Charting the Path to Decarbonization: Insights from MSCI's Transition Finance Tracker
Overview
The MSCI Transition Finance Tracker provides a comprehensive analysis of corporate climate ambitions and financial flows, highlighting the progress and challenges in the global energy transition. This report underscores the critical role of finance in driving decarbonization and managing climate risks.
Projected Temperature Alignment of the World’s Listed Companies (Implied Temperature Rise in DegC)
Corporate Climate Ambitions
The report reveals that corporate climate ambition is on the rise, with 14% of listed companies having climate targets validated by the Science Based Targets initiative (SBTi) as of March 31, 2025. This marks a significant increase from the previous year, showcasing a growing commitment to sustainable practices. The industrials sector leads in SBTi-validated targets, followed by consumer discretionary and IT.
Greenhouse Gas Emissions
Despite the rise in corporate climate ambition, only 12% of listed companies are aligned with limiting global temperature rise to 1.5°C above preindustrial levels. Alarmingly, 61% of companies project warming of more than 2°C, with nearly one-quarter potentially contributing to a temperature increase of over 3.2°C. This highlights the urgent need for more aggressive emission reduction strategies.
Financial Flows and Climate Funds
The report also delves into the carbon intensity of climate transition funds, which is nearly five times that of Paris-aligned funds. This high carbon intensity is intentional, as these funds aim to advance decarbonization by investing in emissions-intensive sectors. Additionally, private-capital climate funds allocate 40% of their investments to the emissions-heavy utilities sector, compared to just 8% for publicly listed climate funds.
Energy Transition and Innovation
China emerges as a leader in both fossil fuel consumption and clean-tech innovation, reflecting the complex dynamics of the global energy transition. The report emphasizes the need for economies to decarbonize at scale to support corporate climate ambitions and mitigate physical risks associated with a warming world.
Disclosure and Transparency
Enhanced disclosure practices are crucial for tracking progress and ensuring accountability. The MSCI Transition Finance Tracker provides valuable insights into corporate targets, financial flows, and the broader climate risks and opportunities. This transparency is essential for investors looking to deploy capital effectively in the fight against climate change.
Conclusion
The MSCI Transition Finance Tracker offers a detailed snapshot of the current state of corporate climate ambitions and financial flows. While progress is evident, significant challenges remain in aligning global efforts with the 1.5°C pathway. The report underscores the pivotal role of finance in driving the energy transition and managing climate risks, highlighting the need for continued innovation and aggressive emission reduction strategies.
