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MSCI Report Flags Gaps in 1.5°C Alignment, Highlights Role of Private Capital in Transition Finance

The MSCI Sustainability Institute’s April 2025 edition of the Transition Finance Tracker reveals significant challenges and evolving trends in global climate finance. Only 12% of listed companies worldwide are currently aligned with the 1.5°C global temperature rise limit. Despite this, corporate climate ambition is growing—14% now have Science Based Targets initiative (SBTi)-validated goals, a notable increase from the previous year.

Climate transition funds are shown to have higher carbon intensity, nearly five times that of Paris-aligned funds, as they deliberately invest in emissions-heavy sectors to drive decarbonization. Private capital is playing a major role, with private climate funds allocating 40% of assets to the utilities sector—compared to just 8% by public market funds.

The report highlights growing geopolitical risk, noting that U.S. trade policies and tariffs could inflate clean-energy technology costs. While emissions and revenue growth have decoupled in developed markets (with emissions dropping 25% and revenues rising 49?tween 2015-2023), this trend has not yet occurred in emerging economies.

Among the top three emitters, the U.S. leads with a lower carbon-intensive power grid, with 43% of electricity from low-carbon sources—compared to 37% in China and only 16% in India. Meanwhile, China dominates both fossil fuel use and clean-tech innovation, with India and Taiwan also showing strong clean-tech revenue growth.

The report also emphasizes the increasing role of carbon markets in financing the transition, including potential international trading mechanisms. Lastly, it flags physical climate risk hotspots, with cities like Pune, Miami, Osaka, and Riyadh facing heightened exposure to climate hazards such as floods and extreme heat.