Financial Institutions Need Smarter Transition Intelligence — Here’s How

Corporate transition assessments can be transformed into tools for delivering transition intelligence with three key innovations.

To keep pace with evolving regulatory expectations and market developments, financial institutions are increasingly turning to corporate transition assessments — evaluations of how a client or investee will be affected by and respond to the energy transition — to gain insights into climate-related risks and opportunities. Yet, despite their importance, transition assessments often fall short of delivering business-relevant intelligence to financial institutions.

This is because today’s assessments often produce superficial snapshots of companies. For financial institutions to make informed decisions about capital allocation, client engagement, and risk management, transition assessments must evolve into tools that provide deep, actionable intelligence. Below we discuss the pitfalls of current assessments and point to how some adjustments — even if implemented for a small subset of priority companies — can deliver big returns.

The shortcomings of current practices 

Two areas offer the greatest potential improvements to the value of corporate transition assessments:

First, the level of analytical detail that assessments provide can be strengthened. Today’s assessments mostly rely on companies’ climate targets, governance structures, and aggregated transition-aligned capital expenditures, but rarely examine the operational realities underlying these figures. Without understanding a company’s assets, transition dependencies, or region-specific constraints, it is hard to see where a company is headed, what stands in their way, and how financial institutions can support companies or mitigate associated risks.

Second, corporate transition assessments results need to be more actionable. Assessments typically result in high-level ratings or summary scores for a company, which can indicate areas of concern but not necessarily inform practical next steps. If a bank risk officer or relationship manager cannot use an assessment to articulate specific transition risks — or opportunities — for a client, for example, its value is diminished.

Transition intelligence as commercial advantage 

To address these limitations, the financial sector must embrace assessments as tools for delivering transition intelligence. A more robust approach to transition assessments involves integrating feasibility and context into the analysis. This includes three key innovations:

1. Transition Footprint Mapping: Mapping a company’s activities and assets to understand where transition exposure and opportunity really lies.
2. Investment Alignment: Evaluating whether a company’s actual investment pipeline (beyond aggregate capital expenditure figures) is consistent with stated targets and sector and regional pathways.
3. Dependency Mapping: Understanding how market factors, technological developments, and national policy frameworks shape what is possible and when for different companies.

Although financial institutions face capacity and data limitations across extensive portfolios, implementing even a handful of these practices for high-priority companies can yield significant benefits. The following contrasting examples of assessments of a major power producer illustrate why depth matters:

Assessment 1: Superficial Snapshot

• The company has a transition assessment score of 3 out of 5
• This reflects an ambitious 1.5°C-aligned target for 2030, but no long-term target
• It also reflects appropriate sustainability governance
• The company has expressed a commitment to build out renewable generation capacity, but lacks capex-based disclosures
• The company discloses emissions annually, but does not include Scope 3 emissions

Assessment 2: Decision-Useful Assessment

• Assessment shows the same disclosures and targets
• Yet, an examination of the company’s projects under construction and announced projects shows a significant gap between the company’s current pipeline and its 2030 target
• The assessment shows the company was primarily relying on the buildout of a new hydropower plant to replace coal assets and meet its target
• The hydropower project failed recently, making it significantly challenging for the company to achieve its transition goals

The second assessment clearly paints a more complex picture. It allows a financial institution to engage the client or investee, meaningfully ask questions about their fallback options for the canceled project, explore financing for alternative low-carbon infrastructure, or flag risk from overexposure to coal in a tightening regulatory landscape. That kind of insight is what creates commercial advantage. It is what allows a relationship manager — who might only get one or two questions on climate with a client per year — to ask the right questions.

A collaborative path forward 

The benefits to more robust corporate transition assessments are significant, but so are the challenges to developing these practices. Many financial institutions already face constraints in building the internal capacity and expertise required for generating transition assessments. Data gaps, especially in emerging markets, further complicate assessments. However, these barriers underscore the importance of investing now in capability-building, peer learning, and cross-sector collaboration.

Emerging frameworks, technological advancements, and AI tools are opening up exciting possibilities to advance assessment practices. What’s needed is a community of practice — financial institutions, regulators, data providers, and civil society working together to turn assessments into a strategic asset — to help financial institutions understand where companies are today, what they aim to achieve, and how capital can be best directed to support credible, effective transition pathways. RMI is working with a community of practice to advance transition assessment practices. In the coming months, we will publish resources and tools including guidance on how to improve transition assessments, selecting and interpreting transition pathways, and incorporating regional context into assessments.

This work — though complex — offers a profound opportunity. Financial institutions are uniquely positioned to enable the global net-zero transition. But to seize this opportunity, transition assessments must move beyond being voluntary or regulatory compliance exercises. They need to deliver value across functions, from risk management to business development, and do so in a way that is scalable and cost-effective.