{"id":26377,"date":"2025-08-04T13:26:13","date_gmt":"2025-08-04T18:26:13","guid":{"rendered":"https:\/\/blogs.law.columbia.edu\/climatechange\/?p=26377"},"modified":"2025-09-18T11:23:21","modified_gmt":"2025-09-18T16:23:21","slug":"when-tracking-corporate-climate-conduct-do-we-focus-too-much-on-emissions","status":"publish","type":"post","link":"https:\/\/blogs.law.columbia.edu\/climatechange\/2025\/08\/04\/when-tracking-corporate-climate-conduct-do-we-focus-too-much-on-emissions\/","title":{"rendered":"When tracking corporate climate conduct, do we focus too much on emissions?"},"content":{"rendered":"
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This blog is the first in a three-part series<\/a> on sustainable finance metrics that better evaluate corporate climate risk, opportunity, and impact, and make metrics more relevant to financial decision-making.<\/span><\/i><\/p>\n

Corporate climate practices have matured for over a decade, creating a specialized industry of experts evaluating climate performance within and outside of firms of all stripes. Greenhouse gas (GHG) footprinting has been the industry’s main yardstick to date. However, since footprinting is generally backward-looking, corporate sustainability practice has also begun to emphasize a more forward-looking perspective, focusing on transition plans. Transition planning has often continued to lean heavily on footprinting by focusing on footprinting targets. Recent efforts, like the World Benchmarking Alliance-hosted <\/span>ACT Framework<\/span><\/a>, developing a sophisticated array of transition plan variables. The International Sustainability Standards Board has also recently published <\/span>guidance<\/span><\/a> on transition plan disclosures, with a similarly all-encompassing approach capturing a wide arrange of process, interim, and outcome metrics.<\/span><\/p>\n

Despite efforts to make these climate practices more relevant to business, concepts like GHG footprints, 1.5\u00b0C targets, and transition plans often remain abstract for corporate officers and banking and investment analysts. Sustainable finance remains niche.\u00a0 More sophisticated frameworks add complexity, risking that they become even less accessible.<\/span><\/p>\n

This blog makes the case that transition planning is an opportunity to renew focus on a simpler set of variables. I argue that a company\u2019s capital asset mix is the centerpiece of its current climate performance, and its capital plan \u2013 and particularly its CapEx \u2013 is the key to understanding a company\u2019s climate future.<\/span><\/p>\n

Stepping out of the footprint<\/span><\/h2>\n

The appeal of footprinting is clear: our collective climate fate depends on how much GHG emissions make their way into the atmosphere, and every ton matters. GHG Footprints are ascertained by calculating \u2013 or more often, <\/span>roughly approximating<\/span><\/a> \u2013 all of the GHG emissions with which a company can be associated. By incorporating all the emissions a company touches or facilitates within the footprint, no matter the relationship, footprinting aims to incentivize the company to pursue emissions reductions wherever it might have influence.<\/span><\/p>\n

From most businesses and their investors’ perspective, though, the footprint can seem like an abstract concept divorced from the company\u2019s core purpose\u2013making and selling a product for a profit. It can also be hard to translate clearly into financial risk and opportunity. It becomes all the harder when the footprint aggregates widely varying risks and opportunities: footprints combine emissions from all over the value chain, each representing a different relationship to the company\u2019s business and subject to different competitive, regulatory, legal, and social pressures.\u00a0<\/span><\/p>\n

An emissions footprint might help an analyst consider exposure to a hypothetical global carbon price, where every exposure represents a hidden cost, but analyzing any more realistic policy context requires a whole new skill set to connect back to financial value. As much as it has become the bread-and-butter of the corporate sustainability industry built around it, the relevance of footprinting rises and falls with that industry, and struggles to break through as part of conventional financial analysis.<\/span><\/p>\n

The very real world of capital planning<\/span><\/h2>\n

Another way of thinking about a company\u2019s relationship to emissions is through its capital assets. Capital assets are durable, long-lived objects \u2013 anything from factories and machines to dairy cows and standing timber \u2013 that produce something that generates the company revenue. Capital assets are also implicated in the vast majority of corporate greenhouse gas emissions. Capital assets: emit GHGs directly (so-called Scope 1 emissions), demand emitting inputs (Scope 2 and upstream Scope 3), and create emitting products, like fossil fuels or the various machines that use them (downstream Scope 3). While there are exceptions, like company emissions due directly to land use change, capital assets largely define a company\u2019s emissions profile, especially for the most climate-relevant companies.\u00a0<\/span><\/p>\n

If a company\u2019s capital assets largely \u201clock in\u201d present-day emissions, its capital plan is a choice that foretells the company\u2019s climate future. Understand a company\u2019s plan for acquiring, developing, and maintaining its capital assets, and you have a clear picture of its future emissions. Is the company planning to build plants for electric or gas-powered cars? Green steel mills or coal-burning ones?\u00a0<\/span><\/p>\n

While capital plans aren\u2019t a standard metric, CapEx\u2014the investment in new capital assets\u2014is at their core. CapEx shows where a company is headed, what emissions it\u2019s enabling, and whether it\u2019s supporting or delaying the transition with its balance sheet.<\/span><\/p>\n

Making CapEx central to evaluating corporate climate performance has several benefits. First, it provides a clear and essential link between climate performance and financial value. A company’s future revenue is intimately intertwined with its CapEx, particularly for the most emissions-relevant ones. Because new capital assets are expensive, companies must evaluate their viability and plan for them. This makes CapEx and capital planning a key preoccupation of financial analysis already: companies and investment analysts already scrutinize whether planned investments will generate the revenue necessary to justify them. Overlaying an evaluation of climate-related risks and opportunities should be a natural extension of financial diligence, folding in questions like: <\/span>Do planned CapEx (or lack thereof) make financial sense in a carbon-constrained world? Does the expected revenue from planned assets reflect competition with emerging low-carbon technologies (and, if the company miscalculates, how would early retirement affect liabilities, dividends, creditworthiness, etc)? From the investor\u2019s perspective, is the company\u2019s valuation built on proper assumptions about these assets and their value based on the revenues they are projected to generate?<\/span><\/i><\/p>\n

Centering capital plans also helps ensure transition planning does not overly rely on GHG target-setting. Focusing on capital plans helps to avoid the loopholes that come with distant 2050 targets that are <\/span>easily gamed<\/span><\/a> and the struggles associated with getting companiess to secure short-term 2030 targets. In 2023, <\/span>only 6% of Fortune 500 companies had climate targets for 2030<\/span><\/a> or sooner, compared to the 33% with longer-term targets. Short-term GHG pledges may become less important for understanding a company\u2019s future footprint anyway: a company\u2019s CapEx can inform a realistic calculation of its emissions over the next decade or more, and certainly five years. It can also capture companies with low footprints, but that are dependent on high-carbon industry supply chains (think oil and gas services).\u00a0<\/span><\/p>\n

Focusing on the company\u2019s CapEx also helps us escape what I will call the \u201cgood emissions paradox.\u201d At the heart of decarbonization is replacing carbon-intensive goods with zero-carbon goods and services, so-called \u201cclimate solutions (I and others deep-dive on <\/span>climate solutions investing<\/span><\/a> in this 2024 for the Global Impact Investment Network). Companies scaling hard tech climate solutions are essential, and we should encourage investors and lenders to enable them to scale. The problem arises when hard tech companies with new solutions inevitably increase emissions in those business lines as they go from a asset-light businesses of idea and office space to the asset\u2013heavy material reality of factories and plants. Overly focusing on the footprint treats these emissions, essential to creating a net-zero economy, as a harm, and pushes financing toward capital-light businesses that may play little role in creating a net-zero economy. CapEx gives us an alternative metric through which to evaluate the company, complementing the footprint, and enabling us to ask if capital-intensive companies are building climate solutions or locking society into future emissions. In a sense, although CapEx foretells a company\u2019s emissions profile, it is not merely a proxy for emissions but an indicator of the company\u2019s role in creating or delaying the net-zero material economy.<\/span><\/p>\n

Applying CapEx in practice<\/span><\/h2>\n

The link between capital planning and emissions is not new. Initiatives like the <\/span>Taskforce on Climate-related Financial Disclosures<\/span><\/a> and the <\/span>Science-Based Target Initiative<\/span><\/a> make some reference to capital planning as important metrics, but do not focus on it. Capital planning does, however, underpin a few approaches to corporate accountability today. Carbon Tracker Initiative\u2019s famous <\/span>oil and gas supply cost curves<\/span><\/a> evaluate whether the capital plans of energy companies exceed the carbon budget implicit in climate scenarios, assuming any remaining budget is eaten up by the least-cost reserves. The <\/span>Paris Aligned Capital Transition Assessment (PACTA)<\/span><\/a>, created by 2dii and acquired by RMI, effectively evaluates the \u201calignment\u201d of capital plans of each company in the financial portfolio to climate scenarios, assuming carbon budgets are divided regionally and sectorally on a fair share basis.\u00a0<\/span><\/p>\n

The <\/span>Accelerate Climate Transition<\/span><\/a> (ACT) Initiative has also recently emphasized the importance of CapEx, elevating it in its <\/span>framework<\/span><\/a>. The framework\u2019s CapEx-specific metric, however, only tracks a company\u2019s CapEx in “green” technologies<\/a><\/span>, ostensibly to see how serious they are about investing in the transition, while lumping all other CapEx together. This approach is too narrow. It misses CapEx\u2019s ability to answer the most climate-salient question we can ask a company: <\/span>Are they building durable assets that lock the economy into a high-emission future, or not? <\/span><\/i>It is great to track green capex, but we should also want to know whether a company is investing in the ability to produce internal combustion engines, locking in fossil fuel demand with its product versus, say, ball bearings that can be used for anything from cars to wind turbines. While ACT\u2019s Framework does implicitly track high-carbon CapEx choices with other metrics \u2013 benchmarking companies against sector pathways, and evaluating lock-in, for example \u2013 it requires greater expertise from users to piece together the story across multiple variables at the cost of simplicity.<\/span><\/p>\n

The limits and future of CapEx as a climate metric<\/span><\/h2>\n

One challenge of focusing on CapEx is that it is not equally relevant to all companies, whereas everyone can prepare a GHG footprint. There is a sort of cultural solidarity to the latter: companies with vastly different business models and operations can be enlisted in the transition to a net-zero economy by encouraging them to assess and manage their GHG footprints. On the other hand, not all companies are equally climate-relevant, and narrowing attention to capital-intensive companies and sectors may bring focus on the companies most relevant to the net-zero transition, whether managing for risk or impact.<\/span><\/p>\n

Another challenge is that companies often disclose relatively limited, high-level information about their capital plans in their financial disclosures. That does not mean the information is unavailable: third-party service providers abound. Carbon Tracker, for example, has <\/span>long used Rystad Energy\u2019s data sets<\/span><\/a> and PACTA\u2019s <\/span>multi-sector analysis aggregates licensed data<\/span><\/a> from multiple providers. Again, this loses some of the \u201cwe’re all in this together\u201d approach to centering the discussion on a company\u2019s publicly disclosed GHG footprints and targets to which everyone has equal access, but also it may shift attention away from a company\u2019s stated aspirations and toward a more productive conversation about where the business is investing and what it means for its future and for climate.<\/span><\/p>\n

Companies will also often claim that capital planning details constitute commercially sensitive information. Even if true, sustainability and conventional financial professionals engaging with company transition planning will need a more granular understanding of capital plans, and the company\u2019s assumptions about the revenue its durable capital assets will generate in an increasingly volatile, decarbonizing world. This tension points to an alternative priority for investor-company engagement versus, say, continued wrangling over the adequacy of Scope 3 disclosures. Focusing on capital plans may also finally help bridge the gap between sustainability and conventional finance.\u00a0\u00a0<\/span><\/p>\n

There are, of course, also complexities in identifying what constitutes \u201cgood\u201d and \u201cbad\u201d CapEx, from the perspective of risk, opportunity, or impact. In one sense it is simple, since decarbonization is fundamentally about replacing emitting capital assets (and fixed capital stocks more generally) with non-emitting alternatives, but edge cases can be complicated. (I explore this issue more deeply in a paper on <\/span>climate solutions<\/span><\/a>.)\u00a0<\/span><\/p>\n

CapEx revives emissions accounting measurement<\/span><\/h2>\n

In financial analysis, as in sustainability, no metric provides a complete picture of a company\u2019s state or future. It is therefore always important to develop a range of metrics and understand their strengths and limitations. This principle, however, does not tell us where to focus. I argue that CapEx is where to focus: a metric that clearly connects climate risk, opportunity, and even impact, to financial value creation in a way readily understood by the financial world, and that tells us whether a company is creating a material world that locks in emissions, or one that substitutes it with climate solutions. This means treating the company\u2019s capital plan as the heart of its transition plan, complemented with other useful metrics.\u00a0<\/span><\/p>\n

The good news is that capital investment in clean energy is taking off in the aggregate: the IEA estimated about <\/span>$2 trillion of capital investment in 2024<\/span><\/a> in the low-carbon energy system, and twice that of capital investment in the fossil energy system (the merits and demerits of tracking these as ratios will be explored in the next blog in the series). By 2030, though, the same IEA analysis shows that capital investment will need to grow three times faster \u2014 while high carbon capital investment must continue to decline \u2014 to be on target to decarbonize by mid-century while also meeting society\u2019s growing energy demands. If \u201cwhat gets measured matters,\u201d surely CapEx is a metric that matters a great deal on the road to a net-zero economy.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

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