Fiduciary duty, the obligation to act in the best interest of beneficiaries, is being reshaped by the realities of climate risk. Once narrowly focused on short-term returns, it is now evolving to include long-term systemic risks, such as environmental and social factors. This shift reflects growing recognition that climate change materially threatens both portfolio performance and the broader financial system. Leading asset owners worldwide are embedding climate transition planning into investment oversight, reframing climate stewardship as essential rather than optional to prudent fiduciary practice.

Highlights

The historical evolution of fiduciary duty. Grounded in loyalty, prudence, and care, fiduciary duty is shifting from shortterm financial metrics to long-term systemic risks like climate change. U.S. interpretations still trail the EU, but momentum is building.

The limits of Modern Portfolio Theory (MPT). MPT fails to account for how investments shape and are shaped by real-world systems. It treats climate risk as background volatility rather than a core risk factor, an outdated view in today’s interdependent financial landscape.

The emergence of universal ownership and systemic risk awareness. Large institutional investors are effectively “universal owners” with exposure to the entire economy. They cannot diversify away from climate risk and must manage it directly to protect long-term returns and the broader financial system.

Concrete case studies from leading asset owners. Case studies of leading practices from CalSTRS, the New York City Comptroller, WSIB, UPP, Border to Coast, and La Caisse show how robust transition strategies and targeted stewardship advance climate action as part of fiduciary duty.

Legal and regulatory shifts reinforcing climate integration. From ERISA reforms in the U.S. to SFDR and TCFD mandates in Europe and the UK, laws are increasingly requiring fiduciaries to account for climate-related risk. UN, European, and UK regulators have signaled that ignoring climate risk may violate fiduciary duty, while U.S. guidance remains less explicit.

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A credible net zero transition should include a science-aligned emission reduction target and supporting metrics, decarbonization strategies, capital allocation, governance, aligned policy and advocacy activities, and considerations for nature and a just transition. Elements vary somewhat between frameworks like Glasgow Financial Alliance for Net Zero (GFANZ), the International Sustainability Standards Board (ISSB), the UK Transition Plan Taskforce (TPT) (now incorporated into ISSB), and the European Sustainability Reporting Standards (ESRS), but share broadly consistent guiding themes. For a more detailed comparison of real-economy standards and the state of transition planning see: Corporate Low-Carbon Transition Planning: Best Practices & Recommendations to Support Credible Action.

Achieving Paris alignment for a portfolio requires investors to seek information from companies on their climate targets and strategies. A transition plan is a ready-made encapsulation of all the elements investors need for due diligence of a prospective transition aligned investment. As institutional investors commit to aligning portfolios with the Paris Agreement’s 1.5°C goal, corporate transition plans also serve as essential tools for analyzing strategy. A credible transition plan sets out how a company intends to navigate the transition to a low carbon economy, capturing all relevant disclosures. These plans provide critical insights into how companies intend to navigate the risks and opportunities associated with the transition.

This brief examines how investors can effectively use corporate transition plans to:

• Manage climate-related risks and opportunities
• Guide real-economy asset transitions
• Optimize capital allocation decisions

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Highlights

Comprehensive Finance Sub-Sector Analysis
Provides a comprehensive overview of how financial actors including asset owners, banks, insurers, private markets, and asset managers are shaping net zero strategies across the investment value chain.

Financial and Nonfinancial Levers to Support Climate Integration
Highlights best practices and tools, both financial and non-financial, for embedding climate considerations across finance subsectors, including opportunities within shareholder engagement, investment screening, product innovation, and internal capacity building.

Stewardship and Engagement
Details how sector actors can use proxy voting, shareholder proposal filings, and targeted multi-layered engagement strategies to incentivize climate action in the real economy and accelerate the transition.

Ecosystem Influences and Feedback Loops
Examines how cross sector interdependencies, evolving global alliances, emerging thought leadership, and shifting regulatory frameworks can be utilized as reinforcing accountability mechanisms.

The post Navigating the Finance Sector Net-Zero Transition: Levers for Decarbonizing in a Complex Landscape appeared first on Center for Climate and Energy Solutions.

While finalizing research for the Center for Climate and Energy Solutions’ (C2ES) analysis, Navigating the Finance Sector Net-Zero Transition: Levers for Decarbonizing in a Complex Landscape, the financial sector underwent a wave of transformative developments. In the United States, legal challenges to the use of climate and Environmental, Social, and Governance (ESG) factors intensified, and the political landscape shifted with the arrival of a new presidential administration. At the same time, voluntary climate alliances across the global finance sector experienced a surge in high-profile departures. Together, these developments have ushered in a new reality for financial institutions—particularly in the United States—where advancing climate goals must be balanced against growing legal, political, and reputational risks in an increasingly complex operating environment.

Highlights

Shifting Political and Legal Landscape
Regulatory shifts and political backlash are reshaping interpretations of fiduciary duty and climate risk, prompting investors to navigate an increasingly nuanced, uncertain, and complex environment.

Evolving Architecture of Voluntary Initiatives
The landscape of voluntary climate cooperation is undergoing a fundamental restructuring as leading initiatives respond to external pressures and reevaluate existing models to meet shifting expectations and demands.

Divergence in Finance Subsector Ambition
Stark contrasts are emerging across financial subsectors, with some actors rising to meet the moment, while others retreat and stall.

The Road Ahead
In a stalled policy environment, the road ahead will depend on the finance sector leading by demonstrating that effective climate risk and opportunity management is fundamental to long-term value creation.

The post The State of Net-Zero Finance appeared first on Center for Climate and Energy Solutions.

With this project and report, the Center for Climate and Energy Solutions (C2ES) aims to support and accelerate the development of low-carbon transition plans that align with the objectives of the Paris Agreement among companies in real-economy industry sectors. To this end, it is important to understand: (1) the existing guidance landscape for target setting, planning, and credibility, as well as broader stakeholder requirements for transition planning; and (2) the current state of corporate transition planning.

The post Fact Sheet: Corporate Low-Carbon Transition Planning: Best Practices & Recommendations to Support Credible Action appeared first on Center for Climate and Energy Solutions.

With this project and the accompanying report, the Center for Climate and Energy Solutions (C2ES) aims to support and accelerate the development of low-carbon transition plans that align with the objectives of the Paris Agreement among companies in real-economy industry sectors. To this end, it is important to understand: (1) the existing guidance landscape for target setting, planning, and credibility, as well as broader stakeholder requirements for transition planning; and (2) the current state of corporate transition planning.

This work began with an analysis of transition planning guidance focused on real-economy companies from non-governmental organizations (NGOs), governments, and quasi-governmental organizations that focused on identifying commonalities and unique requirements. Guidance from the Task Force on Climate-Related Financial Disclosure (TCFD) and the Glasgow Financial Alliance for Net Zero (GFANZ) were both the most comprehensive and the most widely adopted of all the guidance reviewed. There is a high level of correspondence between TCFD and GFANZ and other transition planning guidance, though there are some differences. Areas of divergence arise when a particular guidance provides more in-depth or specific requirements around certain topics. For example, the UK Transition Planning Task Force (TPT) guidance recommends companies disclose their intended use of carbon credits and update these disclosures annually. Guidance also varies with regard to just transition and nature-based impacts, with GFANZ and Ceres both including these thematic considerations.

The degree to which consensus exists around what makes a credible plan was determined by analyzing guidance focused on the processes, elements, commitments, and strategies required for a plan to be deemed credible. Seven key dimensions encompass the majority of credibility-building guidance:

• net-zero targets
• net-zero strategy
• policy/engagement
• transparency and verification
• nature and just transition
• governance
• contribution to climate solutions.

An area of divergence among credibility-building guidance was the inclusion of guidance on areas outside of core plan elements. For example, several guidance regimes indicate that specific planning methods—scenario analysis, for example—are required for credible plan development. Other guidance includes specific strategy elements that credible strategies should adopt, such as the HLEG requirement that the strategy includes a commitment to phase out the use of fossil fuels.

To gain insight into the state of transition planning, C2ES conducted structured interviews with 14 real-economy sector companies spanning 12 industries. Key findings from the corporate transition plans and interviews include:

• Incomplete Target Specification: Most companies did not define the terms net zero or carbon neutral when presenting targets, and only two of the 12 companies with a transition plan specified the level of long-term, absolute emission reductions for their net-zero or carbon-neutral targets.
• Plan vs Planning: 12 of the 14 companies interviewed had a transition plan. Of those, only five had a stand-alone plan, with the other seven incorporating transition plan elements in an existing annual sustainability report.
• Importance of Senior Level Commitment: Almost all the interview participants mentioned that when looking to create internal buy-in for plan development, target setting, and strategy implementation, visible board- and executive-level support, along with coordinated cross-functional participation, was instrumental to success.
• Guidance Overload: Most companies interviewed indicated that staying up to date on the latest guidance around transition planning and credibility was difficult, and the volume of guidance is making it difficult to assess which is the most important to follow.
• External Stakeholder Engagement to Build Credibility: Given the uncertainty around guidance and the lack of consensus around credibility conferring partners, several companies mentioned proactively reaching out to key stakeholders to engage them during the transition plan development process to build credibility.
• Knowledge Gaps: Interviewees cited significant knowledge gaps during the development of transition plans. Companies struggled with a lack of in-house and institutional knowledge regarding decarbonization pathways, climate scenario analysis, climate and emissions data management, materiality assessments, climate discourse, supplier engagement, renewable energy procurement, life cycle assessment, enterprise-wide emissions reduction strategy integration, climate-related investment analysis, capital allocation strategies, investor engagement, just transition, near-term goals, and climate lobbying. Strategies identified by interviewees to close gaps included: assessing peer actions, reassessing internal roles and responsibilities, refining data management strategies, engaging in employee education, and upskilling efforts. There was also a heavy reliance on external consultants.
• Transparency Gulf: The interviews identified a wide gulf between the transparency expectations outlined in transition planning guidance and the level of transparency that companies are currently comfortable with. The primary concern cited is that any deviation from a publicly available plan will be used as evidence that a company is greenwashing or lacks commitment.
• Lack of Interim Targets & Measures: Corporate targets are centered around the key 2030 and 2050 milestones outlined by the UN Framework Convention on Climate Change (UNFCCC) for achieving 50 percent reduction in emissions and net zero, respectively. There are few instances where companies have outlined an interim target between 2030 and 2050. Without additional, publicly available interim targets there is insufficient data for stakeholders to assess whether a company is on track to meeting their long-term 2030 and 2050 targets
• Just Transition: there was a wide variation among sectors in understanding and addressing just transition issues; however, there was a clear acknowledgment of the issue’s emerging importance. Interviews identified the need for establishing best practices and better metrics and approaches for meaningful community engagement.

This report concludes with recommendations that fall into three broad categories and are informed by the research conducted on transition planning guidance, corporate transition plans, and the lessons learned from the corporate interviews. The first category offers recommendations to enhance the planning process. The second category focuses on recommendations to enhance transparency, with proposed actions for companies and their stakeholders; the interviews made clear there is a gulf between transparency practices and expectations. The third category offers suggestions to shift the focus from planning to measuring performance.

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