How to Assess the Credibility of Corporate Transition Pathways? Application of the TCFD Framework based on Economic Theory

The G20 has highlighted the urgency and importance of financing net zero transition. Investors however lack a systematic framework to assess the credibility (incentive-compatibility) of corporate transition claims. As such, negative screening based on current GHG emissions or even sectors remains a dominant climate investment strategy. In response, this paper adopts mixed methods of economic modelling and semi-structured interview to study factors behind a credible transition pathway. Our model shows that, besides its current emissions, both a firm's transition capacity and urgency should be taken into account when assessing its likelihood of attaining net zero; interestingly, it shows how the concavity of its transition pathway may serve as a litmus test. Our interview with buy-side practitioners extends the theoretical results. Finally, we discuss how the TCFD framework can be utilized for credibility assessment of corporate transition pathways. Our findings and recommendations are one of the first attempts to address the market call for systematic approaches to evaluate forward-looking climate mitigation claims