How are Canadian investors using transition plans to drive capital toward climate-ready companies?

Barb Zvan, President and CEO of University Pension Plan
Sonia li Trottier, Director, Canada Climate Law Initiative
Jonathan Arnold, Director of Sustainable Finance, Canadian Climate Institute

At this year’s Sustainable Finance Summit, Business Future Pathways, in collaboration with the International Sustainability Standards Board (ISSB), convened more than 60 investors (pension funds, insurers, banks, and asset managers) to dive deep into one critical question: How do financial institutions and investors use corporate climate transition plans to allocate capital and assess risk? Transition plans detail a company’s step-by-step strategy on how it will align its operations, assets, and business model with climate-related risks and opportunities.

The roundtable discussions brought forward a clear message: investors see climate transition plans as a vital tool for assessing companies’ climate-readiness. Transition plans show how prepared a company is for the material impacts from a changing climate and shifting energy system, and how these changes may affect their bottom line. Ultimately, they give investors the information they need to direct finance toward resilient, competitive, and forward-looking businesses in ways that maximize their return and/or impact.

Yet, it is also clear that businesses face major challenges in developing credible and consistent transition plans, making it hard for investors to use them when making investment decisions. Overcoming these challenges is key to unlocking the full potential of sustainable finance in Canada.

Climate transition plans: From vision to action

Investors emphasized that transition plans help bridge the gap between climate ambition and business strategy, and are being increasingly used in three major ways:

• Company-level analysis to inform capital allocation decisions.
• Portfolio-level assessments to evaluate overall alignment with net-zero goals.
• A platform to engage directly with companies on executing their climate transition plans and strategies.

To be useful, transition plans need to clearly show that a company is making forward-looking commitments, especially when backed by planned capital expenditures. A step-by-step trajectory, with clear short- and medium-term targets, is seen as far more actionable and useful for tracking progress than distant 2050 goals without clear interim steps.

Importantly, investors highlighted the potential for positive spillover effects: when one company discloses a credible transition plan, others in its value chain may follow.

Current barriers: quality, consistency, and credibility

Despite their potential, many transition plans today fall short. Investors noted a few challenges:

• Inconsistent data and fragmented guidance make it difficult to assess plans across multiple companies.
• Lack of standardization and limited third-party verification reduces credibility.
• Most transition plans aren’t clearly linked to governance and/or core business strategy, which increases greenwashing risks.
• Small and medium-sized enterprises need more tailored support in order to develop high-quality plans. Qualitative insights may be more practical in the short term.
• Nature-based indicators like biodiversity remain underdeveloped despite investor interest.
• Transition plans could go further in identifying how companies engage with Indigenous communities and ensuring the energy transition is fair and equitable.

These challenges currently undermine the usefulness of corporate transition plans.

Aligning markets for a resilient future: Tools to support better planning

To scale the adoption and usefulness of transition plans, roundtable participants identified several priorities:

• Increase the adoption of sector-specific guidance while expanding on missing aspects and sectors to enable “apples-to-apples” comparison of companies.
• Implement a Canadian green and transition finance taxonomy to define what counts as climate-aligned.
• Greater use of scenario analysis to model diverse climate futures and their business implications.
• Develop new indicators that are specific to “enabling” companies – those that power the clean economy (e.g., infrastructure, services, and supply chain actors).

Above all, investors made it clear: they want to finance climate-ready companies, but they need better tools, data, and standards to do so more consistently and effectively. They noted that building capacity at the company level to increase the adoption and understanding of existing standards is also essential. Investors emphasized the importance of clear connections between transition plans and a company’s governance and business strategy. They also called for stronger alignment with global frameworks and are ultimately looking for ways to integrate transition planning into financial statements.

At Business Future Pathways, we’re working to improve alignment between Canada’s financial and corporate sectors on climate-readiness. We believe better clarity, shared expectations, and credible planning will help accelerate Canada’s path toward a more competitive, resilient, and sustainable economy.

Stay tuned for our landscape report coming this fall, which will lay out in greater detail why urgent market adoption of climate transition plans is needed in Canada. In the meantime, please follow our work at businessfuturepathways.ca and on LinkedIn.