The Transition Pathway Initiative Centre’s new Net Zero Standards Assessment Framework takes a sector-specific approach to extractive companies’ transition plans. Seyed Alireza Modirzadeh explains

Environmental Finance: The Net Zero Standards Assessment Framework, from the Transition Pathway Initiative (TPI) Centre at the London School of Economics and Political Science (LSE), has won Environmental Finance’s award for ESG assessment tool of the year – ratings. What does the framework do?

Seyed Alireza Modirzadeh: The assessment framework, which is currently focused on the oil and gas and diversified mining sectors, is a pioneering sector-specific tool with a laser focus on strategy and capital allocation. It assesses companies across critical areas such as target-setting, capital allocation and the integration of climate strategies into core business planning.

Developed in collaboration with the Institutional Investors Group on Climate Change (IIGCC), the framework provides investors with nuanced insights into the credibility and effectiveness of transition plans in some of the most carbon-intensive parts of the global economy.

EF: What makes the framework unique?

SAM: First, its sector-specific approach is unique. We have designed metrics and indicators for each sector separately, and tailored assessment criteria to the unique transition challenges and opportunities that each sector faces. This approach ensures that companies are evaluated based on the sector-specific dynamics of their industries, providing a more accurate and relevant picture of their readiness for the low-carbon transition.

Second, its use of comprehensive and nuanced metrics is unique. They cover the full spectrum of companies’ transition plans, assessing not only climate targets, but also the concrete actions companies are taking to achieve them, including capital allocation, strategy integration and operational adjustments.

Third, both the framework and the individual company assessments are open source and accessible to all.

EF: What unique indicators does it consider for the two sectors to which it has been applied?

SAM: In oil and gas, we cover areas including operational emissions, climate solutions, neutralisation measures, methane emissions, and the alignment of fossil fuel production with the net zero transition, as well as green investment and alignment of the companies’ disclosures with frameworks such as the Task Force on Climate-related Financial Disclosures and the IFRS.

For mining, we have metrics and indicators addressing operational emissions, current and planned production of transition materials, methane emissions, thermal and metallurgical coal production, neutralisation measures, downstream emissions as well as those from shipping of products. We have also included metrics to evaluate the company’s commitment to a just transition for affected workers and communities.

EF: What has the framework found about the relative preparedness of companies in the two sectors?

SAM: We have assessed 17 oil and gas producers and five diversified miners to pilot the framework, which gives us a clear picture of the state of transition planning beyond headline climate goals.

In the oil and gas sector, addressing methane emissions is the highest-scoring area, likely due to increased focus globally on the issue, especially after COP28 and COP29. On the other hand, plans to develop climate solutions such as biofuels and green hydrogen, and green energy production, remain broadly absent from companies’ disclosures. Net-zero aligned fossil fuel production forecasts are also mostly neglected by companies.

The mining companies scored higher on average than oil and gas companies. They have disclosed clear plans for addressing operational emissions and for investment in the key materials necessary for the global net zero transition. However, addressing methane emissions and aligning metallurgical coal production with a net zero trajectory are largely missing from the companies’ plans.

Overall, the findings suggest that the easy wins of transition planning are starting to be captured, but more challenging topics remain poorly covered. That emphasises the fact that a sector-specific lens is essential to capture the nuances of transition: methodologies should go beyond generic decarbonisation levers.

EF: How do you anticipate the framework will be used by investors?

SAM: As I mentioned, the framework was developed in collaboration with investors. We see two main use cases. First, it functions as an engagement tool, providing investors with clear, transparent assessments of companies’ climate strategies to enable informed discussions and advocacy for stronger climate commitments.

The second use case is for portfolio alignment. Investors can use the framework to assess the transition readiness of portfolio companies, considering sector-specific risks and opportunities. This can help align investments with investors’ net zero goals.

EF: How has it been received by companies in the two sectors?

Companies in high-emitting and hard-to-abate sectors can use the framework to identify gaps in their transition plans and align their strategies with global net zero goals. This can help them refine policies, improve capital allocation and reduce transition risks specific to their sector.

In our pilot round of assessments of the 22 companies in these two sectors, we received feedback from nearly 80% of them regarding the assessments and the framework, plus suggestions for improvement. We have also received invitations to explain the framework to companies that found it insightful and helpful to their transition planning processes.

EF: How do you plan to further develop the framework?

SAM: We are working in collaboration with IIGCC to enhance the framework for the oil, gas and mining sectors, to strengthen the robustness of the metrics, identify and integrate new thematic areas and improve its overall usability for investors.

We also plan to increase the number of the companies within oil, gas and diversified mining that we have assessed against the framework, depending on investor interest and our capacity. We also plan to expand the framework to other sectors.

Seyed Alireza Modirzadeh is project lead, net zero standards, at LSE’s TPI Centre.

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