Sustainability Atlas
Policy, Standards & Strategy·11 min read··...

Explainer: Net-zero strategy & transition planning — what it is, why it matters, and how to evaluate options

A practical primer: key concepts, the decision checklist, and the core economics. Focus on data quality, standards alignment, and how to avoid measurement theater.

Despite over 1,245 Forbes Global 2000 companies now holding net-zero commitments—representing $36.6 trillion in combined revenue—only 7% meet basic integrity criteria according to the 2025 Net Zero Stocktake. Even more concerning, Accenture's 2024 analysis found that just 16% of the world's largest companies are on track to meet their 2050 goals, while nearly half have actually increased emissions since making their pledges. This gap between ambition and execution represents both the central challenge and the central opportunity in climate strategy today. Understanding how to build credible, science-aligned transition plans—and distinguishing genuine progress from greenwashing—has become essential for any organization serious about decarbonization.

Why It Matters

Net-zero strategy and transition planning sit at the intersection of climate science, corporate governance, and financial regulation. The stakes have never been higher. As of January 2026, the International Sustainability Standards Board (ISSB) standards—IFRS S1 and S2—have become mandatory or near-mandatory in over 36 jurisdictions, including the UK, Canada, Australia, and Singapore. These standards, which absorbed the disbanded Task Force on Climate-related Financial Disclosures (TCFD) framework in October 2023, now require companies to disclose detailed information about their climate-related transition plans if they exist.

The regulatory pressure is intensifying for three interconnected reasons. First, investors managing trillions in assets are demanding transparency on climate risk exposure and decarbonization pathways. Second, litigation risk has materialized: climate-related lawsuits increased 25% globally in 2024, with plaintiffs increasingly targeting companies whose actions contradict their stated commitments. Third, supply chain dynamics are shifting—major buyers from Apple to Walmart now require Scope 3 emissions data from suppliers, creating cascading accountability throughout value chains.

For policy and compliance professionals, the message is clear: transition planning is no longer a communications exercise. It has become a governance imperative with material financial implications for capital access, insurance costs, regulatory standing, and competitive positioning.

Key Concepts

What Is a Net-Zero Target?

A net-zero target commits an organization to reducing greenhouse gas emissions to zero or near-zero, with any residual emissions balanced by permanent carbon removals. The Science Based Targets initiative (SBTi) Corporate Net-Zero Standard—currently at Version 1.3 with Version 2.0 under development—requires that net-zero targets cover at least 90% of emissions and limit residual emissions to 10% or less, neutralized through verified removals rather than offsets.

Scopes 1, 2, and 3

Understanding emission scopes is foundational. Scope 1 covers direct emissions from owned or controlled sources (company vehicles, on-site fuel combustion). Scope 2 covers indirect emissions from purchased electricity, steam, heating, and cooling. Scope 3 encompasses all other indirect emissions across the value chain—upstream (purchased goods, business travel, employee commuting) and downstream (product use, end-of-life treatment). For most companies, Scope 3 represents 70-90% of total emissions, yet only 37% of corporate net-zero targets currently cover these value chain emissions according to the Net Zero Tracker.

Transition Plans vs. Net-Zero Targets

A net-zero target states where a company intends to go; a transition plan describes how it will get there. The IFRS Foundation's June 2025 Transition Plan Guidance—building on the UK's Transition Plan Taskforce (TPT) framework—clarifies that credible transition plans must include strategic goals, implementation mechanisms (technologies, operational changes, capital allocation), underlying assumptions, financial impacts, and progress metrics. Critically, 31% of companies with net-zero targets lack any transition plan at all, rendering their commitments operationally meaningless.

Science-Based Targets

The SBTi has emerged as the dominant validation body for corporate climate commitments. As of November 2024, 6,614 companies had validated science-based targets, up from just 164 in 2018. The SBTi's near-term standard requires 42% absolute emissions reduction by 2030 (from a 2020 baseline), while the net-zero standard mandates reaching net-zero by 2050 at the latest through a combination of deep decarbonization and limited residual emissions neutralization.

Sector-Specific KPI Benchmarks

The following table summarizes typical transition planning KPIs across major sectors:

SectorPrimary KPITarget RangeInterim Milestone (2030)Data Maturity
Energy & UtilitiesScope 1 Intensity (tCO₂e/MWh)0.02-0.1550-70% reductionHigh
Heavy IndustryCarbon Intensity (tCO₂/ton product)Sector-specific30-45% reductionMedium
Financial ServicesFinanced Emissions (tCO₂e/$M invested)Portfolio-dependent25-50% reductionLow-Medium
Consumer GoodsScope 3 Coverage (% of categories)>80%25-35% absolute reductionLow
TechnologyEnergy Efficiency (PUE for data centers)<1.3100% renewable procurementHigh
TransportationFleet Emissions (gCO₂/km)<50 for new vehicles50%+ EV penetrationMedium

What's Working

Science-Based Target Validation at Scale

The SBTi ecosystem has achieved critical mass. With 10,000 companies now holding validated commitments as of January 2026, the framework provides a credible, third-party verification mechanism that investors increasingly treat as table stakes. A 2024 SBTi report found that 91% of companies with validated targets reported a positive overall business impact, including stronger market positioning and improved investor confidence.

Regulatory Convergence on Disclosure Standards

The consolidation of TCFD into ISSB standards has reduced fragmentation. Companies now have a single global baseline—IFRS S2—that satisfies requirements across multiple jurisdictions. The California Climate Corporate Data Accountability Act (SB 261) explicitly recognizes IFRS S2-aligned disclosures, and the EU's European Sustainability Reporting Standards (ESRS) are designed for interoperability with ISSB requirements.

Sector-Specific Roadmaps

Industry collaborations have produced detailed decarbonization pathways. The Mission Possible Partnership has developed sector-specific playbooks for steel, aluminum, shipping, aviation, and trucking. These roadmaps provide technology timelines, cost curves, and policy dependencies that inform individual company transition plans with sector-validated assumptions.

What's Not Working

Scope 3 Data Gaps

Despite representing the majority of most companies' emissions, Scope 3 reporting remains plagued by data quality issues. The SBTi's Version 2.0 draft acknowledges this challenge by proposing a "focused Scope 3 framework" that prioritizes the highest-impact categories while allowing exclusions for lower-priority activities. However, 50% of companies cite supply chain emissions as their primary obstacle to credible target-setting.

Interim Target Deficits

Two-thirds of top U.S. companies lack interim targets before 2035, according to S&P Global analysis. Without near-term milestones, companies cannot demonstrate year-over-year progress, and stakeholders cannot distinguish genuine decarbonization from aspirational announcements. The energy sector is particularly exposed, with only 5% of emissions covered by interim targets.

Carbon Credit Reliance Without Transparency

While 98% of companies with net-zero targets remain open to using carbon credits, only 4% have established dedicated removal targets. The SBTi's continued opposition to using carbon credits for offsetting scope emissions reflects well-documented integrity concerns, yet many transition plans implicitly depend on market mechanisms that lack standardized quality criteria.

Key Players

Established Leaders

Microsoft has committed to becoming carbon negative by 2030 and removing all historical emissions by 2050, backed by a $1 billion Climate Innovation Fund. Their transition plan includes internal carbon fees, renewable energy procurement, and significant investment in carbon removal technologies.

Ørsted, the Danish energy company, transformed from a fossil fuel-dependent utility to a global leader in offshore wind, reducing emissions intensity by 87% between 2006 and 2023. Their transition plan serves as a template for incumbent energy companies.

Unilever has pioneered Scope 3 engagement, working with suppliers representing 70% of their product carbon footprint to set science-based targets. Their Climate Transition Action Plan includes product reformulation, sustainable sourcing, and consumer behavior initiatives.

HSBC has committed to mobilizing $750 billion to $1 trillion in sustainable finance by 2030, having already facilitated $447.7 billion between 2020 and mid-2025. Their Net Zero Transition Plan 2025 reviews approximately 4,000 customer transition plans to inform commercial strategy.

Emerging Startups

Persefoni provides AI-powered carbon accounting software that automates Scope 1, 2, and 3 emissions measurement, addressing the data quality challenges that undermine many transition plans.

Watershed offers an enterprise climate platform used by companies like Airbnb and Stripe to measure emissions, build science-based reduction plans, and verify carbon removal purchases.

Sylvera has developed a carbon credit rating system that evaluates project quality using satellite imagery and machine learning, helping companies distinguish high-integrity removals from questionable offsets.

Key Investors & Funders

Breakthrough Energy Ventures, backed by Bill Gates and other prominent investors, has deployed over $2 billion into climate technology companies developing solutions for hard-to-abate sectors.

Climate Investment (formerly the UK Green Investment Bank) focuses on infrastructure enabling corporate decarbonization, including renewable energy, grid modernization, and energy efficiency.

Generation Investment Management, co-founded by Al Gore, integrates sustainability analysis into mainstream investment, managing over $45 billion with a focus on companies with credible transition strategies.

Examples

  1. Phoenix Group (UK insurance): Published a comprehensive Net Zero Transition Plan covering their £270 billion investment portfolio, with sector-specific targets for real estate, utilities, and high-emitting industries. Their approach includes engagement escalation protocols—from dialogue to divestment—for portfolio companies failing to demonstrate progress.

  2. Siemens achieved SBTi validation for net-zero targets in September 2024, covering both operational emissions and the significant Scope 3 impact of their industrial products. Their transition plan emphasizes product efficiency improvements, electrification of industrial processes, and circular economy initiatives.

  3. Maersk (global shipping): Committed to net-zero by 2040—a decade ahead of industry peers—with a transition plan centered on dual-fuel vessels capable of running on green methanol. They have ordered 19 methanol-enabled ships and secured offtake agreements for green fuel supply.

Action Checklist

  • Conduct a comprehensive GHG inventory covering Scopes 1, 2, and material Scope 3 categories using GHG Protocol methodologies
  • Assess alignment with ISSB/IFRS S2 disclosure requirements and jurisdiction-specific mandates (UK, EU ESRS, California SB 261)
  • Evaluate science-based target options through the SBTi near-term and net-zero target-setting tools
  • Develop interim milestones for 2030 and 2035 with specific reduction pathways and capital allocation plans
  • Identify technology dependencies and policy assumptions underlying the transition plan with scenario analysis
  • Establish governance structures including board oversight, management accountability, and executive incentive alignment (currently only 15% of S&P 500 companies tie CEO compensation to emissions)
  • Build supplier engagement programs for material Scope 3 categories with clear expectations and support mechanisms
  • Implement continuous monitoring systems to track progress against targets and update plans annually

FAQ

Q: What is the difference between carbon neutrality and net-zero? A: Carbon neutrality typically allows unlimited use of carbon offsets to balance emissions, while net-zero under the SBTi standard requires at least 90% actual emissions reduction, with only residual emissions (10% or less) neutralized through permanent carbon removals. Net-zero is a more rigorous standard that prioritizes decarbonization over compensation.

Q: Do companies have to have a transition plan under IFRS S2? A: IFRS S2 does not mandate that companies have a transition plan. However, if a company has one, it must disclose detailed information including strategic goals, implementation mechanisms, underlying assumptions, and financial impacts. Even without a formal plan, companies must disclose how climate risks and opportunities affect their strategy and decision-making.

Q: What happens if a company misses its science-based targets? A: The SBTi requires companies to revalidate targets every five years and may remove targets if companies fail to report progress or demonstrate inconsistent action. As of March 2024, 239 companies had long-term commitments removed, and 695 companies had targets expire or withdrew between 2013 and 2024, primarily due to Scope 3 complexity.

Q: How should companies approach Scope 3 emissions when data quality is poor? A: The SBTi's Version 2.0 draft introduces a "focused Scope 3 framework" that prioritizes highest-impact categories while allowing exclusions for lower-priority activities. Companies should start with spend-based estimation methods, progressively improve data quality through supplier engagement, and focus resources on categories where they have the greatest influence and impact.

Q: Are carbon credits acceptable in a net-zero transition plan? A: The SBTi standard does not allow carbon credits to count toward scope emission reductions—only verified carbon removals can neutralize residual emissions after achieving 90%+ reduction. However, companies may invest in beyond-value-chain mitigation (BVCM) through carbon credits as supplementary action while implementing their own decarbonization.

Sources

Topics

netzeroopexTCFDadditionalityindustrial policybenchmark KPIs

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