One size won’t fit all

Latest developments

Sector-specific target-setting has gained traction across both policy and industry. Leading economies, including the EU, UK, US, and Japan, have embedded sectoral targets into national strategies, such as the EU’s Fit-for-55 package, the US Inflation Reduction Act, and Japan’s Green Transformation (GX) strategy. These frameworks outline clear decarbonization trajectories for sectors like power, transport, and industry. Multilateral initiatives have expanded, with platforms such as the Industrial Deep Decarbonization Initiative (IDDI), the Breakthrough Agenda, and Mission Innovation fostering cross-border cooperation and aligned goal-setting, particularly in hard-to-abate sectors. This includes, for example, shared targets for scaling near-zero emission cement. In parallel, major industrial players have adopted science-based targets, often aligning their capital expenditure portfolios with 1.5°C pathways. Progress has also been enabled by the growing use of digital tools and monitoring, reporting, and verification (MRV) systems, which allow for more transparent and granular tracking of sectoral emissions and target compliance. However, significant gaps remain. Sectors such as buildings, heavy-duty transport, and agriculture still lack coherent decarbonization frameworks, with limited target alignment across regions and value chains.

Trends and outlook

The development of sectoral climate strategies is expected to accelerate in the coming years, driven by growing compliance requirements such as the EU’s Corporate Sustainability Reporting Directive (CSRD), the Carbon Border Adjustment Mechanism (CBAM), and evolving environmental, social and governance (ESG) expectations from financiers and supply chain partners. Rising carbon prices and tightening emission limits are pushing companies and sectors to define clearer, time-bound decarbonization trajectories. In the United States, the Inflation Reduction Act (IRA) remains in place and continues to drive clean technology deployment, although recent political shifts have curtailed incentives particularly for EVs and renewables development and created uncertainty around its long-term scope and funding.

At the same time, institutional and data capacity remain a barrier, especially in emerging economies, where many sectors lack the technical and regulatory frameworks needed to develop credible pathways. This raises concerns about the global consistency of sectoral ambition and the risk of regulatory fragmentation. As trade-exposed and energy-intensive sectors such as steel, cement, and chemicals face increasing scrutiny, international coordination will become more important. Initiatives that align standards, targets, and reporting practices across borders will be critical to level the playing field, avoid carbon leakage, and enable the scaling of low-carbon solutions globally. Encouragingly, we also see a growing number of initiatives driven by industry itself rather than policymakers, for example, Near Zero Steel in Northern Europe, showing how companies can lead progress even when political signals are mixed.

Governments and other policymakers

Governments should integrate sector-specific carbon budgets and decarbonization roadmaps into national climate and energy strategies, such as National Energy and Climate Plans (NECPs) and Nationally Determined Contributions (NDCs). These roadmaps should be informed by the technical feasibility, investment needs, and emissions profile of each sector, and updated regularly to reflect progress and technological change. Policymakers must also ensure coherence between supply-side planning, including electrification strategies, hydrogen deployment, and CCUS, and demand-side targets across sectors. Regulatory instruments such as the Energy Performance of Buildings Directive (EPBD), Effort Sharing Regulation (ESR), and Emissions Trading System (ETS) should be used to mandate target-setting and transparent disclosure, particularly in high-emitting sectors.

To facilitate coordinated action, governments should establish sectoral transition platforms that bring together industry, finance, and civil society. These platforms can help align incentives, identify barriers, and co-create credible and investable transition pathways tailored to sector-specific context. Companies and industrial players Companies should set emissions reduction targets aligned with the Science Based Targets initiative (SBTi) or consistent with a 1.5°C pathway. These targets should be broken down by business segment and linked to specific technology levers to guide operational and strategic decision-making. To support implementation, climate targets must be embedded into core business functions, including procurement, capital expenditure, and R&D planning. Aligning these processes with long-term decarbonization goals ensures that growth and innovation are compatible with net-zero objectives. Cross-sector and intra-sector collaboration is also essential to define common standards, share best practices, and drive coordinated innovation. In addition, companies should leverage digital tools for emissions tracking, scenario modelling, and MRV, helping strengthen internal accountability and transparency toward investors and stakeholders.

Investors

Investors should require sector-specific emissions targets and credible transition plans from investee companies as part of their ESG integration and stewardship activities. Disclosure expectations should be aligned with recognized frameworks to ensure consistency and comparability. Portfolio alignment with sectoral net-zero pathways is increasingly necessary, supported by initiatives such as the Net-Zero Investment Alliance (NZIA) and sectoral benchmarks developed by the ACT initiative (Assessing Low-Carbon Transition). Investors can steer capital by prioritising companies and projects with robust, sector-aligned decarbonization strategies, using tools such as active ownership, screening, and impact investing.In emerging markets and hard-to-abate sectors, investors have a key role to play in supporting blended finance mechanisms and de-risking instruments that enable investment in long-term transition solutions.

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