Introducing the Pulse on Impact, a new GRESB content series that spotlights how Asset Impact’s (a GRESB company) forward-looking climate data turns disclosure into decisions. Each episode, our experts and partners unpack new regulations, market shifts, and product updates to drive real-world decarbonization.

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From Targets to Capital Allocation: Testing the Credibility of Corporate Decarbonisation Plans

In this episode of Pulse on Impact, Alex Clark, Research Director at Asset Impact (a GRESB company), speaks with Vincent Bouchet, Scientific Portfolio’s Director of ESG and Climate Research, about their joint paper, “Evaluating the Consistency of Companies’ Decarbonisation Targets in Critical Sectors.” They explore the ambition–credibility gap between net-zero targets, historical emissions trends, and forward-looking capital expenditure plans across eight high-impact sectors. The discussion highlights the divergence between intensity and absolute emissions pathways, structural misalignment in sectors such as steel, oil and gas, and shipping, and relative convergence in electricity and automobiles. They also examine the implications for investors, lenders, and regulators—arguing that capital allocation, physical intensity metrics, and standardized disclosure frameworks are critical to assessing the credibility of corporate transition plans.

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Can’t listen? Read the full transcript below. Please note that edits have been made for readability.

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^{Alex: Welcome to Pulse on Impact, a GRESB series that spotlights how Asset Impact’s forward-looking climate data turns disclosure into decisions. Each episode, our experts and partners unpack new regulations, market shifts, and product updates to drive real-world decarbonization.}

^{Hello and welcome to Pulse on Impact. My name is Alex Clark. I’m Research Director at Asset Impact, and I’m joined today by Vincent Bouchet, Scientific Portfolio’s Director of ESG and Climate Research.}

^{Today we’ll be discussing a paper that we’ve written together called “Evaluating the Consistency of Companies’ Decarbonisation Targets in Critical Sectors,” which was published late last year.}

^{I’d like to hand over to Vincent. If you could just walk us through what this paper is and what it tells us, and then we can dive into some of the details.}

^{Vincent: The paper we’ve written together is centered on the concept of the ambition-credibility gap. We’ve defined this concept as the gap between three things. First, what climate scenarios say is required in terms of emission reductions among the critical climate sectors. Second, what companies commit in their targets—what they say they’re going to do. And third, what we actually observe in both historical emissions and in capital expenditure plans.}

^{To quantify this gap, we focused on the 20 largest producers across eight critical climate sectors. For each company, we’ve collected data on decarbonization targets, observed historical emissions, and projected emissions derived from current capital expenditure.}

^{On the main results, what we observe is that targets typically assume a sharp acceleration in decarbonization, and they are usually quite close—not always, but quite close—to what net-zero scenarios require. However, when we look at historical data, we find much slower progress, and in many sectors emissions are still increasing.}

^{Capital expenditure-based projections, which reflect concrete and current investment decisions, are slightly more optimistic than past trends. But they remain, for most sectors, far less ambitious than what targets assume and clearly insufficient to close the gap with what scenarios require.}

^{Alex: Great, thank you. One of the things that the analysis in the paper shows is that many companies seem to be aligned with net-zero pathways on emissions intensity—so the amount of emissions per unit of stuff produced—but not on absolute emissions.}

^{Why is this distinction so important? And how can it change the way that progress by companies is interpreted?}

^{Vincent: I think this distinction is critical, and it’s often misunderstood. Emissions intensity measures emissions per unit of output. In our case, we’ve used different physical outputs for each sector—for example, emissions per ton of cement—which are very different from monetary outputs and probably better represent the technological issues at stake in the sectors.}

^{On the other side, absolute emissions measure the total climate impact of these companies. The main thing to understand is that you can reduce intensity and still increase absolute emissions if your production grows. And that’s exactly what we observe in some sectors, such as cement or oil and gas.}

^{Firms in some sectors have managed to decrease their physical intensity thanks to efficiency improvements—better processes, cleaner energy, or incremental technology gains. But at the same time, production keeps expanding. When you combine the two, total emissions in these sectors often stay flat or even rise.}

^{Alex: We decided to compare corporate targets with other ways of looking at how a company might perform in terms of emissions in the future.}

^{First of all, targets are contingent on a number of things. They’re not set in stone. They’re contingent on how serious a company is about delivering them, the ability of that company to deliver, and elements of their delivery strategy that lie completely outside their control. These can include regulation, geo-economic changes, geopolitical changes, and so on.}

^{As things in the real world change, company targets should be expected to be revised. But one of the results highlighted in the paper is that unless you have a view into the underlying emissions structure and actual capital expenditure plans of a company, it’s very hard to understand what might prompt companies to revise their targets—whether upwards or downwards—and whether they’ll be achieved.}

^{As you mentioned, targets also need to be considered relative to a consistent external benchmark. For example, if Shell, a large oil and gas producer, says it will reduce its Scope 1 emissions intensity by 45%, that sounds impressive. But if it’s going to double its production in the same period, we can’t exactly say progress has been made.}

^{Perhaps the most important element of this whole question is whether those targets will be met at all. At the moment, taking companies at their word without digging into the details remains quite widespread across large parts of the financial industry and the ESG data and ratings industry.}

^{First and foremost, you could argue it’s a data challenge. Companies aren’t generally required to disclose detailed transition plans. Even when they do, they are static annual exercises at best. They can only really provide investors with a lagged snapshot of a company’s strategic thinking.}

^{For a lender or investor—particularly one rolling over debt on a regular basis—this is a big issue. When regulation is tightening, stranded asset risks are a major concern for companies not ready to transition. Competition is intensifying, and there’s often no independent check on the credibility of emissions targets.}

^{This is why Asset Impact put together the dataset we used in this paper. It provides a bottom-up, forward-looking view of companies’ emissions in high-impact sectors that drive real-economy activity, particularly underlying physical activity.}

^{Vincent: I think you’re completely right to emphasize this data issue and how investors might use it. It’s also data that can be very useful in corporate engagement. On the debt side especially, you need this kind of information if you want to have efficient conversations with management.}

^{Understanding capital expenditure—current capital expenditure plans—is critical to emphasize the right technologies and have informed discussions with companies.}

^{Alex: I’d really love to dive into some of the sector-level results with you, Vincent. You’ve covered the global findings, but when we look across the eight sectors, we see some very interesting divergences.}

^{Could you walk us through some of the key sector-level results?}

^{Vincent: What we observe is that the contrast is quite stark across sectors.}

^{In steel, oil and gas, and even shipping, misalignment seems structural. Targets exist, but capital expenditure is not moving in the same direction. In oil and gas, investment plans still imply rising absolute emissions when we look at the 20 largest producers. In shipping, capital allocation is far below what would be needed for technologies like hydrogen, carbon capture, or zero-carbon fuels.}

^{On the other hand, electricity and automobiles look very different. Their targets and historical trends—both intensity and absolute emissions—have fallen. These sectors show partial convergence with net-zero pathways.}

^{But even there, dispersion remains large. Some firms are clearly ahead while others lag badly. The message for investors is not that these sectors are solved, but that alignment is possible if—and only if—capital expenditure is directed toward the right technologies.}

^{Alex: Would you say that neither a sector-by-sector perspective nor a global perspective is sufficient on its own? Particularly in industrial sectors like steel, which may depend on decarbonization in power—through electrification or hydrogen—how much should we be looking at intersectoral dependencies?}

^{Vincent: That’s a very relevant question and touches directly on scope.}

^{We’ve chosen specific scopes for each sector. For electricity, cement, shipping, and airlines, we look at direct emissions. So responsibility lies primarily within the sector itself.}

^{For steel and aluminium, we usually consider Scope 1 and 2 emissions. Some decarbonization may be driven by electricity, but electricity is one of the most aligned sectors currently. So it’s hard to argue that steel’s misalignment is due to electricity alone. It seems more structural and technology-specific.}

^{Steel producers may not control electricity intensity directly, but they can influence plant efficiency and electricity use.}

^{For oil and gas, where we consider Scope 3 emissions, the story is more complex. But even restricting the analysis to Scope 1, we see misalignment.}

^{Alex: I’d like to focus on implications for capital providers—banks, investors, and private equity firms.}

^{Targets often look aligned with IEA pathways. But when you overlay historical trends and bottom-up CapEx projections from Asset Impact’s dataset, you see marked divergence.}

^{From an investor or lender perspective, how should these three perspectives—targets, history, and CapEx—be used together? What does this tell us about the credibility of corporate targets?}

^{Vincent: Ideally, you look at all three.}

^{History helps you understand recent trends and operational explanations. But it doesn’t give you a view of the future.}

^{If you’re providing capital, you’re investing in the future. So you must look at both targets and capital expenditure. Targets are often easier to access, but as we show in the paper, they are often not aligned with capital expenditures.}

^{Targets remain useful for engagement—you can hold companies accountable to their commitments. But without examining CapEx, you miss whether those commitments are financially embedded.}

^{Alex: If I draw some conclusions for corporate engagement, investors should anchor stewardship strategies more closely to capital expenditure plans than to targets alone.}

^{Targets are often taken less critically than they should be. That doesn’t mean companies won’t achieve them. But comparing where a company says it will be with where the evidence suggests it will be reveals the size of the gap.}

^{Policy support may help close that gap. And in light of recent volatility in global trade, some factors are outside companies’ control. Still, we should examine the divergence between targets and CapEx to understand under what conditions convergence is possible.}

^{For regulators, this suggests we need better and more standardized data. Perhaps we should extend models like the European Banking Authority’s Pillar 3 disclosures, which mandate sector-specific physical emissions intensity indicators and benchmarking.}

^{Standardized disclosure of historical emissions and performance indicators would help normalize the data framework that investors and lenders struggle with.}

^{Vincent: I fully agree. We always want more data, but perhaps we don’t need more types of data. Instead, we should focus on a smaller set of critical data points, such as physical intensity metrics.}

^{These are more stable than monetary intensity measures and closer to technological realities and scenario data.}

^{From a regulatory perspective, more strictly defined physical intensity metrics would be helpful. The definitions of scopes and denominators—the production metrics—are highly technical. Clearer guidance would benefit both non-financial and financial firms.}

^{Alex: To bring together the key themes from this paper:}

^{First, company targets tend to align with independent scenarios like the IEA. But absolute emissions often fall short because they account for growth in production.}

^{Second, CapEx plans are generally less ambitious than targets, suggesting future capital allocation is not currently sufficient to deliver assumed reductions.}

^{Third, historical trends don’t bridge the gap either and often mirror CapEx-based paths, raising concerns about target feasibility.}

^{Fourth, sectoral differences are material. The highest misalignment appears in steel, oil and gas, and shipping. Relative success stories—though not perfect—are electricity and automobiles, where convergence between targets and CapEx is beginning to emerge.}

^{With that, I’ll close today’s discussion.}

^{Thank you very much for joining us. If you’re listening and would like to find out more about the paper or the respective organizations Vincent and I represent—Scientific Portfolio and Asset Impact—please get in touch.}

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