David Russell on Why Carbon Footprints Mislead and What Investors Should Measure Instead

Carbon footprint metrics such as absolute emissions, emissions intensity and year-on-year reduction figures remain the primary lens through which corporate climate performance is reported and assessed. They are widely treated as a proxy for a company’s climate credentials and used as a core input to investment and stewardship decisions.

These metrics are backward-looking by construction. They quantify historical emissions but do not establish whether a company has a credible strategy to reduce them in future, nor whether reported improvements reflect genuine decarbonisation. A decline in emissions intensity may result from asset disposals, a change in the denominator or methodological choices rather than operational change. The Transition Pathway Initiative has warned that carbon-intensity figures, assessed in isolation, can overstate a company’s progress toward net zero.

As investment decisions increasingly turn on transition readiness, the more material question is forward-looking: whether a company has a transition plan that is defined, quantified and financed, and whether it is positioned to deliver it. TPI’s assessments indicate that, although disclosure has improved substantially, comparatively few companies meet that standard. The gap between what companies report and what they are equipped to deliver represents the central risk for investors.

As part of the OneStop ESG’s Thought Leadership Series, this conversation with David Russell, Chair of the Transition Pathway Initiative and former Head of Responsible Investment at the Universities Superannuation Scheme (USS), the UK’s largest pension fund examines why forward-looking transition assessment is superseding the carbon footprint as the basis for evaluating corporate climate performance, and the implications for capital allocation and stewardship.

 

Q1. You spent more than two decades leading responsible investment at USS before helping to build TPI. Over that time, how has the way investors judge a company’s climate progress changed, and where do you think it still falls short?

 

DR: There have been huge changes in how investors consider climate change over the past two decades. When USS started looking at climate change as an investment risk, the CDP hadn’t been launched, there was no EU Emissions Training Scheme and, of course, the Paris Agreement hadn’t been signed. We set up the IIGCC in late 2001 to act as a collaborative platform for investors to address climate risk.

The Paris COP in 2015 was a catalyst for greater investor interest in the implications of climate change for long term returns. Investor engagement with the issue has evolved into a much more structured approach, now assessing corporate governance, strategy, targets, capex alignment, and sectorspecific pathways, not just tonnes of CO₂.

Where it still falls short is in the credibility gap. Approximately 30% of the 2000 companies assessed by the TPI on their governance of the transition (our Management Quality score) have Paris aligned targets for 2050, but far fewer have established short and mediumterm milestones. Companies also tend to lack detailed, costed, and timebound plans to get there, lacking alignment of capital expenditure with those plans, and evidence of actual delivery are still missing too often. Investors are better at asking the right questions—but the quality of answers, and how rigorously they’re tested, still needs to improve.

 

Q2. You have said that understanding how a company will address future climate risk matters more than knowing what its carbon footprint was in the past. Why is the footprint, on its own, such a limited guide for investors?

 

DR: Carbon footprints are a backward-looking metric, a snapshot in the rearview mirror. They tell you what a company’s, or indeed an investor’s, emissions were at some point in the past when the carbon emissions data were collected or published by a company. This means that the footprint data can be one, two or even more years out of date.

So while footprints are useful to appreciate what exposure was, they don’t really help investors understand how a company intends to change its business model in a world that is transitioning. Two companies with similar footprints can have radically different strategies - one may be investing heavily in lowcarbon technologies and reshaping its portfolio, while the other is effectively hoping the policy environment won’t force change.

For investors, the key questions include what trajectory is the company on, what levers will it use to decarbonise, and how resilient is its business under different transition scenarios? Footprint data alone doesn’t capture governance quality, capex plans, technology choices, or exposure to future regulation. It’s a useful input, but a poor guide on its own to transition readiness or longterm value.

 

Q3. TPI has warned that carbon-intensity figures can overstate a company’s progress toward net zero. How does that happen in practice, and what should investors be looking at to see through it?

 

DR: Carbon intensity can fall for reasons that have little to do with genuine transition. There is a strong denominator effect where an increase in the value of a company or its outputs will reduce its carbon intensity even if emissions don’t change. A company might grow its output faster than its emissions, divest highemitting assets without changing the underlying business model, or shift emissions into its value chain rather than reducing them. For investors, with market values still at historic highs, portfolio intensities have dropped with little or no actual change in emissions. In all these cases, the headline intensity number looks better, but the realeconomy impact is limited.

So the upshot of this is we are seeing fund carbon footprint reduction, but the real-world impact of portfolio decarbonisation is difficult to see. How is this helping address climate change risk?

Investors should look at absolute emissions trends, targets against sectorspecific pathways, and the underlying drivers of any improvement: is it efficiency, fuel switching, genuine technology deployment, or simply portfolio reshuffling? They should also test whether the company’s planned decarbonisation levers are commercially viable and aligned with Parisconsistent pathways, rather than relying on intensity metrics that can flatter progress.

 

Q4. Disclosure has improved, but TPI’s assessments suggest far fewer companies have transition plans that are defined, quantified and financed. What separates a genuinely credible transition plan from one that is essentially aspirational?

 

DR: When we set up the TPI in 2017, very few companies had established targets and practically none had meaningful transition plans. That has changed now, and we are seeing leading companies now established transition plans that connect ambition to execution. Such plans should have clear short, medium and longterm targets; quantified expected emissions reductions; and should be able to show how capital expenditure, R&D, and portfolio decisions will deliver those outcomes. They should embed governance—board oversight, management incentives, and risk management—and be updated as conditions change. These are all simply good change management activities.

Aspirational plans tend to be heavy on longterm goals and light on detail. TPI’s assessments show that more companies set long term goals, for example “net zero by 2050”, without specifying interim short and medium milestones, or the technologies or investment levels that will help achieve those goals. There is often limited alignment between stated climate goals and actual capex, and evidence that the company is already delivering reductions consistent with its pathway is usually not provided. Investors should be looking for that linkage between targets, capex, and realworld emissions trends.

 

Q5. In the hard-to-abate sectors like oil and gas, cement, steel, what does a forward-looking assessment of a transition plan reveal that a single emissions figure cannot?

 

DR: For carbon intensive and hardtoabate sectors, the question is not whether emissions are high today—they inevitably are—but whether the company has a realistic route to decarbonisation. A forwardlooking assessment reveals which technologies the company is backing, how it intends to deploy them, and whether its capex and investment plans match the scale and timing required.

It also shows how the company is positioning itself in changing markets: for example, shifting from fossil fuels to renewables, investing in lowcarbon cement or green steel, or building partnerships around hydrogen and carbon capture. A single emissions figure tells you where the company is; a forwardlooking plan tells you whether it can move, how fast, and at what level of risk. That’s what matters for both climate outcomes and longterm financial performance.

 

Q6. For an asset owner or a CFO trying to act on this, how should forward-looking transition data change the way they allocate capital and engage with the companies they hold?

 

DR: Investors are looking to understand both risks and opportunities. Forward looking data allow investors to differentiate which companies are likely to better performers in the future, those that are making plans to be in the market in the long term. Such data permit asset owners and CFOs to move from blunt exclusion or simple footprint reduction, they can be used to tilt portfolios toward companies with credible, financed transition plans and away from those whose ambitions are not backed by action. It also helps in the design of indices and investment mandates that reward genuine transition preparedness rather than just low current emissions.

On engagement, forward looking data sharpen the conversation: instead of asking only about targets, investors can interrogate capex alignment, technology choices, and governance. They can set expectations around short and mediumterm delivery, and use voting and escalation tools when companies fail to match their stated ambitions with credible plans. In other words, forwardlooking data turns climate engagement into a discussion about strategy and capital deployment, not just disclosure.

 

Q7. Climate-focused investment is facing political pressure in some markets, and several Paris-aligned goals look harder to reach. Does forward-looking transition assessment become more or less important in that environment, and what makes you confident the approach will endure?

 

DR: Politics come and goes in cycles but the long term direction of travel is clear. Recent heatwaves in many countries and markets around the world reinforce the need that climate change needs to be addressed, and that the transition is essential.

As a result, I believe it’s now more important than ever for investors to understand how companies are managing the transition. When the policy environment is noisy or contested, investors need a clear, evidencebased view of how exposed the assets in which they invest and indeed their portfolios are to transition risk and how companies are preparing for different scenarios. Forwardlooking assessments provides that discipline - they focus on business models, capex, and resilience, not on political labels.

I’m confident the approach will endure because the underlying drivers - physical climate impacts, technology change, and evolving regulation - are not going away. Investors still need to understand which companies can thrive in a lowercarbon economy and which are at risk of stranded assets or declining demand. Robust, forwardlooking transition data, like that provided by the TPI, is one of the few tools that can bridge climate science, corporate strategy, and financial decisionmaking in a consistent way. That need will persist, whatever the political cycle.