Mind the gap: more than half of the world’s largest emitters fail to disclose their green capex

When Canadian pensions investor La Caisse revamped its climate strategy last year, it did so based on a striking finding – portfolios were decarbonising faster than the world outside them. In response, La Caisse pivoted to investing in companies with a transition plan.

A year on, La Caisse is not alone. For instance, fellow Canadian investor Ontario Teachers’ Pension Plan has followed suit. Identifying credible transitions is top of mind for investors amidst a new era in transition-aligned capital allocation.

Disclosures in this space are still hard to come by. New research from Clarity AI highlights the visibility catch that lies ahead.

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Signal of intent

Indicators of transition credibility are a work in progress. Having a plan is a necessary albeit insufficient one. “A transition plan without a defined capital expenditure (capex) strategy is a toothless tiger”, says Nico Fettes, climate research director at Clarity AI.

Clarity AI’s research zoomed in on green capital expenditure – an indicator Fettes says reflects a company’s capital allocation aligned with net-zero pathways. It’s an indicator that’s been drawing investor attention too.

“Investors committed to transition finance are no longer satisfied with corporate targets or net zero commitments. They want to understand how companies are actually allocating capital”, Fettes explains.

“Green capex provides that forward-looking signal, linking strategy to real-world investment decisions”, he adds.

As a data point, its size relative to total capex puts a spotlight on a company’s transition intent – one that, in theory, is not only forward looking but also backed up by execution.

Clarity AI’s analysis shows EDP, a utility, has a green capex ratio of over 95%. Enel’s is estimated at 84%. Taiwan Cement Corp is at 24%.

It is however, far from a silver bullet. “The green capex ratio is a point-in-time indicator and does not fully capture the broader transition pathway. Lower ratios may reflect past investment cycles or future planned spending”, Fettes cautions.

Visibility concerns

Clarity AI’s research reveals a significant disclosure gap. Despite investor attention hovering over it, green capex disclosures by companies are few and far between.

By Clarity AI’s estimates, fewer than 50% of the world’s highest emitters reveal their green capex numbers. “This lack of transparency is particularly pronounced outside Europe, where disclosure rates drop to around 30%”, the report reads.

Geographic variation in disclosure is evident. “Geographic differences in green capex disclosure are mainly driven by regulation, market maturity, and reporting practices. Regions such as Europe are further ahead, largely due to regulatory frameworks like the EU Taxonomy”, Fettes notes. In other regions, disclosure is more often voluntary.

Leaders and laggards

While increasing disclosure rates are in investors’ interest, underlying data still tells a worrying tale. In Europe, where transparency is higher, green capex ratios are low in not only absolute terms but also comparatively.

The EU-27 average green capex ratio, according to the research, is around 23%. Averages, however, tend to mask skews. Industry-level variation shows the extent of it.

Some industries are further along their transition journey than others. Airlines and utilities for instance have average green capex ratios of 71% and 46% respectively. In comparison, steel, cement, oil and gas have ratios of below 10%.

The data leads Fettes’ team to a conclusion most investors would find worrying – “in many of the sectors most central to the transition, the vast majority of capital is still directed toward maintaining high-carbon operations”, their report highlights.

For asset owners who are increasingly embracing the notion that companies need both plans and capital to navigate the transition, the data is of timely significance.

Investment strategies that tilt towards financing the transition rely rather heavily on transitions that are not only credibly visible but also visibly credible.

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