Technology and Policy Both Temper and Drive Transition Risk
Emissions aren’t the only driver of transition risk for companies. To fully understand the headwinds and opportunities companies face, institutional investors, corporate advisors and underwriters need to consider the full picture.
The economic costs associated with the energy transition are underpinned by greenhouse-gas (GHG) emissions, but manifest through the availability of technology and stringency of regulation. If there are no viable technologies to decarbonize high-emitting activities, or no low-emission alternatives to certain products and services, companies may face fewer economic consequences, at least in the short term. Against that, regulators may create bans, standards or trading schemes to price emissions and force companies to bear some of the costs of reducing them.
While the energy, utilities and materials sectors face the highest transition risks overall, according to our research, variations in underlying business models and relevant policies drive important differences at the sub-industry and company level.1 For example:
- Energy companies face high pressure because of the emissions intensity of their products, but the type of business activities matters. On average, oil and gas producers such as Hess Corporation, EQT Corporation and ConocoPhillips face higher risks than refiners and marketers such as Neste Oyj or Marathon Petroleum Corp.
- Transition risks for cement producers in the construction materials sub-industry, including Cemex, Holcim and Heidelberg Materials, may be tempered by the lack of commercially adoptable alternatives — today it is hard to produce cement through other processes.
- Electric utilities face moderate business pressure on average, but regional policy pressure is split, with regions like the EU penalizing emissions more than the U.S. (e.g., Endesa, S.A. and EDP would face more policy pressure on average than Southern Company, Duke Energy Corp. or AEP).
Source: MSCI ESG Research as of June 13, 2025. The metrics shown are on a 0-10 scale, with 10 indicating highest pressure or risk. The companies included in the analysis were 1,230 constituents of the MSCI World Index, as of June 13, 2025. The chart shows the distribution of transition pressure, business-pressure and policy-pressure scores from MSCI's Energy Transition Framework. The y-axis represents the relative frequency of sub-industry constituents for each unit of score shown on the x-axis (calculated through Kernel Density Estimation, with the values integrating to 1).
Energy Transition Framework
Assess how the energy transition may impact your portfolio and see which companies are positioned to lead with MSCI’s Energy Transition Framework.
Materiality-Weighted Portfolio Carbon Footprint
We found that, over the past decade, emissions-based transition risk had a stronger relationship with corporate earnings, stock performance and credit risk than previous academic studies suggested.
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1 Sectors, industries and sub-industries defined according to the Global Industry Classification Standard (GICS®). GICS was jointly developed by MSCI and S&P Dow Jones Indices.
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