Net Zero Transition Plans:

Red Flag Indicators to Assess

Inconsistencies and Greenwashing

Julia Bingler, Chiara Colesanti Senni, Desiree Fixler, Tobias Schimanski

September 2023
Acknowledgements

We are grateful for the valuable feedback received from the financial supervisors, central banks,
NGOs and private sector members of the advisory board, who commented and contributed in
personal capacity to this report, and for the feedback by WWF Switzerland, WWF Europe,
WWF United Kingdom, and WWF Germany.

This report has been funded by WWF Switzerland.

“We urgently need every business, investor, city, state and region
to walk the talk on their net zero promises.
We cannot afford slow movers, fake movers
or any form of greenwashing.”

António Guterres, UN Secretary General, 2022

2
Executive summary

Transition planning and disclosure of corporate climate transition plans are fundamental
prerequisites for effective capital allocation and climate risk management. However, a
critical gap exists in conceptualizing, setting, and reporting credible, ambitious and feasible
corporate climate transition plans, raising concerns about greenwashing. This threatens
consumer protection and financial stability.

We propose a comprehensive conceptual framework with specific indicators to assess the

integrity and consistency of net-zero transition plans, monitor progress, and identify
greenwashing risks. These indicators assess integrity and consistency, defined as (1) external
consistency, i.e. ambition and feasibility, and (2) internal consistency, i.e. credibility of transition
plans toward achieving a net-zero business strategy and support the net zero economy. The
suggested indicators have been selected based on quantitative and qualitative review of 28
different transition plan disclosure and assessment frameworks, aiming to identify “the common
ground” of these frameworks.

To scale the analysis of transition plans, we also propose a natural language processing
(NLP)-based tool to automate the extraction and assessment of plans. To this end,
the framework’s indicator assessments are designed in a straightforward yes/no scheme to
enable an easy to interpret automated analyses of corporate transition plans and reports. If
certain indicators are not met, the “no” assessment triggers a red flag.

The screening method is designed to assist financial institutions in assessing investee

companies, and financial supervisors alike. Financial institutions can use these red flags to
assess investee companies’ transition plans, enabling targeted investments in firms supporting
decarbonization. Financial supervisors can employ red flag indicators to identify vulnerabilities
within financial institutions and the financial system, supporting transition-resilient finance and
preventing capital misallocation.

target governance strategy tracking

headline structure management emissions
ambition skills high carbon progress
coverage accountability low carbon capex
pathway incentives balance sheet innovation
offsetting transparency engagement revenues
just transition engagement
biosphere

Figure 1: Elements and structure of the transition plan credibility, ambition and feasibility assessment
framework.

3
Contents
Executive summary .................................................................................................................... 3

1. Introduction ............................................................................................................................ 5

2. Background ............................................................................................................................ 7
2.1 Greenwashing ............................................................................................................................ 7
2.2 Transition Planning and Transition Plans ............................................................................... 9
2.3 Conduct perspective ............................................................................................................... 11
2.4 Prudential perspective ............................................................................................................ 13

3. Red flag indicators ............................................................................................................... 14

3.1 Approach ................................................................................................................................... 15
3.2 Assessments ............................................................................................................................ 18

4. Next Steps ........................................................................................................................... 26

Appendix .................................................................................................................................. 27
A.1 Indicator table with frequencies ............................................................................................ 27

4
1. Introduction
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. To be credible, they should be clear, targeted, time-bound, science-based,
accountable and comparable. Furthermore, they should be compatible with nature goals such as
the Kumming-Montreal Global Biodiversity Framework, and respect the EU taxonomy’s Do No
Significant Harm (DNSH) principles. The Glasgow Financial Alliance for Net Zero (GFANZ)
defines “a credible net-zero transition plan [..] is actionable and focused on near-term action.”
Many attempts to conceptualize credibility, disclosure items and ambitions of transition plans
have been undertaken. On the regulatory side, the European Commission1 has just adopted the
European Sustainability Reporting Standards as a delegated act of the Corporate Sustainability
Reporting Directive (CSRD), and this act details the components of a corporate climate transition
plan and of a corporate biodiversity transition plan. In addition, the EU is currently legislating on
mandatory corporate climate transition plans (or similar) in several other files, including the
Capital Requirement Directive (for banks), the European Green Bond Standard, and potentially
Solvency II (for insurers) and the Prospectus regulation and the Listing Act2. The EU regulatory
framework on mandatory corporate transition plans is therefore evolving very fast; the mandate
for corporate and financial regulators and supervisors to monitor compliance of supervised
companies with these new obligations is following.

However, to date, there is a serious gap in the conceptualisation and reporting of

ambitious, credible, and feasible corporate climate transition plans. This has been
highlighted by various institutions from NGOs to central banks, including WWF, the Carbon
Disclosure Project (CDP), the World Benchmarking Alliance (WBA) and the central bankers’ and
financial supervisors’ Network for Greening the Financial System (NGFS). This is important
because the lack of a clear framework opens the door to greenwashing, in that companies can,
for instance, only commit targets that are very unspecific and hard to evaluate.
The credibility of net-zero transition plans and the connected risk of greenwashing is a
concern for financial supervision for two main reasons. First, consumer protection

1
A recent Recommendation by the European Commission defines transition plans as follows: “Transition plan mean an aspect of the undertaking’s overall strategy
that lays out the entity’s targets and actions for its transition towards a climate-neutral or sustainable economy, including actions, such as reducing its GHG emissions
in line with the objective of limiting climate change to 1.5°”, see: COMMISSION RECOMMENDATION (EU) 2023/1425 of 27 June 2023 on facilitating finance for the
transition to a sustainable economy, Official Journal of the European Union, 7 July 2023, L174/19-46.
2
including the EU Taxonomy Regulation (EU) 2020/852, methodologies set out in the EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and
sustainability-related disclosures for benchmarks Regulation (EU) 2019/2089, the Corporate Sustainable Reporting Directive (EU) 2022/2464 and the recently agreed
European Green Bond Regulation (May 2023).

5
(conduct). Supervisors should guarantee that consumers are not misguided by non-credible
claims. Information shall be fair, clear and not misleading. Second, the implications of
greenwashing for micro- and macrofinancial stability (prudence) through increased physical and
transition risks.

Consumer protection is closely related to conduct considerations. For example, the

Proposal for the EU Green Claims Directive states that “if environmental claims are not reliable,
comparable and verifiable, consumers and other market actors cannot fully leverage their
purchasing decisions to reward better environmental performance. Similarly, the lack of reliable,
comparable and verifiable information hinders incentives for optimising environmental
performance, which would typically go hand in hand with efficiency gains and cost savings for
companies along the supply chain as well.”

Micro and macrofinancial stability risks can arise if greenwashing is not properly
identified. Greenwashing can undermine the effectiveness of prudential policies as market
participants would be able to circumvent regulations by hiding, for instance, their climate footprint.
Furthermore, supervisors might not be able to identify early on the likely transition pathway the
economy has entered, which can have important implications for financial stability. Indeed, past
climate scenario analyses and stress tests conducted by the ECB and the Bank of England have
shown that orderly transition pathway, in which climate policies are introduced early and gradually
become more stringent, bear considerably less financial risks than disorderly transition
pathways.

Financial supervisors have started to understand the importance of transition plans for
financial institutions and corporations. For example, the NGFS stated in its recent transition
plan review: “Micro-prudential authorities seek to understand a financial institution’s strategy to
prepare/respond to the risks associated with climate change. Transition plans could help these
authorities understand the transition risks an institution may be exposed to as a result of its
strategy, risk appetite and corresponding risk management framework. Similarly, corporate
transition plans provide financial institutions with valuable information on their counterparties’
future trajectory, which in turn can inform financial institutions’ own strategy, risk appetite and risk
management.”

We propose a conceptual framework to address this gap, outlining specific indicators for
financial institutions and financial supervisors to assess transition plans, monitor the
progress against net-zero targets and identify greenwashing risks. This concept note aims
to identify indicators to assess integrity and consistency, defined as (1) external consistency, i.e.
ambition and feasibility, and (2) internal consistency, i.e. credibility of transition plans toward
achieving a net-zero business strategy and support the net zero economy. The suggested
indicators have been selected based on quantitative and qualitative review of 28 different
transition plan disclosure and assessment frameworks, aiming to identify “the common ground”
of these frameworks.The approach proposed is based on the usage of “red flag indicators” to
signal that transition plans perform particularly inferior against some of the selected criteria. The
objective is to define a methodology based on a “common ground” framework to assess the
ambition, credibility and feasibility of transition plans toward achieving a net zero economy, which
can be used by financial institutions at the time of assessing investee companies, and financial
supervisors alike.

6
The identified criteria will enable financial institutions to assess the investees’ transition
plans, while the “red flag indicators” will guide targeted shareholders engagements. This
approach enables targeted investment towards firms that can support the transition to a low-
carbon economy.

Financial supervisors can use the “red flag indicators” to identify vulnerabilities within
financial institutions’ books and to enter targeted micro-prudential dialogues and
incorporate them in their general supervisory processes. The conceptual framework
proposed in this note and the indicators identified aim to support transition-resilient finance, and
prevent capital misallocation (maltransition finance), which is associated with higher transition
risks for individual firms, financial institutions and the financial system. In addition, the red flag
approach could be used to inform capital and/or liquidity requirements in the Basel framework.
Market conduct authorities could also use the proposed framework to inform their interventions.

2. Background

Inconsistencies in transition plan and greenwashing are two closely related issues. Both
problems have been targeted from various perspectives with differing key concerns. We provide
an overview of the status quo about the concepts and debates regarding greenwashing, transition
planning, transition plans, and the financial supervisors’ interests in the issues based on conduct
and prudential perspectives.

2.1 Greenwashing
Several identification methods of greenwashing exist. An initial distinction can be done
between absolute and relative indicators for greenwashing. In the first category, one option is to
identify what is ‘green’, another one is to outline what is ‘always dirty’ and thereby never possible
to be ‘green’. For example, the EU Taxonomy defines environmentally sustainable activities
(“green activities”) as well as activities that cause significant harm (‘Do-no-significant harm’), and
the EU Sustainable Finance Disclosure Regulation (SFDR) identifies criteria for fossil fuel related
companies in the delegated acts. Relative indicators allow to flag higher risks of greenwashing,
rather than assert definitively if greenwashing is present or not. Finally, it is possible to require
companies to provide justifications for all activities labelled as green. This would enable third
parties to assess whether they agree with the definition that was applied or not.

Greenwashing within financial markets can happen at different levels. Either at financial
product level, or individual institution (real economy or financial) as well as at the level of the
interaction between investors with the investee companies (e.g. engagement, voting practices,
lobbying activities).

7
Greenwashing can materialize in several ways. The literature refers to greenwashing as the
practice of communicating misleading statements, obfuscation of information, and diversion from
actual sustainability performance (Carmichael et al., 2023). For instance, Planet Tracker identifies
various greenwashing-related activities, and classifies these into six categories: Greencrowding,
Greenlighting, Greenshifting, Greenlabelling, Greenrinsing, and Greenhushing. More generally,
greenwashing includes a) information, which is not wrong, but misleading or overstating certain
effects, b) information which is too generic, and c) information about targets which are in itself not
ambitious or aligned with broader goals. In most cases, a combination of the various elements
are observed for greenwashers. Greenwashing can be intentional or unintentional.

With regards to consumer protection, financial supervisors are providing first definitions
of greenwashing. For example, the Swiss Financial Market Supervisory Authority (FINMA)
mentions that “greenwashing refers to the practices of investors that consciously or unconsciously
mislead their clients about the sustainable characteristics of financial products and services”. The
Stakeholder Group (SMSG) to the European Securities and Markets Authorities (ESMA)
recommends ESMA to adopt the following definition: “the practice of misleading investors, notably
(but not limited to) in the context of gaining an unfair competitive advantage, by making an
unsubstantiated ESG claim about a financial product or service”. Similar definitions are used
referring to ‘greenwashing’ regarding consumer goods, services, etc. (See, for instance, the latest
case brought forward by the Swiss consumers protection agency against 11 companies.)

While this definition is correct, ‘greenwashing’ is more multifaceted and has further
reaching implications in the context of financial flows. This holds especially true for the so
far under-researched implications of greenwashing for micro- and macrofinancial stability, i.e. the
prudence aspect of greenwashing. In what follows, we try to shed some light on the additional
dimensions of greenwashing and how they relate to financial supervision.

There are many risks associated with greenwashing. Amongst others there is a
microprudential risk of financial institutions investing in so-called green projects, companies,
where over time it becomes clear that these were not (e.g., DWS). This can create transition risks
which, again, result in financial risks influencing potentially the stability of the financial firm, thus
translating into macro-financial risk. Furthermore, this can slow down the transformation of the
economy, which will again result in increased risks, as the interventions need to be more drastic.
On the conduct side, greenwashing is the deception of the client and thereby the consumer of a
financial product has not been protected. Other risks are that there is a loss of trust in the financial
markets, that financial actors have increased litigation and reputation risks, which again influence
the profitability and stability of a financial institution.

Consequently, financial institutions are increasingly concerned about the reputation and
litigation risk dimension of greenwashing, which might translate into financial risks. For
example, HSBC states in the risk section of its latest annual that it is exposed to greenwashing
in three main dimensions: (1) Accurate reporting of the net-zero progress, (2) inappropriate green
product marketing, (3) failure to monitor clients’ climate commitments. However, research by EY
has shown that only a small fraction of the FTSE100 have published credible net zero plans,
which exposes them to possible litigation risks as identified by HSBC.

8
2.2 Transition Planning and Transition Plans

Greenwashing concerns and credibility in the context of climate transition claims and
planning have early been discussed by various non-governmental initiatives. In 2020,
Climate Bonds Initiative published a whitepaper (CBI, 2020) defining credible transition principles
(i.e. 1.5 degree aligned, front loaded, no offsets) and the CBI guidance (the Hallmarks) for what
needs to be included in a credible transition plan. The Climate Bonds Certification Standard
(CBS4) allows for entity transition plans to be certified as currently 1.5 degree aligned or aligned
by 2030. The verification is done by an independent 3 party and the company needs to have a
rd

plan that meets the sector specific criteria that CBI publishes. The Global Risk Institute published
a list of possible greenwashing claims, and guiding questions that could help third parties to
assess the credibility and ambition of an environmental claim on a case-by-case basis. Various
initiatives started to develop and communicate criteria for credible and ambitious transition plans.
We can distinguish disclosure frameworks (TCFD, Climate Policy Initiative), disclosure standards
accounted for in legislation like in the Corporate Sustainability Reporting Directive (CSRD) (such
as UK Transition Plan Task Force or the European Sustainability Reporting Standards (ESRS)),
and target setting and assessment methodologies (such as the French ACT initiative created in
2015). External assessments have been conducted for example by the Transition Pathways
Initiative and the World Benchmarking Alliance. Moreover, the topic has been covered by WWF
in several publications (see, for instance, at international level WWF (a), in the United Kingdom
in WWF(b) and at European level in WWF (c)).

So far, attempts to counter greenwashing and inconsistencies in corporate transition

plans usually require better and more comparable disclosures. They have been requesting
greater product transparency (prospectus, contracts, half yearly reporting, etc.), demand that the
sustainability of the financial product is discussed at the point of sale and thereby the customer
is sufficiently aware of what she/he is buying.

Various international policy initiatives are currently developing approaches to ensure

climate transition plan credibility and ambition. The UN has set up a High-Level Expert Group
on the Net-Zero Emissions Commitments of Non-State Entities, which just published its
recommendations to assess the credibility of net zero promises and prevent greenwashing. The
NGFS started to assess the role of supervisors and better disclosures in assessing financial
institutions’ transition plans, in cooperation with the GFANZ’s guidance for financial firms. GFANZ
also spelled out core real economy transition plan expectations which are required as datapoint
inputs for financial firms’ own plans. The UK Transition Pathways Taskforce (TPT) was mandated
by the UK government to develop a gold standard of private sector climate transition plans.
Following a prudential perspective, two papers from I4CE and LSE respectively suggested
mandatory transition plans within Pillar 2 of the Basel Framework. In a joint publication, the
Financial Stability Board (FSB) and the NGFS highlight the need for information for financial
supervisors about transition plans: “The lack of available data in this area meant that financial
institutions were unable to fully understand their counterparties’ and customers’ transition plans,
particularly with regards to verifying the credibility.” On the regulatory side, in the EU the
European Commission has just adopted the ESRS as a delegated act of the CSRD, and this act
details the components of a corporate climate transition plan and of a corporate biodiversity
transition plan. Given the mandatory feature of the ESRS and its entry into application starting in

9
the first quarter of 2024, it has the potential to substantially contribute to the structuring of
corporate climate transition plans and their components. In addition, CSRD information will have
to be audited applying professional standards for limited assurance.

Investors and shareholders are intensifying their work on transition planning and plans.
Acknowledging the current transition plan definition and implementation gaps, CA100+
announced that it will shift its focus from corporate disclosures towards intensified work on
transition plan implementations.

The NGFS released a first overview and discussion paper on the relevance and use cases
of transition planning and transition plans for corporates, investors and supervisors. In its
overview, it differentiates between strategy focused and risk management focused use cases.
They state that transition plans can support diverse regulatory goals, encompassing both micro-
prudential authorities' objectives to oversee the safety and stability of financial institutions and
other aims related to financial stability, market integrity, and conduct.

Figure 2: Categories of Transition Plan Use Cases. Source: NGFS, 2023.

Some regulators have started to propose the introduction of mandatory corporate

transition plans. In the EU, there are several regulatory frameworks referencing or asking for
transition plans. The proposal for an EU’s Corporate Sustainability Due Diligence Directive
(CSDDD) would require companies to adopt 1.5 degrees compatible transition plans, and the
Corporate Sustainability Reporting Directive (CSRD) requires the disclosure of climate strategies.
In addition, the Capital Requirement Directive (for banks) is being finalised and will require
transition plans, while Solvency II (for insurers) may do it as well. Most of these EU files refer to
the ESRS, at least partly, to define the content and structure of the transition plans. The EU
regulatory framework on mandatory corporate transition plans is therefore evolving very fast; and

10
corporate and financial regulators and supervisors are mandated to monitor and enforce
compliance of supervised companies with these new obligations. Large companies in Switzerland
will also be required to publish transition plans in line with the national climate targets. The Hong
Kong Stock Exchange just released a draft on new listing requirements for all companies, which
entails a considerable amount of transition plan elements. The UK Parliament, to assess
credibility of transition plans, asks financial corporations to explain their specific current
performance and future targets to ramp down fossil finance and identify investments in renewable
energy sources in line with the UK’s national climate targets (see e.g. this WWF-EPO publication).

Furthermore, some supervisors have started to directly engage with corporates and
financial institutions on transition plan inconsistent statements and disclosures. A
prominent recent example is the Australian supervisor ASIC, which recently released a report
with examples of its regulatory interventions with regards to (1) net zero statements and targets,
(2) use of terms such as ‘carbon neutral’, ‘clean’ or ‘green’ (3) fund labels, and (4) scope and
application of investment exclusions and screens. For example, the net zero interventions yielded
the following corrections from listed companies:

“(1) An oil and gas company removed net zero emissions statements, including a target
to achieve net zero emissions by 2050, from its prospectus. The company was unable to
provide additional information about how the targets would be achieved and the potential
feasibility of achieving them.

(2) A mining company provided clarification to the market, through a market

announcement, about previous statements it had made about its commitment to maintain
a zero carbon emissions footprint. The clarification included further detail about the remit
of this statement, the steps that had been taken to date, expected timeframes and further
detail about its offsetting strategy.

(3) A mining company removed ESG-related information on its website to ensure

consistency with disclosure in its prospectus. The company’s website included information
about the benefits and emissions reductions associated with using a particular technology
for mining, but the prospectus indicated that the company was only at the exploration
phase. For this reason, the company decided to remove the content from its website rather
than include it in the prospectus.”

2.3 Conduct perspective

From a conduct perspective, to ensure that climate and environmental targets are met,
regulators increasingly ask for credible, tangible, short-term and ambitious transition
plans instead of vague long-term climate and environmental claims. In addition, the three
goals of the Paris Agreement as well as the targets 14 of the GBF require governments not only
to implement mitigation and adaptation measures, but also to “making finance flows consistent
with a pathway towards low greenhouse gas emissions and climate-resilient development.” (Art.
2.1c of the Paris Agreement). Inconsistency between firms’ transition plans and their real activities
and assets impede this target to be met. The ECB’s Governing Council recently announced plans
to include climate change considerations in its monetary policy strategy, which potentially has an

11
effect on the valuation of corporate bonds, making the identification of greenwashing even more
important. Moreover, the ECB's approach to assessing corporate climate performance of bond
issuers explicitly includes "forward-looking climate metrics, such as whether the issuer has
credible and ambitious decarbonisation targets in place" as one of the three fundamental pillars
of the assessment.

Financial supervisors are active from a conduct perspective for consumer protection.
Since 2021, the French AMF and ACPR outline in their recommendations that market participants
need to demonstrate that ESG-related claims are substantiated. The United States’ SEC issued
a proposal in May 2022 to enhance ESG disclosures to combat greenwashing of financial
products and funds. Similar attempts are ongoing by the financial supervisors in Switzerland
(including a voluntary disclosures scorecard by the Swiss State Secretariat for International
Finance SIF), France, Singapore, and Australia. Another prominent example is the EU
Taxonomy, which aims to establish a common benchmark against claims of environmental
friendliness by firms, investors, and financial products. Funds that follow specific environmental
objectives or integrate environmental considerations in their investment strategy need to disclose
their alignment with the EU Taxonomy. The ESMA claimed that funds, which are considerably
misaligned or follow misleading disclosures will be penalized. The Danish FSA communicated a
similar strategy. The German Police together with the Financial Supervision raided Deutsche
Bank’s DWS over misleading communication on the integration of ESG considerations in their
investment products in May 2022. In a similar attempt, the SEC conducted enforcement actions
against BNY Mellon and Vale for misleading ESG claims. The Philippine central bank, the Bangko
Sentral ng Pilipinas (BSP) announced in August 2022 that Banks have been told to implement
measures to ensure that they do not provide capital to companies engaging in greenwashing,
and that they are themselves not undertaking greenwashing. The European Supervisory
Authorities (ESAs) are has been collecting examples of greenwashing practice, and are working
on guidelines for credible transition planning and Paris Agreement alignment of transition
strategies. The European Central Bank (ECB) states in its supervisory priorities and risk
assessment for 2023-2025 that it undertakes preparatory work to review banks’ transition
planning capabilities and readiness for ESG mandates as part of the sixth Capital Requirements
Directive (CRD VI). The Australian Securities and Investments Commission (ASIC) steps up
investigations of listed companies, managed funds and superannuation funds for potential
greenwashing, and has made 35 greenwashing interventions within less than a year, as published
in its report. The Swiss Federal Council asked the Federal Department of Finance / State
Secretariat for International Finance (SIF) to set up a working group to determine the best way to
implement the Federal Council's position on the prevention of greenwashing by September 2023.
The Irish Central Bank also identified greenwashing risks as a core area of enhanced supervision
in its general Securities Markets Risk Outlook Report 2023.

These developments complement the various initiatives and efforts at the metrics and
disclosures level. These most prominently feature the ISSB, the EU CSRD and SFDR (together
with the EU Taxonomy), and a variety of related initiatives. For example, the UK’s Climate
Financial Risk Forum (CFRF) together with the Financial Conduct Authority (FCA) released a set
of climate risk and transition finance guidelines, including a set of industry frameworks and
metrics for green and transition finance. The UK Financial Conduct Authority (FCA) itself
proposed a first draft of guidelines for Sustainability Disclosure Requirements (SDR) to prevent
greenwashing.

12
2.4 Prudential perspective

There is increasing recognition that the conduct- and the prudential perspective intersect.
Inconsistent transition plan and greenwashing could cause economies ending up on financially
riskier and costlier disorderly decarbonisation pathways. Even worse, greenwashing might
suggest that firms and the economy is on an orderly transition path. This undermines the ability
of markets to correctly price-in risks and to reward business strategy resilience to transition-
related risks.

From a micro- and macroprudential perspective, the lack of transition plan consistency
and greenwashing seriously threatens the resilience of companies, financial institutions,
and the financial system on their way to a net-zero economy. Acknowledging this risk,
regulators and various initiatives started to put greenwashing high on the agenda. For instance,
The EU is finalising the review of the Capital Requirement Directive, which will mandate banks to
set transition plans to manage ESG-related financial risks, in particular related to climate change.
It will likely refer partly to the ESRS for clarifying how transition plans should be disclosed by
banks and add specific requirements on the financial risk side. Banking regulators will be
mandated to assess the implementation and compliance of banks with this new requirement. The
same could potentially take place with Solvency II for insurers. However, an approach on how to
comprehensively and accurately assess transition plan inconsistencies and greenwashing for
prudential supervision is still missing.

This risk of entering “blindly” a disorderly transition pathway has recently been
highlighted by central bankers and financial supervisors (NGFS, 2023) Sarah Breeden, the
Executive Director for Financial Stability Strategy and Risk and a member of the Financial Policy
Committee at the Bank of England, highlighted at the Green Swan conference 2022 that
disorderly transition pathways could pose a serious threat to financial stability. A disorderly
transition is also likely to be much costlier for real economy businesses and private households -
with associated increasing risks of unemployment - than an orderly shift to net zero, as the results
of the recently completed BoE climate stress test imply. Similar concerns about the risks posed
by greenwashing were expressed in the 2022 Financial Stability Review of the ECB, which
warned that greenwashing could threaten financial stability by making market participants
underestimate their climate transition risks. Likewise, the ESAs cite greenwashing as a main
financial sector risk in their 2023 joint committee report on risks and vulnerabilities in the EU
financial system. The G20’s Financial Stability Board (FSB) also put transition plans in its work
plan for 2023 in order to “analyse the relevance of transition plans for managing transition risks
and financial stability and for monitoring financial stability risks from transition” in cooperation with
the supervisory reviews within the NGFS. To enable better management of the forward-looking
risks, the Banque de France will provide companies with a “climate indicator”, based on the
ADEME ACT methodology to measure exposure of companies to climate risks. However,
transition plans as important means to mitigate risk exposure and for transition resilience are an
important complement to the risk exposure analyses.

13
Inconsistencies in transition plans are relevant for supervisors because of the impact they
can have on their own financial risk and on the risk of the financial institutions that they
supervise. As such, financial supervisors might inquire in their supervisory dialogues about how
financial institutions handle counterparty/portfolio firm transition plans as part of risk
management, as suggested in a paper on prudential transition plans from Dikau, et al. 2022.
Acknowledging this intersection between the prudential and the conduct perspective, the Japan
Financial Services Agency (FSA) announced that they will address financial institutions’ transition
activities from a prudential perspective in their supervisory dialogues: “As companies face various
challenges related to climate change, it is important for financial institutions to build a resilient
business foundation and sustainable business models through engaging in their clients and
supporting clients’ responses to climate-related opportunities and risks.” And the Monetary
Authority of Singapore (MAS) announced to define credibility criteria for financial institutions’
transition planning by the end of 2023.

As a consequence, there is growing need to assess transition plans credibility from a

supervisory risk and vulnerability perspective. The joint FSB/NGFS publication on stress
tests and scenario analysis quotes the Japanese Financial Supervisor JFSA, as it suggested that
companies transition plan targets and progress to achieve them would be an important input for
forward-looking risk assessments. The FSB will work on integrating these considerations in its
climate-related risk monitoring framework through its Standing Committee on Assessment of
Vulnerabilities.

However, a comprehensive conceptualisation to analyze ambition and feasibility (external

consistency), as well as credibility (internal consistency) is still missing. Despite the
increasing awareness of the capital misallocation risks posed by transition plan inconsistency and
greenwashing, there is currently no common understanding of how to conceptualize this
phenomenon, which indicators are useful to measure it, and which data is needed to identify
inconsistencies in firms transition plans and greenwashing. This paper aims at closing this gap
by proposing a “red flag” approach which should help financial institutions to allocate their
resources towards companies that can contribute to the transition to a low-carbon economy.

3. Red flag indicators

Building on existing initiatives, we propose a framework to assess the ambition, credibility

and feasibility of transition plans to eventually prevent greenwashing. The red flag indicator
approach is designed as a transparent initial screening tool for micro- and macroprudential
authorities to inform about credibility and ambition, and to enable a scalable cost-effective cross-
checking or first screening of transition plan disclosures. The NGFS identifies transition plan
credibility as a core requirement for an efficient allocation of financial resources, and for the
microprudential supervisory assessment of greenwashing and climate transition-related financial
risks. However, the NGFS also states that third party providers might be better equipped in terms
of resources and skills than prudential authorities to assess transition plan credibility. Such third
party assessments could then be used by micro- and macroprudential authorities.

14
3.1 Approach

The objective is to define a methodology based on common ground for assessing the
ambition, credibility and feasibility of transition plans toward achieving a net zero
economy, which can be used by financial institutions at the time of assessing investee
companies, and financial supervisors alike.. It is thereby acknowledged that financial
institutions are both users and preparers of transition plans, as highlighted by the NGFS. Financial
institutions rely to some extent on credible corporate transition plans to implement their own
transition plans. However, the NGFS also emphasizes that financial institutions “can also
proactively, through their engagement, seek to support and drive their counterparties to transition
to sustainable activities, that are compatible with the institutions’ business objectives and risk
management practices.”

Our approach therefore identifies the common ground between the various transition plan
recommendations that have been made for different use cases. Thereby, we contribute with
conceptual groundwork to the NGFS’s next steps for Phase 2 of the assessment of transition
plans for financial supervision, namely:

1. Engagement with relevant international authorities and standard setters: Given the
different scope of transition plans as well as their potential relevance to the micro-
prudential authorities, the NGFS will engage standard setting bodies, such as the FSB,
BCBS, IAIS, and IOSCO, so that they can advance their respective work on transition
plans and planning in a coordinated manner.

2. Further actions by the NGFS: Based on the findings of Phase 1, the NGFS will also
take forward additional work to advance the discussion on the relevance of transition plans
and planning to micro-prudential authorities’ mandate, supervisory toolkit, and the overall
prudential framework.

We propose a holistic conceptual framework outlining how to detect inconsistencies in

transition plan and greenwashing at corporate and financial institutional level. Our
framework proposes clear indicators to help assess various activities in the transition plans
against time frames. The NGFS argues in its transition plan review that mitigation and adaptation
aspects, and hence transition and physical risk-related considerations could be part of a transition
plan. In our approach we focus on mitigation-transition aspects.

By proposing a comprehensive list of indicators at differing priorities, the framework can

also be used by any corporate to structure their internal transition planning and disclosure
format. This reduces search- and information costs on where to get started in the transition
planning and disclosure process, and therefore contributes towards a level playing field across
corporates of all sizes. It supports small and medium-sized enterprises in getting started with
transition planning, learn by doing, and improve on the disclosures through increasing
experience.

15
The framework serves as a screening tool, which would “red flag” firms, whose transition
plans lack integrity and consistency, defined as (1) external consistency, i.e. ambition and
feasibility, and (2) internal consistency, i.e. credibility. A key output of this first part of the
project is a set of elements to consider when analysing corporate disclosures and transition plans.
In addition, the indicators could be used by financial supervisors and regulators to specify their
supervisory climate risk management expectations.

The red flag approach is designed as an engagement tool, which could be used by
investors, central banks and financial supervisors to assess the risk of a certain firm being
engaged in transition plan inconsistency and greenwashing. The red flags encourage and
support investors to carefully assess and understand the companies’ climate-related claims.
However, in a period of transition where engagement and transition plan progress are key to
transform the economy, the indicators are not designed as an absolute measure of “greenness”
or climate alignment.

In addition, the framework will be implemented using a natural language process (NLP)-
based assessment tool, to ease the screening of reports for red flags. It will provide a data-
driven support instrument to select those companies, which could exhibit transition plan
inconsistency and greenwashing, for more in-depth assessments, analyses, and direct
engagement.

For financial supervisors and regulators, the framework and the tool could be used as a
tool in conduct surveillance, and micro- and macroprudential assessment of transition
risk exposure of financial actors. If a financial institution invests in firms with considerable
transition plan inconsistencies, and has a considerable amount of greenwashing red-flagged
firms in the balance sheet, the supervisor might want to ask the financial firm how it deals with
the risk of transition plan inconsistency and greenwashing in its portfolio, or towards specific
companies. In addition, if the financial institutions’ own transition plan exhibits considerable red
flags, the financial supervisors might want to engage with the financial institutions on their own
climate transition management approach. Financial supervisors could build on the structure to
specify their transition risk management expectations and check in a comparable manner which
financial institutions might fall short of their expectations, to inform their supervisory dialogues
and to provide targeted requests for improvements. Moreover, from a macroprudential
perspective, the tool could help identification of common points of vulnerabilities in several
institutions. For market conduct authorities, the natural language processing tool can serve as a
useful screening tool to automate the process of identifying potential misleading claims and
statements. It would thereby automate the identification process for interventions, such as the
ones conducted by the ASIC.

16
initiative year preparer focus assessment
ACT 2021 corporates strategy ambition, credibility, feasibility
CSLN 2021 financial institutions strategy disclosure, ambition, credibility
TCFD 2021 corporates risk disclosure
UNEP-FI 2021 financial institutions strategy ambition, credibility
WBA 2021 corporates strategy feasibility
CPI 2022 corporates strategy credibility
ESRS 2022 corporates risk disclosure
GFANZ NZTP 2022 financial institutions strategy disclosure, ambition, feasibility
GFANZ RETP 2022 real economy corporates strategy disclosure
IFRS ISSB 2022 corporates risk disclosure
NewClimate et al 2022 corporates strategy disclosure, credibility
R2Z 2022 corporates strategy ambition
SBTi FINZ 2022 financial institutions strategy feasibility
TPI 2022 corporates strategy ambition
TPT 2022 corporates strategy disclosure
UN HLEG 2022 corporates strategy ambition
WWF 2022 corporates strategy credibility
CA100+ 2023 high emitting corporates strategy disclosure, ambition
CBI CBS4 2023 real economy corporates strategy disclosure, ambition, credibility
CDP 2023 corporates strategy disclosure, ambition, credibility
IIGCC 2023 corporates strategy credibility
NGFS 2023 corporates, fin. institutions strategy, risk credibility
NZAOA 2023 financial institutions strategy feasibility
OxSFG 2023 real economy corporates strategy credibility
PwC et al 2023 corporates strategy feasibility
RI 2023 financial institutions strategy feasibility
SBTi Net Zero 2023 corporates strategy ambition
WWF PtP 2023 real economy corporates strategy ambition, feasibility

Table 1: Transition plan frameworks assessed for the proposed credibility, ambition and feasibility
assessment framework.

The proposed methodology for red flag approach is based on existing key recommended
indicators for transition plan disclosure, ambition, credibility and feasibility assessments,
for corporates and financial institutions. Overall, we analysed 28 different frameworks,
published in the years 2021 (5 frameworks), 2022 (12 frameworks) and 2023 (11 frameworks).
We identified more than 250 individual indicators, which we then combined into a condensed
indicator framework for the credibility and red flag. The individual initiatives, the targeted
preparers of the plans, and the overall focus and the assessment aspects are presented in the
Table 1.

17
3.2 Assessments

The final indicators were selected based on quantitative and qualitative considerations.
We selected those indicators with the highest coverage in the analysed initiatives’ frameworks
(quantitative criterion). Furthermore, we selected additional indicators based on expert feedback
by the advisory board of this project (qualitative criterion). This advisory board comprised
members of financial supervisors, central banks, governmental organisations, NGOs, and
industry practitioners. The latter indicators were in most cases also covered in at least some
analysed frameworks. The indicators are displayed in Table 2. The column “priority” displays the
respective priority assigned to an indicator. We use a quantitative and qualitative approach to
assign the priority labels. The value “top” indicates a consistent appearance of the indicator
throughout all investigated frameworks (solely quantitative). The value “high” indicates that the
majority of the frameworks include the indicator or the authors view it as important (quantitative
and qualitative). The value “medium” indicates a low coverage among the frameworks or that the
authors assign it with a lower priority in contrast to other indicators in the respective category
(quantitative and qualitative).

The assessment approach combines a clear structure with flexible elements, which allow
for a mix of comprehensive analysis options and simple assessments. This approach
covers the core usability recommendations from the projects’ advisory board. To this end, we
identify four core dimensions of transition plans: target, governance, strategy, and tracking. The
dimensions cover various elements. The elements consist of indicators, which are defined in
specific requirements.

The indicators assess integrity and consistency, defined as (1) external consistency, i.e.
ambition and feasibility, and (2) internal consistency, i.e. credibility of transition plans.
This is an important step to enable users to target their engagements, based on their focus. Since
simplicity has been a core wish from the advisory board, we decided to aim for yes/no
assessments of the requirements. The full list of indicators and the associated red flag triggers,
where applicable, are displayed in Table 3.

The structure provides a clear guidance for various users, thereby reducing information-
and transaction costs. Preparers of transition plans could follow the structure to identify the
required disclosure elements for transition plans, which are not defined precisely in the ISSB or
ESRS standards, yet. Alternatively, relying on the ability of the NLP-based tool to extract and
structure information automatically, corporate transition plans can be assessed even if they do
not have such a distinct document. The advisory board shared anecdotal evidence that the more
serious corporates are about the mainstreaming of climate targets in their strategy, the less they
have a distinct transition plan, but just disclose their strategy integrated in their overall business
plan.

18
The flexible list of elements ensures that the approach can be used by various users,
which increases uptake and comparability, and fosters learning by doing and by peer
engagement. The flexibility allows for targeted applications, and for early disclosure of those
elements, where transition plan-related information might be readily available. Additional
elements could then be added or fulfilled in the future, as transition planning of the respective
corporate progresses. Eventually, the flexible list of elements allows users for stacked
approaches depending on their needs. For example, transition plan consistencies could be
assessed in a decision tree with user-identified nodes at various indicators, or with an onion logic
moving from one user-identified important indicator layer to another.

In addition to the core dimensions analyzed, users could also assess whether and how
the red flag could also be triggered by activities in economic sectors which can be
classified as ‘always environmentally harmful‘. For example, this could be based on a list in
the technical Background Report of WWF, the net zero tracker, the global oil and gas exit list, the
global coal exit list, and the oil + gas and coal policy tracker initiatives. The precise way how to
integrate this approach to the indicators is to be determined within the next phase of the project.
It is important to always verify whether these companies are prone to transition plan inconsistency
and greenwashing, since their business activities are very damaging to the environment. So if
they claim to be green, but they are not, this is particularly harmful for stakeholders and investors.
The red flag can also be triggered by the fact that the company operates in a very environmentally
sensitive area or protected sites.

19
 External Internal
consistency consistency
red flag red flag
Item Requirement Priority trigger trigger
Target
Headline
Commitment Climate commitment available top no .
Specific Commitment not classified as cheap talk by climatebert high no no
Absolute Absolute emission reduction target reported top no .
Intensity Intensity targets shown to be aligned with absolute targets medium no no
Ambition
Net zero Net zero target reported high no .
Net zero target to be achieved no later than 2050 and 2040
2050 for corporates in industrialised countries top no .
2030 Plan for minimum -50% emissions by 2030 medium no .
Coverage
Complete Target covers all business activities and subsidiaries high no no
Absolute emissions target for scope 1 defined for min 95% of
Scope 1 scope 1 emissions reported high no .
Absolute emissions target for scope 2 defined for min 95% of
Scope 2 scope 2 emissions reported high no .
Absolute emissions target for scope 3 defined for min 95% of
Scope 3 scope 3 emissions reported high no .
Sum Sum of scope targets shown to meet overall target ambition medium no no
Methane Separate targets for CO2 and methane defined medium no .
Pathway
Timebound interim metrics and targets for all scopes for
Interim minimum every 5 years with explicit base year reported top no no
Interim targets shown to be in line with third party verified
orderly sector-specific 1.5 degrees transition pathways with
Science no or limited overshoot, with frontloaded activity top no .
Offsetting
No interim target reliance on offsets and carbon credits, and
minimal net zero offsetting reliance (only for unabatable
Limited residual emissions) high no .
If use carbon offsets consistently with previous indicator: will
use only from additional, permanent third-party verified
technological carbon removal projects, permanent third-party
verified emission avoidance projects or third-party verified
Permanent natural carbon removals medium no .

Table 2: Target: Indicators, requirements, priorities, and red flag triggers.

20
 External Internal
consistency consistency
red flag red flag
Item Requirement Priority trigger trigger
Governance
Structure
Organisation Climate governance structure reported top no no
Mainstreaming of plan in overall strategy, risk
management, decision-making, processes, policies
Mainstreaming and resource allocation outlined high no no
Skills
Board Board-level competence on climate reported high no no
Available skills and additional capacity needs to
Needs implement targets reported medium no no
Strategy and training to close human resource skills
Training gap reported medium no no
Inhouse skills are maintained and sustainability is not
Inhouse majorly outsourced to external consultancies high no no
Accountability
Board comprehensive climate oversight, and target
Board setting and achievement accountability ensured top no no
Quarterly review of activities by board to track
Oversight progress against targets ensured medium no no
Executive oversight and executive accountability for
Executive interim target achievements ensured high no no
Management responsibilities for target implementation
Management defined medium no no
Incentives
Target-supporting culture in HR and leadership
Culture implemented medium no no
Percentage of executive management remuneration
linked to progress against and achievement of
Remuneration transition plan interim targets reported top no no
Climate misaligned and fossil fuel supportive
Misalignment executive management incentives reported high no no
Transparency
Annual GHG inventory, strategy, targets and activities
Disclosure alongside mainstream filings publicly disclosed high no no
Level of assurance of transition plan and climate
Assurance performance disclosed medium no no
Organisational boundary for targets consistent with
Consistency organisational boundary used in financial accounting high . no
Applied definition for climate aligned, transition,
Definitions misaligned reported high no no

Table 3: Governance: Indicators, requirements, priorities, and red flag triggers.

21
 External Internal
consistency consistency
red flag red flag
Item Requirement Priority trigger trigger
Strategy
Management
Business, product and service strategy covers activities,
Business resources and decommissioning to implement targets top no no
Strategy for production process changes to fulfil interim
Production targets reported high no no
Quantification Subtargets in precise KPIs quantified high no no
Scenario envelopes to inform targets and sensitivity
analysis to test strategic and operational resilience with
Sensitivity results reported medium no no
Strategy assumptions and feasibility requirements with
regards to policies, technological change, client and
consumer demand, and detrimental climate physical
Assumptions impacts are reported medium no no
High carbon
Explicit strategy for immediate stop of support for
additional fossil fuel exploration and supply (extend
Exploration fields and new field discoveries) reported high no no
Explicit strategy for decommissioning and cancelling of
support for new or existing fossil fuel exploration and
Supply supply infrastructure reported medium no no
Explicit strategy to phase out all unabated own fossil
Demand fuel use and carbon emitting assets reported medium no no
Low carbon
Explicit strategy for scaling up own renewable energy
Demand procurement and consumption reported medium no no
Explicit strategy for scaling up renewable energy
Supply investments and supply reported medium no no
Explicit strategy for scaling up investments in climate
Solutions solutions technologies reported medium no no
Balance sheet
Explicit plan for alignment of opex to fulfil interim targets
Opex reported medium no no
Explicit plan for alignment of capex to fulfil interim
Capex targets reported high no no
Strategy for full shift to net zero aligned and "green"
Revenues revenues defined medium . no
Strategy for alignment of R&D with net zero targets
R&D defined high no no

22
Engagement
1.5 degrees engagement activities with upstream value
Upstream chain activities reported high no no
1.5 degrees engagement activities with downstream
Downstream value chain activities reported high no no
1.5 degrees engagement activities with policy makers
Direct activities reported high no no
1.5 degrees engagement activities within industry
Indirect associations activities reported high no no
Serious escalation activities if engagement at each level
Escalation is not effective reported medium no no
Just transition
Strategy, monitoring and activities to mitigate adverse
Planning impacts on workforce and communities reported high no .
Transition plan developed with affected workers,
Participatory communities and stakeholders medium no .
Biosphere
Strategy to mitigate adverse impacts on and adapt to
changes in the natural environment and the provision of
Nature ecosystem services defined medium no .
Deforestation Activities to halt deforestation by 2025 reported high no .
Biodiversity Activities to halt biodiversity loss by 2030 reported medium no .
Activities to reduce water consumption and pollution
Water reported medium no .

Table 4: Strategy: Indicators, requirements, priorities, and red flag triggers.

23
 External Internal
consistency consistency
red flag red flag
Item Requirement Priority trigger trigger
Tracking
Emissions
Absolute scope 1 GHG emissions scope 1 reported top . no
Absolute scope 2 GHG emissions scope 2 reported top . no
Absolute scope 3 GHG emissions scope 3 reported top . no
Coverage scope 3 categories and reasons for exclusions
Coverage explained high . no
Intensity scope 1 GHG intensity scope 1 reported medium . no
Intensity scope 2 GHG intensity scope 2 reported medium . no
Intensity scope 3 GHG intensity scope 3 reported medium . no
Progress
Interim targets Annual progress against net zero targets reported top . no
Trend absolute
scope 1 Absolute GHG emissions scope 1 past 5 years reported medium . no
Trend absolute
scope 2 Absolute GHG emissions scope 2 past 5 years reported medium . no
Trend absolute
scope 3 Absolute GHG emissions scope 3 past 5 years reported medium . no
Trend intensity
scope 1 GHG intensity scope 1 past 5 years declining medium . no
Trend intensity
scope 2 GHG intensity scope 2 past 5 years declining medium . no
Trend intensity
scope 3 GHG intensity scope 3 past 5 years declining medium . no
Drivers of GHG changes reported: divestments, mergers
Drivers and acquisitions, technology investments high . no
Deforestation Annual progress against deforestation targets reported medium . no
Capex
Aligned Amount of climate aligned capex reported high . no
Transition Amount of climate transition capex reported medium . no
Misaligned Amount of climate misaligned capex reported medium . no
Innovation
Aligned Amount of climate aligned R&D reported medium . no
Transition Amount of climate transition R&D reported medium . no
Misaligned Amount of climate misaligned R&D reported medium . no
Revenues
Aligned Amount of climate aligned revenues reported medium . no
Transition Amount of climate transition revenues reported medium . no
Misaligned Amount of climate misaligned revenues reported medium . no

24
Engagement
Corporate climate policy positions and lobbying activities
Direct reported high . no
Indirect Membership in trade associations reported high . no
Alignment of transition plan with trade association's
Alignment lobbying assessed and reported medium . no
Engagements Up- and downstream engagement activities reported medium . no
Escalations Up- and downstream escalation activities reported medium . no

Table 5: Tracking: Indicators, requirements, priorities, and red flag triggers.

25
4. Next Steps

This concept note focused on the design of easy to use red flag indicators for a scalable
first assessment of transition plans to help prevent greenwashing. It is not a comprehensive
guide to address the issue of directing financial resources to the sectors enabling the transition
to a low-carbon economy. In addition, it does not touch upon the issue of the need for granular
country-sector assessments to fully assess ambition and transition risks of a company. As a
consequence, many aspects, although extremely important, are not included. They should be
addressed by users in the engagement phase of the assessment.

For instance, we abstract from the discussion about new financial instruments that can be
used to finance green projects. A relevant example in this context is provided by tokenized
green bonds. Tokenization is a pivotal process involving the conversion of tangible real-world
assets, including physical green assets such as hydropower plants or rights, into digital tokens
that can be represented and traded on a blockchain or distributed ledger system (DLT). Asset
tokenization has the potential to overcome some of the infrastructure limitations in traditional
finance. It enables creating a secondary market where fractional ownership of assets can be
traded, and information may be shared in real-time. Particularly relevant in our context is the
greater transparency offered by these new financial instruments as all transactions on a
blockchain are accessible to the network's participants.

Another important limitation of the suggested framework is the absence of region- and
sector specific considerations and scenarios. Clearly, some of the indicators will be more
relevant for companies in a given sector compared to companies in other sectors. Other important
dimensions of heterogeneity the current approach fails to capture are related to companies
location, size and asset classes. Sector-specific assessment approaches have for example been
undertaken by the Oxford Sustainable Finance Group or WWF Germany. To enhance ambition
assessments of across transition plans, standardised region-sector scenarios for transition plan
assessments would also be helpful, and are currently explored in various research projects.

Finally, the current focus is on climate-related transition plans. The latter should be
extended to more deeply cover broader environmental dimensions such as biodiversity, water
and deforestation (see e.g. WWF’s Nature in Transition Plans). Similarly, the inclusion of
additional indicators to capture adaptation, circular economy and other social aspects would
improve the accuracy of the assessment based on the red flag approach.

In a second phase of the project, we will road test the concept and apply it to actual
companies. To this end, we will (1) extract transition plans from corporate communications (using
our ClimateBert algorithm in conjunction with our new ChatReport tool), and (2) compare these
claims to third party information, to assess the real performance of a company against its rhetoric.
This analysis will be done with a focus on the oil and gas sector, assessing the difference between
disclosed transition targets and their asset-level investments (using asset level data from the
Spatial Finance Initiative and Asset Impact), and their lobbying activities (using the data from
Influencemap).

26
Appendix

A.1 Indicator table with frequencies

Indicators frequencies in the assessed initiatives’ frameworks. The column “sum” displays the
number of times the indicators appear in the assessed 28 frameworks. A value of 0.5 has been
assigned if an indicator is only partially covered by the respective framework, for example by
being a recommendation amongst others, and not a core required element.

Target sum
headline

commitment climate commitment wording is available 23,5

specific commitment is not classified as cheap talk by ClimateBERT 0
absolute absolute emission reduction target defined 22,5
intensity intensity targets are shown to be aligned with absolute targets 10,5

ambition
net zero net zero target defined 19,5
2050 net zero target achieved no later than 2050 21
2030 plan for -50% emissions by 2030 5

coverage
complete target covers all business activities and subsidiaries 18,5

scope 1 absolute emissions target for scope 1 defined for min 95% of scope 1 emissions 21
scope 2 absolute emissions target for scope 2 defined for min 95% of scope 2 emissions 21

scope 3 absolute emissions target for scope 3 defined for min 95% of scope 3 emissions 19,5
sum sum of scope targets shown to meet overall target ambition 2,5
methane separate targets for CO2 and methane defined 6,5

pathway
timebound interim metrics and targets for all scopes for minimum every 5 years with explicit
interim baseyear defined 23,5
interim targets shown to be line with third party verified orderly sector-specific 1.5 degrees
science transition pathways with no or limited overshoot, with frontloaded activity 22

offsetting
no interim target reliance on offsets and carbon credits and minimal net zero offsetting reliance
limited (only for unabatable residual emissions) 14
if use carbon offsets consistently with previous indicator: will use (only) from additional,
permanent third-party verified technological carbon removal projects, permanent third-party
permanent verified emission avoidance projects or third-party verified natural carbon removals 11

27
governance sum
structure
organisation climate governance structure defined 18
mainstreaming of plan in overall strategy, risk management, decision-making, processes,
mainstreaming policies and resource allocation 11

skills
board board-level competence on climate ensured 10
needs available skills and additional capacity needs to implement targets defined 8
training strategy and training to close requirement gaps defined 9
inhouse skills are maintained and sustainability is not majorly outsourced to external
inhouse consultancies 0

accountability
board board climate oversight, mandate, target setting responsibility and terms of reference defined 17
oversight quarterly review of activities by board to track about progress against targets ensured 11,5
executive executive oversight and target accountability structure defined 15,5
management management responsibilities for target implementation defined 12,5

incentives
culture target-supporting culture in HR and leadership implemented 6
significant percentage of executive management remuneration is linked to progress against
remuneration and achievement of transition plan interim targets 16
misalignment climate misaligned and fossil fuel support executive management incentives are reported 6

transparency
annual GHG inventory, strategy, targets and activities / TCFD disclosure, integrated in or
disclosure available alongside mainstream filings publicly disclosed 14
assurance level of assurance and verification of disclosed plan and statements disclosed 6
consistency organisational boundary consistent with organisatory boundary used in financial accounting 4,5
definitions definition for climate aligned, transition, misaligned explained 3,5

Strategy sum
management
business, product and service strategy with activities, resources and decommissioning to
business implement target aligned 22,5
production strategy for production process changes to fulfil interim targets defined 16
quantification subtargets in KPIs quantified 17
scenario envelopes inform targets and sensitivity analysis to test strategic and operational
sensitivity resilience reported 16
strategy assumptions and feasibility requirements: policies, technological change, client
assumptions and consumer demand, physical impacts reported 12,5
high carbon
strategy for immediate stop of support for additional fossil fuel exploration and supply
exploration (extend fields and new field discoveries) defined 11,5

28
 strategy for decommissioning and canceling of support for new or existing fossil fuel
supply exploration and supply infrastructure defined 5,5
demand strategy to phase out all unabated own fossil fuel use and carbon emitting assets defined 15,5
low carbon

demand strategy for scaling up own renewable energy procurement and consumption defined 15
supply strategy for scaling up renewable energy investments and supply defined 15
solutions strategy for scaling up investments in climate solutions technologies defined 14,5
balance sheet
opex strategy for opex targets to fulfil interim targets defined 13,5

capex strategy for capex targets to fulfil interim targets defined 16,5

revenues strategy for net zero aligned / "green" revenues targets defined 15

r&d strategy for alignment of R&D with net zero targets defined 13
engagement
upstream 1.5 degrees engagement strategy with upstream value chain activities strategy defined 18,5
downstream 1.5 degrees engagement strategy with downstream value chain activities strategy defined 18,5

direct 1.5 degrees engagement strategy with policy makers activities strategy defined 17
indirect 1.5 degrees engagement strategy within industry associations activities strategy defined 17
escalation serious escalation strategies if engagement at each level is not effective strategy defined 3,5
just transition
strategy, monitoring and activities to mitigate adverse impacts on workforce and
planning communities defined 12,5
participatory plan developed with affected workers, communities and stakeholders 5,5
biosphere
mitigate adverse impacts on and adapt to changes in the natural environment and the
nature provision of ecosystem services strategy defined 13
deforestation activities to halt deforestation by 2025 defined 11,5
biodiversity activities to halt biodiversity loss by 2030 defined 8
water activities to reduce water consumption and pollution defined 7

tracking sum
emissions

absolute scope 1 GHG emissions scope 1 reported 16,5

absolute scope 2 GHG emissions scope 2 reported 16,5
absolute scope 3 GHG emissions scope 3 reported 16
scope 3 categories coverage scope 3 categories and reasons for exclusions explained 7
intensity scope 1 GHG intensity scope 1 reported 10,5
intensity scope 2 GHG intensity scope 2 reported 10,5
intensity scope 3 GHG intensity scope 3 reported 10
progress

29
interim targets annual progress against net zero targets reported 14
trend absolute
scope 1 absolute GHG emissions scope 1 past 5 years reported 5,5
trend absolute
scope 2 absolute GHG emissions scope 2 past 5 years reported 5,5
trend absolute
scope 3 absolute GHG emissions scope 3 past 5 years reported 5,5
trend intensity
scope 1 GHG intensity scope 1 past 5 years declining 7
trend intensity
scope 2 GHG intensity scope 2 past 5 years declining 6
trend intensity
scope 3 GHG intensity scope 3 past 5 years declining 6
internal and external drivers of GHG changes reported, covering divestments, mergers
drivers and acquisitions, technology investments 6,5
deforestation annual progress against deforestation targets reported 4,5
capex

aligned Amount of climate aligned capex reported 10,5

transition Amount of climate transition capex reported 8,5
misaligned Amount of climate misaligned capex reported 9
innovation

aligned Amount of climate aligned R&D reported 3

transition Amount of climate transition R&D reported 3

misaligned Amount of climate misaligned R&D reported 3

revenues

aligned Amount of climate aligned revenues reported 3

transition Amount of climate transition revenues reported 3
misaligned Amount of climate misaligned revenues reported 3
engagement

direct corporate climate policy positions and lobbying activities reported 10

indirect membership in trade associations reported 10
interest alignment transition plan with trade association's lobbying reported 9
engagements corporate / peer engagement activities reported 1
escalations escalation activities reported 1

30