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September 25, 2023

Plausible Transition Planning: The Need to Address Radical Uncertainty About the Future

Mark Trexler

A recent report from Julia Bingler, Chiara Colesanti Senni, and Tobias Schimanski -- Net Zero Transition Plans: Red Flag Indicators to Assess
Inconsistencies and Greenwashing
-- is thought-provoking. I look forward to the results of their plans to field-test the concept on actual company reports. I was struck, however, by some of the language in the introduction to the report.

"Transition planning and the disclosure of corporate climate transition plans to manage climate related risks and the green transition are a prerequisite for effective capital allocations in the real economy and financial institutions. In order to achieve a global net zero economy, firms must reduce Greenhouse Gas (GHG) emissions by 2030, while financial institutions need to use their investments and influence to make finance flows consistent with a pathway that scales up climate mitigation across all sectors and regions."

"Climate transition plans are a vital tool to demonstrate to capital markets and stakeholders that an organization is committed to achieving a 1.5-degree pathway with no or limited overshoot, and that its business model will remain relevant (i.e., profitable) in a net-zero carbon economy. Transition plans are forward-looking strategies to align with the transition to a sustainable economy, and should work as a compass for market participants to direct their future actions and strategies."

I think transition planning is a great idea, and I agree with the report authors that overly vague transition plans are not particularly helpful and can easily lead to greenwashing.

But plausible transition planning has to deal with the elephant in the room: radical uncertainty about the future.

  • Will public policy create the necessary framework for achieving net zero
  • Will carbon be officially priced, and how will it impact business models?
  • Will carbon capture become viable at a plausible cost?
  • Will we see a global food shock in 2024?
  • Will Donald Trump be elected President in 2024?

Companies should be getting prepared for these "radical climate uncertainties," doing everything they can to move public policy in the necessary directions, as well as decarbonizing as much as possible. But that's very different from coming up with a transition storyline that is written in stone, and that assumes away those (and MANY other) uncertainties. Would such a storyline really be useful to investors or anyone else? And wouldn't such a storyline constitute confidential business information?

We should absolutely have methods to flag inconsistencies and greenwashing in net zero strategies, but I question what seems to be the extremely ambitious language the report uses to introduce the purpose of transition planning. It comes across as greenwishing to me that no company could ever actually live up to, and that pretends there is no radical uncertainty elephant in the room.

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