Smoke Signals: Finding Leading Indicators of Corporate Decarbonization
Preview
Modeling companies’ future emissions trajectories is essential for transition finance — both to assess alignment with climate goals and to understand investment risks tied to emissions. Since forward-looking methods are often recommended, investors need empirically verified indicators to make better decisions. This paper examines which transition indicators have held predictive power for emissions reductions across sectors and regions.
Key findings:
- Transition indicators can be grouped into four phases: targets and governance, low-carbon investments (e.g., capex, green bonds, patents), revenue-based metrics and recent emissions trends.
- Several indicators showed predictive strength over three to five years for Scope 1 and 2 emissions reductions.
- Predictive power varied by region, with the strongest indicators in Europe and Asia-Pacific, and the weakest in the U.S.
- As the chart below highlights, emissions trajectories differed sharply across regions and climate risk management-score groups, underscoring the importance of robust indicators to identify faster-transitioning companies and target engagement.
Data as of June 2025, sector adjusted. Source: MSCI ESG Research
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