Net Zero: Are you planning for the transition that is happening, or the one in the headlines?

Annual ESG fund inflows peaked at $645 billion in 2021. Within two years, after the invasion of Ukraine and the arrival of an organised anti-ESG movement across American politics, investment and regulation, net zero had become a phrase a good number of UK boards preferred not to say out loud in front of investors. A second Trump presidency hardened that further. Although few businesses that set a 2050 target in 2021 have formally abandoned it, many have downplayed, caveated, or softened it. 

Yet global investment in the energy transition rose in every one of those years, reaching nearly $2.1 trillion in 2024. 

This chart contains one line that depicts how the world felt about the transition and a second which is a proxy for what the world spent on it. A board that set a target in 2021 because the mood said so, and downplayed it since because the mood changed, has made two strategic decisions on the strength of sentiment alone. 

But uncovering the reality beneath the sentiment is complicated. This chart is too simple to underpin business planning; the transition does not rest on a single metric. It is multifaceted, at times technical, and therefore challenging for a strategy or sustainability team to build a clear picture that the board can make decisions on. 

Perigon's Low-Carbon Transition Index (LCTI) scores fourteen real-economy indicators, each against two pathways: where current government policy leads, and what net zero by 2050 would require. Ten of the fourteen improved in 2024. Four are moving fast enough to deliver current policy. Three are fast enough for net zero. Overall, the transition is running at about two-thirds of the pace required under stated policies, and a bit over half the pace required for net zero. Direction seems settled but pace is not, with significant divergence across indicators. 

Battery storage capacity appears firmly on track, with global additions set to grow 23% in 2025 even as policy turned less supportive in China and the United States, the two largest markets. Carbon capture capacity, however, is not. Announced projects would deliver around 615 million tonnes of CO2 a year by 2030, roughly 40% short of the billion tonnes a net zero pathway requires. A business treating its hard-to-abate emissions as something carbon capture will eventually absorb is depending on the weakest indicator in the index. A business planning on the assumption that the grid will modernise is backing a stronger horse. 

There is also the worrying bet some businesses are making: that policy will retreat far enough to make the problem go away. All 37 jurisdictions tracked by the Oxford Climate Policy Monitor, covering more than 85% of global emissions, have increased climate policy ambition since 2020. The United States is the only one to have recorded a formal rollback. Carbon pricing points the same way. Under every NGFS short-term scenario, the weighted average carbon price exceeds $100 per tonne by 2030, around five times today's level. A capital allocation model that assumes today's carbon price holds is built on shaky footing. 

Much of the transition will now happen to a business regardless of what net zero approach it assumes itself. Renewables accounted for over 90% of new global power capacity in 2024, and 46% of installed capacity is now renewable. However, over 80% of the reductions still needed in the UK between now and 2030 to maintain a pathway to net zero have to come from sectors other than energy supply. Domestic transport is now the country's largest source of emissions, followed by buildings. The part of UK decarbonisation that happened to businesses is largely done. The part that runs through their fleets, premises, products and suppliers has not started in earnest.  

Which leads to the question Boards should be asking: does our business have a suitable transition plan? For a business that hasn’t yet taken a position on net zero, the answer is not to announce a bold target by the next Board meeting. It needs a working view of where different transition indicators touch its revenue, cost base and supply chain, so it can embed the transition into its strategic planning from a place of evidence rather than trying to backfill from a PR reflex.  

A business with both a target and a transition plan is ahead of most. For this group, the pressing question is what assumptions that plan has been built on. A plan built bottom up, tested against which market movements will help or hinder it, is more robust than one extrapolated from a top-down pathway with broad caveats. 

A business that already has a target but no plan behind it, a common position, can leapfrog that top-down pitfall and employ something closer to a financial planning discipline from the start: mapping the actual indicators a target depends on and the headwinds or tailwinds they drive. 

The perception line in the chart will move again, possibly more than once before 2030. The leading indicators in the index have all moved the right way since Paris. A Board that can name the three indicators its business model depends on most, track how each is moving, and build its strategy on that reality will protect its cost base and reputation the next time the mood turns.