Janus Henderson x Berkeley Insight Collective: Evaluating corporate transition plans – from theory to engagement
Drawing on insights from Dara O’Rourke, Associate Professor at UC Berkeley, we explore why a holistic evaluation of climate transition is important – and how our proprietary Climate Transition Assessment (CTA) — shaped by key learnings from the Berkeley curriculum — enables investors to better evaluate corporate climate transition plans.
7 minute read
Key takeaways:
- Climate transition plans are now a core component of financial risk management. Companies that lack credible plans face increasing exposure to regulatory, reputational, and operational risks — making climate strategy a material consideration for investors.
- Data-driven engagement can lead to more effective stewardship and capital allocation. By pinpointing specific gaps in a company’s transition strategy, Janus Henderson can tailor engagement to drive meaningful progress and reduce portfolio exposure to climate-related risks.
- A structured, multidimensional framework is essential to assess transition readiness. Our Climate Transition Assessment (CTA) enables investors to move beyond superficial commitments and identify genuine alignment with climate goals.
Financial materiality of climate risk
As part of the co-developed Janus Henderson x Berkeley Insight Collective curriculum, our investment teams explored how climate change is not only a sustainability issue for investors — it’s a material financial risk. A company’s climate transition plan is a strategic commitment that provides investors with essential insight into how the business intends to allocate capital, manage long-term risks, and seize opportunities in the shift to a low-carbon economy – all of which are critical to sustaining competitiveness and value creation. Companies without credible transition plans face mounting exposure to business disruptions, regulatory pressure, reputational damage, and the risk of stranded assets. Those that fail to align their strategies with climate realities may also risk losing their social license to operate — not only in the eyes of regulators and investors, but in the markets they serve. The question is no longer whether firms should transition, but how credibly they can do so. From the outside, it’s often difficult to tell which companies are truly implementing credible transition plans. We believe leaders in this transition will be those that combine bold ambition with tangible action, and strong governance with measurable progress.
Dara O’Rourke, Associate Professor at UC Berkeley’s Rausser College of Natural Resources:
Material financial risk from climate change is no longer an abstract, far-in-the-future concern. Companies, supply chains, and entire sectors are being disrupted by climate extremes around the world. The smartest companies need to be taking action today to decarbonise and build resilience.
Elevating engagements through proprietary data
Transition readiness doesn’t just help us evaluate companies — it shapes how we engage with them. Leveraging our proprietary research and data to understand how companies plan to navigate the transition not only informs our investment evaluation, but also shapes how we engage with them. We can tailor our conversations and engagement strategies to specific gaps we identify – helping ensure that capital is aligned with credible, forward-looking strategies. For example, if a company shows strong ambition and governance but weak investment, we can encourage capital expenditure alignment and clearer implementation plans. If a company’s achievements are trailing despite having the right frameworks in place, our focus may shift towards enhancing transparency and setting interim milestones. This data-driven strategy allows us to transcend generic interactions and pose questions that are precise, relevant, and rooted in solid data.
Assessing the building blocks of a transition plan — what we look for
To support deeper analysis of climate-related risks and opportunities, we’ve developed a proprietary, data-driven Climate Transition Assessment (CTA) tool, leveraging insights from our co-developed curriculum with UC Berkeley. Available to all our investors and analysts, this tool draws on dozens of data points from third party providers and applies our proprietary scoring methodology. The CTA evaluates companies across four strategic dimensions – our ‘4-As’ framework:
Ambition is where a company signals its intent. We assess whether that intent is credible, comprehensive, and aligned with global climate goals. This includes the scope and timelines of emissions reduction targets, reliance on offsets, and whether targets are validated by the Science Based Targets initiative (SBTi). Near-term targets are especially important. We also consider whether ambition is grounded in science — using third-party metrics like implied temperature rise and peer-relative transition scores — and whether the company’s targets reflect its sectoral carbon budget.
Action is where ambition becomes operational. We assess whether companies are investing in the transition through capital allocation, operational changes, and innovation. This includes climate-aligned CapEx (capital expenditure) and OpEx (operational expenditure), green revenues, supply chain engagement, deployment of low-carbon technologies and internal carbon pricing. This helps us determine whether a company is actively aligning its strategy with a low-carbon future.
Accountability is arguably the most important dimension – it’s what turns ambitions into execution and ensures that climate goals are treated with the same seriousness and financial ones. A company can have high ambitions and even take action toward them, but without governance structures that embed climate into decision-making, progress is fragile. We assess whether climate oversight exists at board level, whether executive compensation is linked to sustainability, and whether disclosure practices are in place. We also look for internal actionable metrics — such as business unit-level KPIs (key performance indicators) or climate-linked performance reviews — that translate climate goals into day-to-day operations. Governance risks like pay controversies, shareholder dissent, and leadership concerns also inform our view of credibility.
Achievements is the ultimate test: is the company delivering results? We assess emissions trends, absolute emissions and carbon intensity, and performance relative to peers. While results must be interpreted in context, they are a critical indicator of credibility. A company may not be hitting every target— emissions may even be rising — but if ambition, action, and accountability are strong, we see a clear and credible path to decarbonisation. Temporary emission increases due to acquisitions or strategic investments — especially in decarbonising technologies — may be justifiable, but over time, progress must be evident and consistent with stated goals.
Our CTA in action
In a recent engagement with a transportation equipment manufacturer, our CTA revealed a disconnect between the company’s stated ambition and its execution. While the company set a 1.5°C-aligned target for Scope 1 and 2 emissions, the lack of SBTi validation and limited investment in green activities raised questions about credibility. The CTA also flagged gaps in verification and capital allocation, prompting us to dig deeper. We asked targeted questions on executive incentives, scenario analysis, and internal carbon pricing — all informed by the CTA’s findings. The company confirmed that while it does not plan to seek SBTi validation, it conducts scenario analysis, applies carbon pricing in select regions, and links sustainability goals to executive bonuses. Our data-driven engagement didn’t just highlight gaps — it enabled a more focused, informed, and ultimately productive dialogue.
Dara O’Rourke, Associate Professor at UC Berkeley’s Rausser College of Natural Resources:
Janus Henderson’s Climate Transition Assessment is at the cutting edge of financial analysis of corporate climate action. The CTA helps analysts dig down beneath glossy annual sustainability reports and the jargon of CDP, SBTi, ISSB, etc. to the key actions and mechanisms that will determine which corporations are truly investing in the climate transition.
Key conclusions
Climate transition plans are no longer optional — they are a financial imperative. Our proprietary data tools and informed client engagements provide clarity to a fragmented and inconsistent landscape, helping investors distinguish between companies that are genuinely aligned with the transition and those that are not. We believe comprehensive investment insights lead to better-functioning markets by enabling more effective comparison across companies, supporting efficient capital allocation, and reducing the risk of misinformed investment decisions. Our comprehensive research and data tools strengthen our ability to better manage financially material risks for our clients— from stranded assets and regulatory penalties to reputational damage and long-term value erosion. By evaluating ambition, action, accountability, and achievements in an integrated framework, we can engage with precision — asking the right question to drive targeted outcomes., In a rapidly evolving landscape, these insights help us manage climate risk, protect portfolios, and support the shift to a more sustainable economy.
The Janus Henderson x Berkeley Insight Collective allows our investment teams to deepen our understanding of climate-related financial risks with leading academic experts.
Capital expenditure (CapEx): Money invested to acquire or upgrade fixed assets such as buildings, machinery, equipment, or vehicles in order to maintain or improve operations and foster future growth.
Carbon pricing: An instrument that captures the external costs of greenhouse gas (GHG) emissions – the costs of emissions that the public pays for, such as damage to crops, health care costs from heat waves and droughts, and loss of property from flooding and sea level rise. It ties them to their sources through a price, usually in the form of a price on the carbon dioxide (CO2) emitted.
Climate transition: The process of moving from a traditional to low-carbon economy by implementing plans to reduce greenhouse gas emissions and align a business model with climate science.
Green revenues: Revenues derived from green activities like selling products that benefit the environment and use it as a direct measure of that firm’s business operations and its impacts on the environment.
Low-carbon economy: A system that emphasises reducing carbon dioxide and other greenhouse gas emissions through low-emission practices and technologies.
Operational expenditure (OpEx): Operating expenses are the costs that a company must make to perform its operational activities.
SBTi: The Science-Based Targets initiative drives ambitious climate action in the private sector by enabling companies to set science-based emissions reduction targets.
Scope 1 and 2 carbon emissions: Scope 1 emissions are direct greenhouse gas (GHG) emissions from owned or controlled sources. Scope 2 carbon emissions are indirect GHG emissions, such as those created through the generation of purchased energy (e.g., electricity).
Stranded assets: Assets that suffer unanticipated or premature write-downs, devaluations, or conversions to liabilities due to climate change-related impacts.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
There is no guarantee that past trends will continue, or forecasts will be realised.
Marketing Communication.
7 minute read
Key takeaways:
- Climate transition plans are now a core component of financial risk management. Companies that lack credible plans face increasing exposure to regulatory, reputational, and operational risks — making climate strategy a material consideration for investors.
- Data-driven engagement can lead to more effective stewardship and capital allocation. By pinpointing specific gaps in a company’s transition strategy, Janus Henderson can tailor engagement to drive meaningful progress and reduce portfolio exposure to climate-related risks.
- A structured, multidimensional framework is essential to assess transition readiness. Our Climate Transition Assessment (CTA) enables investors to move beyond superficial commitments and identify genuine alignment with climate goals.
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