Policy Brief

PB 2/2024: Enhancing Comparability and Credibility of Transition Plans and Transition Risk Assessment with Standardized Net Zero Scenarios

Transition plans by non-financial and financial corporates can fulfill two central purposes: they can facilitate strategic planning towards net zero 2050 while also helping detect transition risks in the short- and long term.
For transition plans to be effective, several challenges must be overcome. These include the lack of standards and comparability, the lack of ambition, and the mismatch in time horizons.
So far, neither regulatory nor voluntary initiatives require disclosure of scenarios used or define suitable science-based scenarios for transition plans.
The comparability of transition plans can be improved by enhancing the availability of science-based net zero scenarios, including more granular sectoral and regional scenarios and the use of transition indicators.
An accelerated transition scenario with a shorter time horizon can address the level of ambition and the mismatch of time horizons, improving transition risk assessments.
Harmonization between prudential and non-prudential transition plans is important to avoid potential discrepancies.

Authors

Dr. Franziska Schütze
DIW Berlin
E-Mail: fschuetze@diw.de
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Fernanda Ballesteros
DIW Berlin
E-Mail: fballesteros@diw.de
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Dr. Alexandra Hüttel
DIW Berlin
E-Mail: ahuettel@diw.de
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Dr. Karol Kempa
Frankfurt School of Finance & Management
E-Mail: k.kempa@fs.de
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Prof. Dr. Ulf Moslener
Frankfurt School of Finance & Management
E-Mail: u.moslener@fs.de
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Prof. Karsten Neuhoff, Ph.D.
DIW Berlin
E-Mail: kneuhoff@diw.de
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