Four-in-five UK corporates now have transition plans in place, but a majority of them may be tempering the ambition of their climate goals in order to reduce the risk of missing ambitious emissions targets, according to Lloyds Bank’s inaugural ‘Reporting vs Reality’ study.
The report, which surveyed UK-based sustainability executives from corporates and institutional investors with a minimum £100m in annual revenue, found 47 per cent of respondents feel unable to set bolder sustainability targets because they do not want to “go too far and fail”.
The results come despite more than a quarter of institutional investors quizzed demanding greater ambition and over half believing that corporates with ambitious transition plans have a competitive edge. This sentiment was most evident for companies in harder-to-abate sectors, such as mining, oil and gas, and manufacturing.
Lloyds also found institutional investors increasingly analyse transition plans as part of the investment process, with more than four-in-five of those polled claiming discussions around transition plans are commonplace and over two thirds stating that a company’s transition plan is an important factor when deciding whether or not to invest.
Growing numbers of corporates are under pressure to adopt the framework put forward by the Transition Plan Taskforce, which calls on companies to set ambitious targets to deliver net zero emissions by 2050 at the latest. Under requirements introduced by the Financial Conduction Authority (FCA) in January 2022, listed companies and large regulated asset owners and managers have to publish transition plans on a ‘comply or explain’ basis.
Scott Barton, managing director for head of corporate coverage at Lloyds Bank, said corporate transition plans had a critical role to play in the economy-wide push to reach net zero emissions. “The drive to cut greenhouse gas emissions to net zero by 2050 will require an economic transformation on a scale that hasn’t been seen since the industrial revolution,” he said. “To achieve this goal – and to ensure that the benefits are shared widely in the form of a just transition – credible transition plans will play a crucial role for corporates as they set their sustainability strategies and, most importantly, drive action.”
Barton added that both conversations with clients and Lloyds’ latest research reveal the importance of a companies striking a careful balancing act between setting realistic targets and having ambitious plans in place that are in line with national climate goals.
“While every organisation is different, we hope our research will shed light on the common challenges and nuances that companies face, opening up a conversation that helps to identify and unlock key enablers to strengthen transition plans with concrete actions to accelerate ambitions towards net zero,” he said.
Among investment decision makers surveyed by Lloyds, 57 per cent said corporate ambitions are being held back by a desire to avoid accusations of ‘greenwashing’. Technology capabilities and the level of investment required to deliver on the plans were also flagged as headwinds by more than a third of those quizzed.
However, 70 per cent of investors surveyed believe their expectations align with companies’ transition plan ambitions, while more than three-quarters of corporates said the strength of the company’s plans are well aligned with investors’ expectations.
“It’s encouraging that credible transition plans are becoming a core part of conversations between corporates and institutional investors,” said Tara Schmidt, managing director and head of climate and sustainability strategy at Lloyds Bank. “Companies face a number of competing challenges when developing and implementing their transition plans and it is only through open and transparent dialogue with stakeholders that leadership teams will be able to navigate the interplay between ambition and credibility.”
Lloyds’ research after the Science Based Targets initiative (SBTi) recently unveiled a raft of revisions and resources to help financial institutions set ambitious near-term emissions reduction targets.
Coming into force on 30 November 2024, the guidance include increased minimum emissions reduction requirements for financial institutions looking to get targets approved by the standards body.
They must also meet Scope 1 and Scope 2 emissions reduction targets in a five-to-10-year timeframe, down from the five-to-15-year window they were afforded previously, according to the SBTi.
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