A recent report by the World Benchmarking Alliance (WBA) indicated the level to which continued dependence on fossil fuels represents both a climate and economic risk for companies, particularly in sectors such as energy, steel, automotive and utilities.
The report, which was published ahead of the Transitioning Away from Fossil Fuels (TAFF) conference, running from 24 to 29 April, also found that while many firms in these sectors have set long-term targets, they have not aligned investment with these goals – oil and gas firms, for example, allocate less than a fifth (19%) of their capital expenditure into low-carbon activities.
SustainabilityOnline caught up with Vicky Sins, Head of Programme (Planet) at the World Benchmarking Alliance, to discuss the findings of the report, as well as the broader challenges and opportunities associated with accelerating the energy transition.
As she explains, reliance on fossil fuels leads businesses more exposed to revenue volatility, supply chain disruption, and geopolitical shocks – a situation that is currently playing out in real time with the ongoing situation in the Middle East.
“Often, energy price surges can have two polarising impacts,” she says. “They can strengthen the economics of efficiency, electrification, and domestic renewable capacity. But they can also encourage short-term defensive behaviour, especially among incumbent fossil fuel companies, who are benefiting the most from windfall profits, which can delay capital reallocation into lower-carbon alternatives.
“That is exactly why transition planning matters: it helps companies make investment decisions based not on the short-term price incentives, but on long-term resilience.”
Rolling back
Shifts in geopolitical priorities have led some firms to rein back on their transition efforts, which in turn increases their exposure to market volatility, regulatory changes and stranded assets.
“When companies backslide on energy transition, the biggest risk is that they are locking themselves more deeply into business models that are economically and strategically fragile,” Sins adds. “Companies that are backtracking also risk falling behind in developing capabilities, supply chains and business models essential for success in a low-carbon economy.”
She points to the automotive sector, where many carmakers have already committed to electrification, leaving those focused on petrol and diesel at risk of being made increasingly redundant. “71% of assessed carmakers – 24 out of 34 – already have explicit commitments to low-carbon business models, especially through electrification,” she says. “Legacy automakers that still cling to petrol and diesel models risk being outpaced by EV leaders.”
Credibility risk presents another issue, as gaps between stated ambitions and reduced investment can weaken trust among investors, regulators, and civil society.
“Breaking or diluting transition commitments can undermine the confidence of investors, particularly as they place greater emphasis on credible transition plans and grow more attentive to regulatory frameworks such as the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive,” says Sins.
‘Deeply intertwined’
The World Benchmarking Alliance has suggested that as much as $1.3 trillion could be unlocked if companies allocated around 30% of their capital expenditure to low-carbon activities, such as renewable power generation, electricity grids, storage, electrification, energy efficiency, electric vehicle manufacturing, low-carbon industrial processes, and green hydrogen.
As Sins notes, these sectors are “deeply intertwined”, with progress in one sector enabling developments in others across value chains.
“Investment in utilities helps unlock green hydrogen for steel; greener steel supports lower-emission automotive production; and broader clean infrastructure helps reduce systemic fossil fuel dependence across the economy,” she says.
“The significance of that capital is twofold. Firstly, it would help scale the core technologies and infrastructure required for decarbonisation. Secondly, it would help break the cycle in which underinvestment in one part of the system slows progress everywhere else. This is why capital allocation is such an important indicator: it shows whether companies are truly preparing for the economy they claim to support.”
For companies willing to devote close to a third of their capex to low-carbon activities, quick wins are achievable in renewable electricity procurement, grid upgrades, energy efficiency improvements, electrification of operations, electric vehicle deployment, battery manufacturing, methane reduction, and the retirement or repurposing of high-carbon assets, Sins adds.
“Investments in these tactics are typically lower risk, deliver measurable emissions reductions, and can be scaled quickly under existing policy and market frameworks, making them well suited to help companies reach a 30% low-carbon capex threshold in the short term,” she says. “What takes longer are the shifts that require major industrial transformation, infrastructure build-out, or value-chain coordination.”
This includes areas such as green hydrogen, green steel, large-scale SAF, deep industrial decarbonisation, and the conversion of fossil-based infrastructure to low-carbon uses – pathways that “generally require greater policy support, clearer demand signals and offtake agreements, and significantly higher upfront capital investment,” she adds. “Therefore, addressing these barriers – through policy, long-term planning and capital allocation – is central to the energy transition discussions.”
Leading the charge
Some sectors, however, have proven to be ahead of the curve in driving the transition, with electric utilities demonstrating strong performance in low-carbon investment, target-setting, and planning, according to the WBA.
In some cases, companies in this sector are allocating more than 90% of capital expenditure to low-carbon activities, “showing that high levels of alignment are commercially and technically possible when policy frameworks are strong,” Sins notes.
The automotive sector has similarly shown strong potential, due to clear electrification pathways, supported by regulation, consumer demand and competition.
“That has made it easier for leading automakers to begin shifting business models and for ‘newcomers’ to enter the market,” she adds.
At the other end of the spectrum, however, are oil and gas firms, where the business model for most businesses is still inexorably linked to fossil fuel extraction and sales.
“Only 17 of 100 companies report any low-carbon revenue at all, and among those that do, the average share is just 5%,” says Sins. “This means that even among the small minority of oil and gas companies that disclose, fossil fuel activities still account for approximately 95% of their revenue. This signals there is no real intent or strategy to move away from fossil fuels into clean sources of energy.”
Steel, too, has proven to be something of a laggard, due to an investment landscape marked by high capital and technical barriers – only 14 out of 57 companies report low-carbon capital expenditure, with an average of just 15% against a sectoral expectation of 80%.
“The steel sector’s position reflects the capital intensity and technological complexity of its transition pathway,” says Sins. “Shifting from blast furnaces to electric arc furnaces powered by renewables, or adopting green hydrogen-based steelmaking, requires substantial upfront investment in new production infrastructure.”
Scaling investment
As she explains, common obstacles to scaling low-carbon capital expenditure are governance gaps, weak financial incentives, policy uncertainty, fragmented regulation, and weak or inconsistent demand signals, which, when coupled with limited offtake certainty, immature technology markets, high costs of capital in some regions, and infrastructure constraints, often lead investments to grind to a halt.
“First movers overcome these barriers in a few ways,” says Sins. “Some operate in sectors or markets where the policy direction is clearer. Others use strong transition planning to create internal discipline around capital allocation and strategic sequencing. Often, they move where they can already see a clear business case: renewables, electrification, efficiency, or product shifts with growing market demand.”
As the WBA has noted, stronger policy signals are linked to stronger corporate action – the ability to scale investment depends on alignment between internal governance and external policy conditions.
“Ultimately, scaling low‑carbon capex depends on the alignment of two factors: whether companies have the internal strategy, governance, and incentives to move, and whether the external environment provides the certainty and support needed to make those investments viable.”
Investors and regulators
Investors and regulators play complementary roles in ensuring businesses can move from commitments to implementation, Sins adds, with regulators playing a key role in making transition planning part of financial governance through mandatory disclosure, requirements for capital alignment, and integration into financial regulation.
“Well‑designed regulation helps reduce uncertainty, lowers investment risk, and shifts incentives away from short‑term optimisation toward long‑term transition resilience,” she says. “Importantly, it also levels the playing field, ensuring that companies that invest early and credibly in the transition are not disadvantaged relative to slower‑moving competitors.”
Investors, meanwhile, can reinforce this shift by focusing on execution rather than headline targets – in other words, by “showing what they value, monitor and reward”, according to Sins.
“Rather than focusing primarily on headline net‑zero targets or distant commitments, leading investors are increasingly looking into the credibility signals underneath those claims,” she says.
“This includes scrutiny of capital expenditure alignment, evidence of business‑model transformation, governance and incentive structures, plans for asset retirement or repurposing, and preparedness for social and workforce impacts associated with transition.”
Business resilience
The World Benchmarking Alliance believes that the shift to credible transition planning is an essential building block to ensuring business resilience and long-term competitiveness. A separate WBA study, published recently, found that firms that have have set science-based climate targets demonstrated approximately 3% to 7% higher growth rates than peers that didn’t have such commitments in place.
“Transition planning should increasingly be used as one of the clearest indicators of whether a company is genuinely preparing for a more volatile, carbon‑constrained, and geopolitically uncertain operating environment,” says Sins.
“Companies that align targets, strategy, capex, and oversight are better placed to adapt as energy markets shift, policy frameworks tighten, and geopolitical disruptions reshape supply chains. By contrast, companies that continue to rely heavily on fossil fuels without a credible pathway to transition remain exposed to price volatility, regulatory risk, and sudden changes in market access.
“In this sense, transition planning is not just a climate signal; it is a resilience signal. It indicates whether a company is managing structural risk.”
Read the WBA’s report, Advancing corporate transition planning to enable a fossil free future, here.
