This note highlights the growing importance of transition finance for financial market participants. However, the lack of clear and harmonized methodologies makes it more difficult to assess companies’ level of transition.

Defining, implementing, and disclosing transition plans has become a central component of effective capital allocation and risk management. If a company fails to transition—or anticipates that transition poorly—it may be considered exposed to transition risks. As a result, transition plans are increasingly becoming a strategic tool for many companies and investors, within an international context shaped by both the intensification of climate change impacts and emerging geopolitical risks.

The ESG Team at ODDO BHF AM has developed an internal methodology to address the absence of a clear framework for evaluating companies’ level of transition. This approach focuses on assessing their strategic commitment, the evolution of their business models to support the transformation of our economies, and their operational performance in decarbonizing their own activities.

Applying this internal methodology to a universe of approximately 8,000 companies leads to the following conclusions:

• 79.5% of the companies analyzed do not have a credible transition plan. These companies are often characterized by smaller market capitalizations, a lack of regulatory requirements related to transition risks or sustainability transparency, and their sector of activity (as the concept of transition is more difficult to implement in certain carbon- intensive industries).

• Conversely, 20.5% of companies have a transition plan deemed credible. These are predominantly European companies with large market capitalizations, reflecting the central role of transition within the European regulatory framework.

• Only 1.7% of the companies analyzed have a business model that is heavily dependent on the transition. This figure highlights that a significant share of companies will need to adapt their business models to remain viable in a transitioning world.

These findings are consistent with the observation that the world remains far from the Paris Agreement objectives (i.e., limiting global warming to 2°C), due to a transition that is both too slow and uneven. Nevertheless, the transition is underway. We recommend that stakeholders view corporate transition as a dynamic, non-linear process and place value on companies’ ability to transform production and consumption systems. Beyond their capacity to decarbonize operations, it is ultimately companies’ ability to reinvent themselves and drive systemic change that should be prioritized—this is what will have the greatest impact on the transition.