Transition Plans Are Maturing - However Investor-Company Disconnects Remain

Written By Elliot Frankal

Cora Buentjen and Dr Rory Sullivan

We recently worked with the International Transition Plan Network (ITPN) to publish Enhancing Long-Term Value and Resilience: A study of how global investors are using transition plans. It examined how 35 global investors are applying transition plans in their decision-making processes. Our participation in and attendance at various London Climate Action Week events allowed us to test and reflect on our findings on where transition plans now sit in the climate finance toolkit.

The progress is real

To begin, it is worth acknowledging the progress that has been made. Our research found that 29 of the 35 investors interviewed and surveyed are now using transition plan information somewhere in their investment or stewardship process - most heavily in stewardship and portfolio risk management, but increasingly in fundamental analysis and product design too. Discussions at the London Stock Exchange Group’s (LSEG’s) event on transition planning echoed this: participating companies described how transition plans have become genuine internal strategy tools, while investors spoke about how transition plans have shifted their engagement conversations from "do you have a target" to "is your plan credible."

However, the discussions during London Climate Action Week also surfaced two tensions that mirror some of the key barriers identified in our research.

Tension one: a living document or a long-term vision?

Investors are looking for a long-term vision document, one that is genuinely integrated with business strategy rather than a standalone climate report. Our research found that investors, in particular those that see themselves as long-term investors, value transition plans because these plans offer a forward-looking signal that conventional, backward-looking disclosure doesn't. However, that value depends on consistency: if a plan changes substantially every reporting cycle, investors lose the ability to track progress over time and to hold companies to account against what was previously committed.

This desire for consistency creates challenges in practice. Companies and investors also want transition plans to reflect real changes in the business — such as shifts in structure, M&A activity, technology costs, and policy signals — so that the plan evolves with business risks as a working strategy document. For companies, this desire for up-to-date information risks adding further cost and effort to already time-intensive disclosures.

Ultimately this tension reflects an important design question: how do you build a transition plan that can adapt with a changing business while still anchoring the long-term trajectory investors rely on? A potential solution would be to separate the elements that should stay fixed (long-term targets, core assumptions, governance commitments) from the elements that should update more frequently (near-term implementation actions, capital allocation detail).

Tension two: how much detail is enough?

Many investors — particularly passive investors and those managing large, diversified portfolios — want transition plan information condensed into relatively simple, comparable data points (e.g. scores, ratings, alignment percentages) that they can apply at scale. For example, several of the investors we interviewed explained how they use proxy metrics such as capital expenditure (CapEx) alignment to assess the credibility of transition-related commitments across their portfolios.  

However, other investors told us that they wanted transition plans to reflect the narrative and detail behind headline climate metrics: the assumptions, dependencies, and contextual factors that make a plan credible. Investors in our research mentioned "key assumptions and external factors" as one of the most important elements of a transition plan. More important, in fact, than headline GHG targets.

Distilling something as complex as capital expenditure alignment into a single, decision-useful metric is hard: our interviewees noted that only around 10% of the companies they assess currently publish CapEx alignment data in any usable form, acknowledging that diversified businesses' capital decisions rarely map neatly onto a single "green" or "transition" bucket. And the alternative — telling a fuller, more qualitative story of dependencies and assumptions — carries its own challenges. For example, at the LSEG event, companies were candid that they suspect this level of detail simply doesn't get read, particularly by passive and large-scale investors who are, by their own admission, still building the capacity to assess this information at company-specific granularity. Investors want both the single number and the long story, and companies are left unsure which one is actually shaping the decision.

Where this leaves us

The fact that companies and investors are now disagreeing about how to make transition plans more useful, rather than whether they are useful at all, is itself a sign of progress. It suggests that transition planning is a maturing rather than a failing area of work for companies and their investors. Scaling transition plan use further will require these disconnects to be worked out: clearer conventions on what should stay static versus dynamic in a plan, workable methodologies for CapEx alignment and more visible feedback loops so that companies can see that their transition plan-related disclosures are genuinely informing investor decisions.

Notes

Elliot Frankal
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