Emission reduction transition pathways chart the annual reductions in GHG emissions needed to align with global carbon budgets.

Ambitious targets vary by sector, and these can be found in the sector-specific decarbonisation pathway guidance from Climate Bonds' sector criteria. Other standard setters and international organisations, such as Transition Pathway Initiative, Science Based Targets Initiative, etc., also guide science-based sectoral decarbonisation pathways

The financial sustainability target is relatively short term as the risks of not being Paris-aligned will enhance the climate change-related risks for an entity’s business, especially if it is part of the global supply chain.

The transition and physical risks of climate change will inevitably impact businesses; in addition, investors and financial institutions will soon be demanding more credible ambitions.

Malaysia: Its economy-wide carbon intensity (against GDP) of 45% in 2030 compared to 2005 level.

• Brunei: A target of a 20% reduction of GHG emissions by 2030, with a base year of 2015
• Cambodia: GHG reduction target to 41.7% (of which 59.1% is from forestry and land use) by 2030 or equivalent to 64.6 MtCO2e with a base year of 2010
• Indonesia: Unconditional target of 32% below its business-as-usual scenario (BAU) and conditional target of 43% below its BAU - net zero emissions by 2060
• Laos: Unconditional 60% GHG emission reductions target by 2030 compared to baseline scenario, or around 62,000 ktCO2e in absolute terms
• Myanmar: Reduce net emissions by 50% by 2050 - target 100% conditional
• Philippines: Reducing greenhouse gas emissions by 75% below a cumulative business as usual (BAU) pathway for 2020-2030, of which only 2.71% is unconditional. No net zero emissions target year
• Singapore: Bringing down its absolute emissions limit from 65 MtCO2e in 2030 to 60 MtCO2e* in 2030 and bring forward its emissions peak from 'around 2030' to before 2030 with a net zero target by 2050
• Thailand: Reduce greenhouse gas emissions by 30% from projected business-as-usual level by 2030 with a net zero emissions target of 2065
• Vietnam: Unconditionally committed to reducing GHG emissions by 15.8% below business-as-usual (BAU) levels by 2030. Vietnam is willing to reduce GHG emissions by 43.5% below BAU, conditional on international support and a net zero emissions target by 2050

Setting a meaningful emission reduction target requires considering and communicating how these two relevant and largely complementary dimensions of a target will vary in the future: the entity’s absolute emissions and meaningful physical indicator of carbon efficiency, for example, an intensity target that is accepted is CO2 per unit of production (i.e. ton of cement).

This is best practice and recommended.

If the targets do not cover scopes 1, 2, and 3, are the exclusions explained (i.e., they are not material, <10% of emissions)?

In addition, the entity could consider disclosing its strategy and plan on how it will engage its supply chain, and potentially declare a target date by which it will manage to disclose its material source of scope 3 emissions. Disclosures could include:

• Measured if not already done; or
• Under a target if it already knows the value and origin of these emissions.

Materiality in emissions reporting is determined by specific criteria. It is considered material when at least 95% of an entity's group-wide scope 1 and 2 emissions are included in the report.

For entities with scope 3 emissions, materiality is achieved if scope 3 emissions make up either at least 40% of the total emissions (combining scope 1, 2, and 3) or at least 90% of the total scope 3 emissions. These criteria establish the importance of emissions for reporting purposes.

Although GHG emissions are an ideal target, other 'proxy' indicators may also be of merit. For example, a food processor might select metrics and KPIs relating to the percentage of commodity purchases from farms or supply chains certified as being climate-smart farming methods.

An entity switching from coal to renewables energy generation might select a KPI relating to the percentage of coal-fired generation that will be decommissioned by a specified date.

Alternatively, targets that capture the rate of development of new technologies, for example, in the case of vehicle production and there is a renewable capacity installed - the ratio of electric vehicle (EV) versus internal combustion engine (ICE). These targets could be of interest to stakeholders as they give an indication of the forecasted percentage of green revenues.

• The objective of the target
• The period over which the target applies
• The base period and measurement from which progress is measured
• For medium to long-term targets, any milestones or interim targets (interim targets are defined as 5-10 years from when the target is set)
• The metric used to assess progress towards reaching the target
• The relevant units, methodologies and definitions on which this metric relies
• The extent to which these metrics rely on measured vs. estimated data

Credible transition goals and pathways do not traditionally include offsets. Offsets are typically considered for addressing residual "last mile" emissions after all other decarbonisation efforts have been exhausted.

Offsetting reduces transparency and may divert attention away from reducing inherent emissions. In specific hard to abate sectors, entities may require offsets to address emissions they cannot eliminate internally. However, it is important to note that organisations like Climate Bonds do not consider carbon credits or offsets as the primary strategy for transitioning. Instead, emphasis is on the importance of fully identifying and implementing decarbonisation options as the initial approach.

Please refer to Voluntary Carbon Markets Integrity Initiative for more information.

This serves as a baseline and a point of comparison to gauge how ambitious the targets of the proposed transition plan are. It also tracks progress and the effectiveness of implementation plans. It is best to have several years of emissions data documented to be able to justify the choice of baseline.

The entity’s primary sources of emissions, the climate-related risks that its operations and financial position could face, whilst identifying the potential innovative solutions/opportunities the entity could embrace.

It is recommended to use an internationally recognised GHG accounting method and to explicitly define the accounting method's boundaries to maintain precision and transparency in emissions reporting.

• Expected impacts on operating costs (e.g., due to long-term utilities savings from investment in renewable energy assets)
• Expected impacts on revenues (e.g., due to shifts in the product portfolio, expected changes in prices etc.)
• Expected impacts on profit margins (e.g., due to assumptions regarding the degree to which changes in costs can be passed through to consumers)

As a first step, the plan should set out, in increasing levels of detail, the choices the entity will make to move from aspiration to action. When evaluating risks and emissions, the entity will be able to immediately identify short-term solutions to reduce emissions.

An entity’s transition plan serves a few purposes. Internally, it communicates the entity’s commitment, ambition, and strategy to guide internal stakeholders, and the more comprehensive the information provided, the better it serves as a guiding document. Externally, the plan showcases the entity's commitment as a responsible corporate citizen and can be leveraged as an advocacy tool.

• Action plan for scopes 1 and 2 emissions
  A time-bound plan of the trackable actions the entity will take, or is taking, to implement its decarbonisation strategy. This includes interim milestones and metrics annually.
• Action plan for scope 3 emissions
  A time-bound plan of the trackable actions the entity will take, or is taking, to implement its decarbonisation strategy vis-à-vis scope 3 emissions.
• Finance plan
  A finance plan detailing the financial implications of the action plan, and the trackable actions being taken/to be taken to deliver this finance plan.
• Internal policy alignment
  Information on the key internal policies and conditions developed, or to be developed, to enable the delivery of the climate mitigation performance targets, action plan and finance plan.
• Sensitivity analysis
  Sensitivity analysis identifying the key sensitivities and risks to the action and finance plans that have the potential to decisively impact the delivery of the climate mitigation Performance Targets.

Data inputs and the plan itself should regularly be reviewed to ensure assumptions and analysis were accurate. A climate transition plan is a live document, and both iterations and course corrections will be necessary as a business and its market evolves. It would be worth considering if an entity’s interim milestones were sufficiently ambitious.