MSCI’s quarterly “Net-Zero Tracker” report, which started in 2021 ahead of COP26 in Glasgow, went through a name change earlier this year. Now known as the “Transition Finance Tracker”, two quarterly reports have been published so far in 2025 — one in April and another in July.
Linda-Eling Lee, founding director of the MSCI Sustainability Institute, says finance has changed significantly in recent years, and so have the economics around decarbonisation. “There has been greater multi-dimensionality, really, to the way people understand what it means to be on a decarbonisation path. It really is much more expansive than just adding up the emissions.”
Speaking to The Edge Singapore at Temasek’s Ecosperity Week 2025 conference in May, Lee says a “snapshot view” of corporates’ decarbonisation progress ignores the “evolving, changing view of the world”.
“To have much more of a whole-of-economy view, we move beyond just looking at the world in green and brown terms, but actually these shades that you’re trying to migrate [towards]. Every single sector actually has a role to play, and not just necessarily fossil fuels or renewables,” she adds.
In practice, this means while MSCI’s latest report names 20 listed companies (listcos) with the largest absolute Scope 1 and 2 emissions globally, it also inserts a caveat that their emissions “do not necessarily correlate directly with climate-related financial risk”.
As at June 30, India’s NTPC Limited has disclosed the most Scope 1 emissions, followed by China’s Datang International Power Generation and China National Building Material; while French industrial gas supplier L’air Liquide has disclosed the most Scope 2 emissions, followed by Chinese energy and agricultural company Tongwei and Saudi Arabian chemical manufacturer Saudi Basic Industries (SABIC).
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Utilities have the largest Scope 1 emissions because some rely on fossil fuels for power generation, says MSCI. Meanwhile, the largest emissions based on electricity use, or Scope 2, belong to companies with emissions-intensive industrial processes.
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According to MSCI, listcos and their investable unlisted counterparts directly contribute nearly onethird (32%) of global emissions. MSCI’s analysts estimate that Scope 1 emissions of the world’s listcos ticked down by about 1% in 2024 to 11.2 gigatons.
Listco emissions contribute nearly one-fifth (19%) of global emissions, while the Scope 1 emissions of the roughly 65,000 companies in private asset funds add nearly 13%. MSCI adds that “a small share” of both listed and unlisted companies generate “the lion’s share of corporate emissions”.
While the report acknowledges that “businesses with high emissions contribute to global warming and its effects”, MSCI’s analysts add that companies’ emissions today “don’t tell us much about their future trajectory”. “For that, we use forward-looking indicators, such as companies’ projected emissions and capital expenditures along with MSCI’s Implied Temperature Rise and other alignment metrics.”
Implied Temperature Rise
MSCI’s Implied Temperature Rise is a “forward-looking climate impact metric” that financial institutions use to assess the alignment of portfolios with global climate goals.
According to MSCI, the world’s listcos align with a projected warming of 2.7°C above pre-industrial levels, based on their aggregate emissions, sector-specific carbon budgets and climate targets as of June 30.
This runs counter to the Paris Agreement, a climate change treaty adopted in 2015 that aims to limit global warming to well below 2°C above pre-industrial levels, preferably kept to 1.5°C.
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Only 12% of listcos are aligned with a projected warming of 1.5°C or less, while an additional 26% are aligned with warming between 1.5°C and 2°C, according to MSCI. 62% of listcos are on an emissions trajectory that would breach the 2°C threshold, including 26% of companies whose trajectories would exceed 3.2°C.
Across 25 industries, companies in energy (3.7°C), materials (3.2°C), and consumer discretionary and retail (3.1°C) have the highest estimated climate impact, significantly overshooting a 1.5°C warming threshold.
Conversely, media, telecommunications, household and personal products, insurance, pharmaceuticals, and software and services show greater alignment, says MSCI.
“The data highlights the opportunity for investors to finance the transition to a low-carbon economy, and the difficulty for companies in emissions-heavy industries to adopt Paris-aligned targets,” reads MSCI’s report. “Financing the transition means not just counting the total emissions financed but also considering carbon budgets and companies’ forward-looking climate impact.”
Investing in and around the transition
Transition finance focuses on investing in emissions-intensive sectors and encouraging long-term decarbonisation. MSCI says comparing the carbon intensity of climate funds underscores this point.
In terms of tonnes of emissions per US$1 million ($1.2 million) in sales, transition funds have nearly 2.5 times greater carbon intensity than that of so-called “Paris-aligned funds”, which avoid investing in fossil fuels and require steep annual emissions reductions in line with the goals of the Paris Agreement.
Climate transition benchmarks, which feature a more gradual pathway and less-stringent exclusions, fall somewhere in between. That said, all three fund types — transition funds, climate transition funds and Paris-aligned funds — display a much lower Scope 1 and 2 carbon intensity than the total funds universe.
Public or private?
Investors in privately held companies — whether through private equity, venture capital or hybrid funds — can often influence corporate behaviour more directly by virtue of their controlling ownership stakes.
According to MSCI, 37% of investments in private capital climate funds are allocated to the utilities sector — an emissions-intensive industry that offers significant opportunities to support the energy transition — compared to just 10% of publicly-traded climate funds.
Public climate funds tend to focus more on transition-enabling sectors, says MSCI. One-fifth of investments in publicly-traded climate funds are in the information technology sector and 12% are in materials — both essential to scaling low-carbon technologies.
In contrast, private capital funds allocate just 8% and 3%, respectively, to these industries.
The majority of publicly-traded climate funds are based in Europe, while most private climate funds are US-based, says MSCI. But regardless of where climate funds are based, they invest primarily in the US.
As at June 30, 60% of investments in publicly-traded climate funds were in US-listed companies or other US-domiciled assets, with 25% in Europe-listed firms and 13% in APAC.
Private climate funds follow a similar pattern, with nearly two-thirds (65%) of assets allocated to US-based investments.
Comparing carbon efficiency
MSCI also notes that some financial institutions use “production-based emissions intensities” to assess how carbon-efficient companies within the same industry manage their industrial output.
These metrics are calculated by dividing a company’s total emissions by its annual physical production — whether measured in megawatt-hours of electricity generated, energy extracted from oil and gas or coal, or tonnes of cement produced.
MSCI picked four industries — power, oil and gas, coal and cement — and compared their average production-based emissions intensities with sector-specific 2030 target pathways set by the International Energy Agency (IEA).
Interestingly, MSCI has named four companies that derive at least 75% of their revenue from their respective industry and whose production intensity aligns most closely with the IEA benchmark as at June 30.
They are Chinese power company Huaneng Lancang River Hydropower, United Arab Emirates’ oil and gas company Dana Gas, US coal company Ramaco Resources and Saudi cement company Yanbu Cement Company.
Speaking about the shift towards embracing transition finance, Lee says the financial industry needs to be “more disciplined” about the use of language.
“People use the same terms to mean different things; they use different terms when they’re talking about the same thing. We’re not very disciplined in that area,” she adds.
“I feel like I’ve made a career of trying to clarify when it is that you’re aiming to reduce your risk, and when it is that you’re trying to raise your impact. This kind of conflation that happens in all aspects of this area is a real Achilles heel.”
