry frameworks) to identify gaps between current trajectory and Paris-aligned pathways
• Develop Scope 3 supplier engagement strategy with tiered approach: direct engagement with top 20 suppliers by emissions, sector-level estimation for mid-tier, spend-based estimation for tail
• Establish governance structure with board-level climate committee and executive compensation linked to transition milestones
• Build digital MRV infrastructure prioritizing highest-materiality emissions sources, with verification protocols aligned to ISAE 3000 or equivalent standards
• Model capital requirements and financing options across transition timeline, including concessional finance eligibility (JETP, development bank facilities) and green bond potential
• Develop stakeholder engagement plan addressing workforce transition, community impacts, and supply chain requirements
• Create scenario analysis covering at least three pathways: orderly transition, delayed transition, and net-zero by 2050, with quantified financial impacts
• Align disclosure approach with emerging regulatory requirements (CSRD, ISSB) and voluntary standards (TCFD, TPT) to ensure single reporting infrastructure serves multiple frameworks
• Establish annual review cycle with external verification and public progress reporting to maintain credibility and enable course correction

FAQ

Q: How should emerging market companies prioritize when transition plan requirements exceed available resources? A: Resource constraints require ruthless prioritization based on materiality and stakeholder requirements. Start with Scope 1 and 2 emissions, which are directly controllable and typically represent 20-40% of total footprint. For Scope 3, focus on the 2-3 categories representing >80% of supply chain emissions—usually purchased goods and services, transportation, and (for relevant sectors) use of sold products. Use spend-based estimation methods initially, upgrading to supplier-specific data only for top-20 suppliers by emissions. Align disclosure timing with actual regulatory requirements rather than voluntary frameworks—CSRD and ISSB implementation timelines provide natural sequencing. Budget approximately 0.1-0.3% of revenue for transition planning and MRV infrastructure.

Q: What distinguishes credible transition plans from greenwashing in the eyes of investors and regulators? A: Credibility markers include: science-aligned near-term targets (2030 or earlier) rather than only long-term commitments; capital expenditure allocation disclosed and aligned with stated transition strategy; limited reliance on offsets (<10% of target achievement); technology pathways specified and de-risked; governance mechanisms including board oversight and executive compensation linkage; transparent disclosure of assumptions and uncertainties; and third-party verification of emissions data and progress claims. The UK Transition Plan Taskforce framework provides the most comprehensive checklist. Regulators increasingly focus on consistency between stated ambition and observable capital allocation decisions.

Q: How do emerging market grid emission factors affect transition plan credibility? A: Grid carbon intensity varies dramatically across emerging markets—from <100 gCO₂/kWh in Brazil (hydropower) to >700 gCO₂/kWh in India and South Africa (coal). This affects both baseline emissions calculations and the impact of electrification strategies. Transition plans should use location-based emission factors for baseline disclosure (reflecting actual grid mix) while modeling market-based scenarios that assume grid decarbonization aligned with national commitments. For companies in high-carbon grids, on-site renewable generation or power purchase agreements become essential—electrification alone provides limited emissions benefit. Updated grid factors should be sourced from national authorities or IEA data, with disclosure of factor vintage and methodology.

Q: What role should carbon credits play in emerging market transition plans? A: Carbon credits should function as a residual mechanism for neutralizing hard-to-abate emissions after maximum feasible reduction, not as a primary pathway to net-zero claims. The SBTi's Corporate Net-Zero Standard limits offset use to approximately 5-10% of baseline emissions. For emerging market companies, this means transition plans should specify direct reduction pathways for >90% of emissions, with offset use clearly disclosed and limited to genuinely residual sources. Credit quality matters significantly: credits should meet high-integrity standards (ICVCM Core Carbon Principles), prioritize removal over avoidance where possible, and come from verified, additional projects. Companies generating credits from their own lands or operations should maintain separate accounting to avoid double-claiming.

Q: How are Just Energy Transition Partnerships (JETPs) changing the financing landscape for emerging market transitions? A: JETPs represent a paradigm shift from project-level climate finance to country-level transition financing. By aggregating concessional development finance, export credit agency support, and private investment around national transition roadmaps, JETPs achieve scale and coordination impossible through fragmented project financing. For companies, JETPs create both opportunities and requirements: access to concessional finance for transition investments, but also scrutiny of transition plan alignment with national commitments. The Indonesia, Vietnam, and Senegal JETPs are establishing templates that other coal-dependent economies will likely follow. Companies should monitor JETP negotiations in their operating countries and align transition planning with emerging national frameworks.

Sources

• International Energy Agency. "World Energy Outlook 2024." IEA Publications, 2024.
• Science Based Targets initiative. "SBTi Corporate Net-Zero Standard." Version 1.2, 2024.
• UK Transition Plan Taskforce. "Disclosure Framework." Final Report, October 2023.
• Climate Bonds Initiative. "Transition Finance for Emerging Markets." Research Report, 2024.
• CDP. "Global Supply Chain Report 2024." Carbon Disclosure Project, 2024.
• NewClimate Institute. "Corporate Climate Responsibility Monitor 2024." February 2024.
• Task Force on Climate-related Financial Disclosures. "2024 Status Report." October 2024.
• Asian Development Bank. "Energy Transition Mechanism: Indonesia Country Platform." Technical Report, 2024.