What are decarbonisation pathways?
A decarbonisation pathway is a plan set out to achieve specific climate goals. These goals are closely linked to the United Nations Sustainable Development Goals (SDGs). They’re also often tied to global agreements. For example, the Paris Agreement, which aims to limit global warming to 1.5°C or 2°C above pre-industrial levels.
You can think of a decarbonisation pathway as a step-by-step plan for transitioning from a high-carbon world to a low-carbon one. A high-carbon world is reliant on fossil fuels like coal and oil. In a low-carbon world, emissions are either drastically reduced or balanced out through carbon removal.
Following a decarbonisation pathway involves making deliberate, science-based decisions to:
- manage risks;
- act on opportunities; and
- contribute to a sustainable economy.
The different types of decarbonisation pathways
Depending on the goals, timeframe, and scope, there are several approaches to decarbonisation. Here are the main types:
1. Net zero pathways
Net zero pathways aim to reduce emissions to near zero. Any remaining emissions are to be balanced by activities that remove carbon from the atmosphere. Examples of this are reforestation or carbon capture technology.
This could be:
- transitioning to renewable energy;
- electrifying transport;
- improving energy efficiency; and
- developing carbon removal technologies.
It can also involve engaging with companies to adopt net zero strategies and reallocating capital to sectors leading the transition. For example, clean energy and green infrastructure.
2. Low-carbon futures
Low-carbon futures focus on significantly reducing emissions rather than achieving net zero. These are often used by countries or industries where achieving net zero in the short term is challenging. This could be due to economic or technological constraints.
Activities could include:
- growing renewable energy;
- reducing reliance on coal; and
- transitioning to cleaner fuels.
Low-carbon futures present important opportunities for investments. For example, in sectors like wind, solar, and energy-efficient technologies.
3. Science-based targets pathways
Science-based targets (SBTs) are aligned with the latest climate science. This is to ensure emissions reductions are consistent with the goals of the Paris Agreement. The pathways also provide sector-specific guidance that’s tailored to each industry or organisation. For example, they acknowledge that some industries, like aviation, face greater challenges in reducing emissions.
SBT pathways invest in companies adopting science-based targets to:
- help drive sector-specific progress; and
- ensure portfolios align with credible climate goals.
They achieve this by setting clear, measurable, and time-bound targets for emissions reductions.
4. Just transition pathways
Just transition pathways aim to ensure that the move to a low-carbon economy is fair and inclusive. Particularly for workers and communities that rely on high-carbon industries.
This pathway may support:
- reskilling initiatives;
- funding sustainable job creation; and
- investing in affected communities.
5. Sectoral decarbonisation pathways
These pathways focus on the specific needs and challenges of individual industries. For example:
- transport - electrification of vehicles and investment in public transit;
- energy - replacing fossil fuels with renewables and improving grid efficiency; and
- agriculture - reducing methane emissions and improving land-use practices.
Covering multiple sectors like this is known as diversification. Using a diversified portfolio helps to evaluate the risks and opportunities of each industry.
Why do decarbonisation pathways matter to your pension?
When you save into a pension, your money is invested across a wide range of companies, industries, and assets. These investments have the opportunity to grow over time, providing you with a pot of savings for your retirement. But climate change and the global shift toward a low-carbon economy pose both risks and opportunities to these investments:
risks - high-carbon industries like coal, oil, and gas, face increasing regulation, falling demand, and potential asset devaluation. Climate change itself can disrupt markets, supply chains, and infrastructure; and
opportunities - the move to a low-carbon future is driving growth in renewable energy, electric vehicles, energy-efficient technologies, and sustainable infrastructure.
The Climate Plan excludes the usual suspects such as fossil fuel-producing companies. It excludes both those with direct fossil fuel reserves and those heavily reliant on fossil fuel operations. For example, utility companies with fossil fuel-based power generation.
The plan follows a Paris-Aligned Benchmark (PAB). PABs target a minimum reduction in total carbon emissions of 7% each year. The Climate Plan exceeds this. It aims for total carbon emissions produced by the companies in the Climate Plan to be reduced by at least 10% each year.
By aligning investments with decarbonisation pathways, we’re working towards making sure your pension remains resilient in a changing world in a way that speaks to your values.
Find out more about our Climate Plan.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 09-01-2025
