Transition at risk: Checking in on corporate decarbonization progress

Halfway through the decade, with 2030 fast approaching, the time is right to take stock of what is and is not working for companies as they implement climate transition plans. At 2025 Climate Week, we gathered to discuss the state of issuer transition plan implementation, separating ambition from execution. This session highlighted the practical challenges and successes across industries, offering a candid look at how companies are responding to an increasingly disorderly transition landscape.

Emphasize business integration over ambition

While many companies have set ambitious decarbonization targets, the real test of durability lies in alignment with financial materiality. Analysts are increasingly focused on signals that reveal the rigor of transition plans and their true integration into the business model. These include how companies weave climate considerations into long-term strategy through their capital expenditure, R&D, and product innovation decisions. The most durable climate transition strategies are those aligned with core business objectives, rather than those driven solely by external pressures or political cycles.

Acknowledge operational realities and technology bottlenecks

Execution depends on the availability of mature, cost-effective technology to embed into existing operations. Investors can inquire about lessons learned from testing lower-carbon technologies “in the field” to understand whether these technological bottlenecks are genuine and if additional collaboration with suppliers of the lower-carbon technology could accelerate progress.

A pragmatic approach to Scope 3 emissions is essential. Our analysts favor companies that focus on material emissions and leverage areas where they can influence outcomes, such as supporting customers in deploying low-carbon technologies. The difference between aspirational and credible Scope 3 pledges lies in clarity about what is within a company’s control and where collaboration is possible. In industries where most emissions are downstream, such as automotive, the pace of transition is highly correlated with consumer demand, which is shaped by policy incentives such as consumer tax credits and fleet mandates. Companies with adaptable product strategies — those able to pivot between electric, hybrid, and conventional models — may be better positioned to manage uncertainty in a disorderly transition.

Look beyond third-party validation

We are sympathetic to the challenges some companies face in working toward third-party validation of a climate target. Many companies are hesitant to set absolute targets, fearing constraints on business growth. Frameworks that emphasize absolute reductions, long-term targets, and comprehensive Scope 3 emissions without regard to other actors in the value chain can create tension. For example, intensity targets may still result in absolute emissions growth as a business line expands, even if efficiency improvements outpace sales growth. Long-term targets often outlast CEO tenures and capex cycles, raising concerns about greenwashing and integration with business fundamentals. As a result, fewer companies are seeking or renewing validation, leaving investors with fewer proxies and a greater need to assess the quality of targets independently.

Active managers should look “under the hood” and differentiate based on the quality and implementation of targets. Key focus areas include transparency in measurement, year-over-year progress, and levers for improvement. Red flags indicating a company may reverse course or prove unwilling to decarbonize include decreased disclosure or targets published without clear execution plans.

Conclusion

Credible climate transition plans are customer-driven, rooted in improving the product offering for customers over time. As the transition continues, investors should look beyond external validation and focus on the substance of corporate climate plans, their integration with business strategy, and the operational realities that influence the pace of execution. The path forward is non-linear, requiring flexibility, transparency, and pragmatism.