Credible transition plans boost investor confidence and support access to finance

Vincent Allilaire Vice President – Senior Credit Officer, Moody’s Ratings

Simon Boemer Sustainable Finance Analyst, Moody’s Ratings

Swami Venkataraman Associate Managing Director – Head of Sustainable Finance Assessments, Moody’s Ratings

Evolution in regulation, reporting standards and stakeholder interest is prompting companies to improve disclosure of their carbon transition plans.

Clear, comprehensive, business-relevant plans help investors assess companies' long-term evolution and associated risks. Moody’s Ratings’ net zero assessments (NZAs) highlight that credible plans are pragmatic in their objectives and aligned both with companies’ commercial strategies and with shareholders' expectations. Such plans can support engagement with investors, facilitating access to capital.

The reporting landscape is becoming increasingly supportive

Building on market-led reporting initiatives such as the Task Force on Climate-related Financial Disclosures, standard setters such as the IFRS Foundation’s International Sustainability Standards Board (ISSB) and the European Commission have developed integrated reporting standards for nonfinancial disclosures, including on climate.

As of June 2025, 33 jurisdictions were in the process of adopting or integrating ISSB standards. This number will grow as the International Organization of Securities Commissions calls on its members to consider adopting these standards. Large EU companies started in 2025 to report under the bloc's broader Corporate Sustainability Reporting Directive. Although the timing and scope of its wider implementation are under review, reporting obligations will extend to smaller businesses and non-EU companies operating in the region that meet a set of materiality criteria.

Increasingly widespread reporting formats require companies to articulate well-defined decarbonisation plans. The publication of such plans is inconsistent, as only some countries have made it a regulatory requirement. Elsewhere, individual company strategy, investor engagement or other voluntary initiatives such as CDP drive publication. The quality of disclosure also varies widely.

While the Greenhouse Gas Protocol has brought in a significant degree of standardisation around reporting emissions, views around emission reduction benchmarks applicable to a given company can vary. Disclosure around implementation strategy also ranges extensively, although this may partly reflect commercial sensitivity rather than lack of commitment, in Moody’s view. These factors have resulted in external validation of entity-level transition plans gaining popularity. Various providers have now published thousands of these scores worldwide, covering a large portion of global greenhouse gas emissions. Some focus only on evaluating the ambition of stated targets, while others also evaluate the strength of the plans' implementation and governance aspects, to varying degrees. Assessments also differ by their level of engagement with the companies, some relying only on public disclosures, while others leverage both public and non-public information.

Business relevance, management commitment and clear communication are key elements of credibility

As the quality of disclosure can vary, so too does the quality of transition plans. Moody’s experience with NZAs indicates that business relevance, management commitment and clear communication are key ingredients of a credible transition plan, and fundamental to meeting regulatory reporting requirements and gaining support from stakeholders. In Moody’s experience, transition plans are most likely to be successful when aligned with the company's broader strategic aims. This involves a strong governance process that includes senior management ownership, periodic reviews and public commitments, which will allow the plan to evolve and adapt to business cycles. It will also involve support from shareholders and supply-chain partners. Credible plans can mitigate credit risk from transition if they address risks and seize related opportunities. According to Moody’s annual environmental risk map, 16 sectors with $5.2 trillion in rated debt have elevated credit exposure to carbon transition risks.

Looking at the companies with the strongest NZAs, a number of features become clear. These plans use metrics and key performance indicators that are appropriate for the company and its business model, typically cover all significant emissions across the value chain of the company, and are transparent about emissions that may be excluded. The plans also set realistic decarbonisation objectives, in keeping with the sector and countries of operation of the company. Moody’s NZA analysis uses benchmarks that reflect the slower pace at which emerging markets are likely to transition compared with advanced economies. For example, using the Asia-Pacific utilities benchmark allowed Moody’s to assess Hong Kong-based CLP Holdings Ltd.'s environmental objectives in the context of regional transition expectations.

The most credible plans describe how the company will reach its objectives. In doing so, they clearly detail the specific actions envisaged, together with carefully assessed impacts on emissions and on the company’s business performance. However, given commercial sensitivities, companies rarely publicly disclose such plans in detail, generally choosing to report more aggregated figures. A plan's credibility further depends on the nature of the specific emission reduction actions, their technical complexity, and the financial impact on the company's competitiveness and its return on capital.

Devising and implementing a credible transition plan is more difficult for companies that have less control over their emissions. This may be because those are mostly indirect scope 3 emissions, or because there are no solutions that are economically viable, or available at scale, to decarbonise their direct emissions.

Credible plans focus equally on technical, financial and business viability

Source: Moody’s Ratings

Credible transition plans can support access to finance

When investors can assess the credibility of a plan, this may strengthen the company's access to financing, whether through labelled or unlabelled markets. There is a strong global policy and market focus to scale transition finance, especially in emerging markets and hard-to-abate sectors. This includes existing or upcoming regional taxonomies such as in Australia, Japan, Singapore and Hong Kong SAR, China, and initiatives such as the Loan Market Association (LMA)'s Transition Loan Principles and guidance on transition finance from the International Capital Market Association (ICMA) and the UK's Transition Finance Council. While each of these has its specificities, the initiatives have a few common objectives:

Enabling lending to, and tracking of, projects or activities that may not qualify for the green bond or loan label but nevertheless contribute toward reducing emissions.
Moving beyond a singular focus on 1.5 degrees Celsius (C), recognising that regional benchmarks may accept technologies and timeframes in one region that may not apply to another.
Allowing lenders to demonstrate how they are helping companies reduce emissions outside the green loan portfolio. Banks are facing regulatory attention on how much they are facilitating the transition of the broader economy. Green loans are an important part of this, but the greater hurdle lies in transitioning the rest of the economy. In Moody’s view, transition finance can provide the solution, provided the label is credible and not subject to greenwashing.

By boosting investor confidence, clarification of transition plans can facilitate access to capital in a number of ways:

By supporting the issuance of sustainability-linked bonds and loans: Italian energy infrastructure company Snam published long-term targets and a detailed transition plan, along with an NZA, in early 2024 that helped clarify the opportunities and hurdles it faced in its transition. Given Snam’s position as part of the fossil-fuel value chain, the NZA analysis supported the launch of its sustainability-linked bond framework, with issuance to date of EUR5.7 billion.
By substantiating transition bonds or loans: ICMA’s and LMA’s recent guidelines for the transition label include safeguards to assess the presence of a company-level transition strategy, and efforts to mitigate greenhouse gas emissions beyond business-as-usual operations. Transition bonds and loans are particularly suitable for financing emission-reducing projects in hard-to-abate sectors, such as coal-to-gas switching and methane abatement, which are often excluded from traditional green frameworks. This was illustrated by the first assessment against the new guidelines in December 2025, for South African bank FirstRand Limited (SQS3). The bank’s issuer framework outlined key transition categories to finance decarbonisation measures for a defined list of eligible sectors, while providing transparency on alignment with recommended safeguards. While the financed projects should materially contribute to the transition of the selected sectors, some activities could involve negative environmental externalities or carbon lock-in risks. The bank’s clear and comprehensive process for adhering to the mandatory safeguards effectively mitigate such side effects.
By facilitating investor outreach: A credible transition plan can also have significant investor engagement benefits. Most companies Moody’s has assessed publicly, including Engie SA and EDF SA, have leveraged the NZA for high-profile events, such as a strategy update, an investor day or an annual results presentation. Companies, including Verbund AG and China’s GDS Holdings Ltd, have also chosen to publish their scores alongside the release of new or updated transition plans, to allow investors to assess their credibility more easily. Standards such as Article 7 of SFDR 2.0 also increasingly favour credible transition plans as a selection criterion for investment.