What are the best indicators to detect greenwashing in transition plans?
Julia Bingler, Chiara Colesanti Senni, Desiree Fixler, and Tobias Schimanski answer this question with a review of 28 transition plan disclosures in « Net Zero Transition Plans: Red Flag Indicators to Assess Inconsistencies and Greenwashing ».
The study proposes a comprehensive framework to assess the integrity and consistency of net-zero transition plans, monitor progress, and identify greenwashing risks:
- The authors retained 62 specific indicators across four dimensions (target, governance, strategy, and tracking) sorted between external consistency (ambition and feasibility) and internal consistency (credibility) assessments.
- Key red flags in the target dimension include the lack of absolute emission reduction targets, the absence of a net-zero target by 2050, and the reliance on offsets for interim targets.
- In the governance dimension, critical indicators include board-level climate competence, executive accountability for target achievement, and linking executive remuneration to progress on transition plan targets.
- Strategy red flags encompass the lack of explicit plans to phase out fossil fuel exploration and supply, the absence of strategies for scaling up renewable energy investments, and the failure to report 1.5°C-aligned engagement activities with value chain partners.
- The tracking dimension emphasises the importance of reporting absolute GHG emissions for all scopes, disclosing climate-aligned capital expenditures, and monitoring progress on deforestation targets.
- As the framework uses a straightforward yes/no assessment scheme, a dedicated NLP-based tool can automate the extraction and assessment of transition plans.
The proposed framework can be used by financial institutions to assess investee companies' transition plans and by financial supervisors to identify vulnerabilities within the financial system related to climate transition risks.
Practitioners may argue that the binary yes/no assessment scheme oversimplifies the complex nature of transition planning, and that the framework does not sufficiently account for sector-specific challenges or company size differences.