Since S&P Global acquired Shades of Green from CICERO climate research foundation, it has been working on integrating the product suite to support transparency around sustainability in financial markets.

During 2023, we released an integrated use-of-proceeds Second Party Opinion (SPO) Analytical Approach that combined elements of the existing methodology of Shades of Green with S&P Global Ratings' Analytical Approach. We are now releasing our Climate Transition Assessment (CTA), which is our qualitative opinion of how consistent with a low carbon, climate resilient (LCCR) future we expect an entity's economic activities will be once the entity's planned transition changes are realized and any implementation risks are considered. The CTA similarly integrates elements of existing analytic approaches from S&P Global Ratings and Shades of Green.

For additional information, see "Analytical Approach: Climate Transition Assessments," published July 18, 2024, and "Analytical Approach: Shades Of Green Assessments," published July 27, 2023.

Frequently Asked Questions

What are the components of the CTA?

Our CTA reports are point-in-time analyses with four main sections in addition to the overall summary and CTA outcome:

Summary and conclusion:  The first page of the report summarizes the analysis in the other sections of the CTA, and will include:

• Future Shade: The outcome of the CTA is a future shade, which indicates our assessment of the expected alignment of a company's activities with an LCCR future once its planned transition changes are realized, considering implementation actions and risks. The future transition status is depicted using a shade of green (see "Analytical Approach: Shades Of Green Assessments").
• Rationale: This section will briefly provide a climate transition summary describing the primary reasons for the future transition shade.
• Strengths, weaknesses, and areas to watch: We will highlight the main attributes that are driving the CTA outcome, and identify risks to implementation. Notably, these will all be drawn from other sections of the report. The content is discussed further below.

Current activity:  This shows our assessment of how consistent the company's current activities are with an LCCR future. We will typically apply shading to the current activities, typically using revenue, and will discuss actions the company takes in their ongoing operations to mitigate climate exposure.

Climate transition plan:   This includes a description of the company's primary climate-related targets, including those that are not directly emissions related. Even though the CTA is not a net zero assessment as it focuses more on near term actions and blockers, we would include relevant net zero targets, and interim targets that support those. We may comment on whether these targets are aligned with scientific standards.

Actions and investments:   This section describes the commitments the company has made to attain its targets for the foreseeable future. This could include an assessment of research and development, mergers and acquisitions, divestitures, and any other actions the company intends to do to reach its targets. Where appropriate, we assign a shade to the company's capital spending and assess whether it is consistent with an LCCR future.

Implementation drivers:   In this section, we describe our analysis of the potential for a company's governance structure, financial status, and external risks to impede its ability to undertake the actions described above. This will not include a general commentary on governance, but rather will opine on whether the company's governance is appropriate for the specific tasks of attaining its climate transition targets.

In addition, we can provide an opinion on alignment with Green Equity principles on request for the exchanges where we are an approved reviewer.

How many potential CTA Shades are there and what do they represent?

An S&P Global Ratings Shade of Green (or Shade) represents our qualitative opinion of how consistent an economic activity or financial investment is with an LCCR future (see "Analytical Approach: Shades Of Green Assessments," published July 27, 2023). There are six possible Shades.

The final single Shade of Green, i.e. the Future Shade, reflects our opinion of how consistent with an LCCR future we expect an entity's economic activities will be once the planned transition changes are realized and any implementation drivers are considered.

What information do you include in the strengths, weaknesses, and areas to watch section of the CTA?

This section provides a summary of key analytical conclusions that we expand on in the rest of the report.

• We consider a strength to be a feature that stands out as positive in the context of our view of the entity's climate transition. For example, we could consider a track record of reasonable assurance across an entity's emissions reporting a strength.
• We consider a weakness to be a significant limitation that we identify in our analysis that could prevent the entity from being aligned with an LCCR future. For example, we could consider a transition plan's failure to address an entity's primary source of climate risk a weakness.
• We consider an area to watch to be a potential problem or risk that we believe could undermine the entity's transition plan. In general, areas to watch are risks that the entity plans to mitigate or residual risks that will likely remain after the entity has taken mitigating actions. For example, we could consider an entity's exposure to impending regulatory action relating to the environmental impacts of a key product line as an area to watch. If other environmental or social factors are more material for the entity than climate transition, we might highlight that as an area to watch.

Do Climate Transition Assessments (CTAs) inform our credit ratings?

No, CTAs do not inform our credit ratings or our credit rating methodologies. Climate risk is considered in credit ratings through the application of our sector-specific criteria when S&P Global Ratings believes these risks are, or may be, relevant and material to assessing creditworthiness. The influence of climate or other environmental risk on creditworthiness can differ by industry, geography, and entity. For more information on the principles that S&P Global Ratings applies to incorporate environmental, social, and governance (ESG) credit factors into its credit ratings analysis, please see "Environmental, Social, And Governance Principles In Credit Ratings", published Oct. 10, 2021.

Our issuer and issue-level credit ratings on a company are not inputs into the CTA.

Do you consider social risks and other environmental risks in the CTA?

We consider non-climate environmental risks in our analysis. While transition and physical risks are the primary drivers of the assigned Shades, we take into account the impacts on other environmental risks, such as biodiversity or pollution, and may adjust the Shade upward or downward where appropriate.

We do not consider social risks in our shading analysis, but we may consider them to be implementation drivers. That is, if we believe there are social risks that could undermine a company's ability to enact its transition plan, it could impact the CTA Shade. For instance, if a company plans to grow its renewable portfolio by several times, but is doing so in a jurisdiction where there are significant labor constraints, we may be skeptical of the company's ability to install this renewable capacity, and could opt for a lower Shade as a result.

Can a company's financial status impact its CTA outcome?

Companies that have more limited financial flexibility, which can undermine efforts to implement planned transition actions, may have difficulty achieving their transition plans, and this can be taken into account in the CTA outcome.

Is a CTA an assessment of the company's net zero targets? How will the CTA depict the company's targets?

The CTA is not an assessment of the company's net zero targets. Instead, with the CTA Future Shade, we are assessing the consistency of the company's future activities with an LCCR future. Whereas many net zero targets are distant, reaching as far as 2050, our CTA is meant to analyze more specific actions that the company has planned and the implications of those actions if they are successfully completed.

Nevertheless, we will generally reference net zero targets that the company discloses publicly and will note if the company has sought verification of these targets, as we believe that doing so can lend credibility to them, and by extension to plans put in place to support them.

Is the timeline of the assessment consistent with the horizon for the company's net zero plan?

The time horizon for the CTA is not necessarily the same as the timeline for a company's net zero plan. We base the time horizon for our assessment on our expectations of when the company will implement its current plans. These plans can include climate related targets that are supported by near term actions, such as capital spending, mergers and acquisitions, or research and development. In more capital-intensive sectors, such as oil and gas or utilities, this timeline will generally be longer than for sectors like consumer goods or technology, but it will typically still fall well before net zero target timelines, which are often closer to 2050. The reason for this distinction is that we are not completing a net zero assessment, but rather are focusing on the actions the company plans to undertake to pursue climate transition. Further out, we would not often have much clarity on capital spending or research and development plans.

What types of companies are in scope for the CTA?

We can perform CTAs on most companies and public sector enterprises. CTA clients need not be publicly listed companies and may even be in the pre-revenue phase. We wouldn't typically do CTAs on entities such as project finance or structured finance vehicles that don't have their own climate strategy, and we are not currently doing CTAs on local, regional, or sovereign governments, or financial institutions.

The CTA timeline is informed by the horizon over which an entity has committed to specific actions and when we believe those actions will materialize in the entity's economic activity mix. For example, a company may have a 2050 public net zero target but has only committed to actions over 10 years. The time horizon for the CTA would be more informed by the actions over the following 10 years rather than the 2050 end date of the company's overall plan. This is because we believe commitments with supporting actions are more indicative of an entity's future economic activities than commitments without supporting actions.

Is it necessary to have a net zero target to have a CTA?

No, it is not necessary. The CTA is not an assessment of a company's net zero targets. Though these targets are likely relevant to the analysis, we are primarily assessing how we expect the company's mix of economic activities will change as a result of its transition plan. To do so, we consider the company's current status, the actions it plans to take to transition its operations, and what implementation drivers may impede the company from attaining its goals. Net zero targets are typically, though not always, beyond the time horizon that is applicable for our analysis.

How long does it take S&P Global Ratings to complete a CTA and what are the requirements?

Generally, we can complete a CTA in six weeks following the receipt of required information. We will typically require a granular breakdown of revenues and capital expenditures and will meet with the company to ask for clarification. In addition to this analytical meeting, we will meet with the client at the beginning to explain our process and at the end to provide our feedback in advance of sending the report. The timeline could be somewhat longer if we are dealing with a complex company, orif other conditions warrant it.

If the company is unable to provide sufficiently granular financial information, we are more likely to apply the Shades conservatively, which we describe in more detail in our Shades of Green Analytical Approach. Our review relies on the accuracy, timeliness and completeness of the financial data and information provided by the company, and we do not provide any assurance of this data.

What is Green Equity and how can our company apply?

Green Equity designations or flags are voluntary initiatives from stock exchanges for companies that want to showcase their green credentials. The World Federation of Exchanges has Green Equity Principles that set out a global framework that individual exchanges can adapt and use to establish a "green" offering for listed equities. These principles specify that at least half of a company's turnover must contribute to the green economy. In addition, there may be thresholds for green investments and transparency requirements, for example around disclosure of direct and indirect emissions.

To apply for a Green Equity label, exchanges typically require to evaluate the extent to which a company meets the requirements in their Green Equity Principles. The CTA is S&P Global Ratings' assessment for the exchanges where we are an approved reviewer. We assess the share of revenue and investments contributing to the green economy using our Shades of Green approach. For companies wishing to pursue a Green Equity label, we offer an add-on in which we review alignment with relevant principles. We can also assess against the EU taxonomy, if doing so is required by the exchange. However, we are not providing any kind of assurance of EU Taxonomy reporting. Each exchange has an application process, which may include submitting information directly to the exchange.

Related Research

• Analytical Approach: Climate Transition Assessments, July 18, 2024
• Analytical Approach: Shades of Green Assessments, July 27, 2023

Other contacts: Harald Lund, Global Head of Sustainability Methodology & Research, Oslo, harald.lund@spglobal.com; Kristina Alnes, Oslo, Kristina.alnes@spglobal.com