Driving Sustainable Value Creation in the Transportation Sector

The global transportation sector, valued at approximately $8.5 trillion in 2024 and projected to reach $17.23 trillion by 2034, is a critical component of the world economy. However, its substantial environmental footprint, responsible for 21% of global CO₂ emissions in 2023, second only to the power industry, presents a growing spectrum of financial risks and strategic opportunities for financial institutions (Precedence Research, 2024).

Beyond direct emissions, the sector contributes to air and noise pollution and habitat fragmentation. These environmental impacts translate into escalating regulatory, reputational, and transition risks for portfolios with exposure to traditional transportation assets.

Electrification is emerging as a promising technology for decarbonizing the transport sector, particularly for light-duty road vehicles, thanks to its strong growth trajectory. Although the initial carbon footprint of electric vehicles (EVs) can be higher than that of conventional internal combustion engine (ICE) vehicles due to the energy-intensive nature of battery manufacturing, EVs demonstrate a smaller overall environmental footprint over their lifetime. This is due to significantly lower operational emissions from charging and driving (Bassetti, 2024).

Technological advancements, such as extended-range lithium-ion batteries and expanding fast-charging networks, are accelerating EV adoption. Furthermore, vehicle-to-grid (V2G) systems are a strategic development that enables EVs to contribute to grid stability and energy management.

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Despite progress, the EV transition faces several market hurdles (Research and Markets, 2024):

• Upfront Costs: The high manufacturing costs of lithium-ion batteries often result in battery-powered cars being up to 40% more expensive than equivalent ICE models, a significant barrier for many consumers.
• Price parity: China is a notable market where EVs have largely achieved price parity with ICE cars. This is due to a sharp decline in lithium iron phosphate (LFP) battery cell prices, which fell by 51% in 2024 to reach $53 per kilowatt-hour. This decline was driven by falling raw material costs and substantial overcapacity in battery production.
• Infrastructure and Energy Costs: Concerns persist regarding the adequacy of charging infrastructure and the volatility of electricity costs. These factors influence consumer adoption rates and, consequently, the pace of portfolio transition for financial institutions.

At Inrate, we provide rigorous impact assessments for over 10,000 companies across diverse industries, including transportation. Our methodology is grounded in science-based metrics to evaluate the environmental and social performance of companies, particularly their commitment to climate change mitigation.

In the transportation sector, our assessment focuses on key parameters critical for understanding climate alignment and transition readiness:

• Alternative Powertrains: We assess companies’ commitment to and progress in adopting alternative powertrain technologies (electric, hydrogen, hybrid). This is a critical metric for long-term decarbonization strategy and alignment with net-zero targets.
• Fossil Fuel Transportation Exposure: Our assessment explicitly considers business activities related to the transportation of oil and gas. These operations inherently carry elevated environmental and social risks, which are factored into risk assessments for credit and investment portfolios.

Our recent assessment of global automobile companies reveals interesting insights:

• Overall Entity Grades: 88% of assessed companies fall into the ‘C’ category (C-, C, C+), 8% into the ‘D’ category (D-, D, D+), and only 4% achieve a ‘B’ grade. This indicates a general lag in overall sustainability performance across the sector.
• Environmental Impact vs. CSR: Notably, 100% of companies are graded in the ‘C’ or ‘D’ categories for their Environmental Impact, highlighting the sector’s significant ecological footprint. In contrast, only 24% fall into the ‘C’ or ‘D’ categories for Corporate Social Responsibility. Inrate’s methodology places a greater weighting on Environmental Impact due to its material financial and systemic risks within this sector.

These insights help financial institutions to identify leaders and laggards, assess transition risk, and inform capital allocation decisions within the automotive sub-sector.

Figure: ESG Rating distribution of companies in the Automobile sector                                                                

                                                                                                                                                                              Source: Inrate data

Access to adequate financing is extremely relevant for accelerating the shift toward a sustainable transport system. Climate finance mechanisms provide essential funding and incentives, overcoming economic barriers to greener solutions. Effective climate finance for low-carbon transportation encompasses various financial instruments for projects such as public transportation development, active mobility infrastructure, and shared/electric mobility.

Relevant tools include (ESCAP, 2025):

• Green Bonds: Fixed-income securities issued to finance environmentally beneficial transport projects (e.g., EV charging stations, rail systems and bike lanes).
• Thematic Equity Funds: Actively managed funds directing capital toward companies and technologies driving transportation decarbonization.
• Climate Indices for Listed Equity: Passive investment strategies that enable investors to reduce portfolio carbon intensity while maintaining market exposure.
• Direct Investments in Non-Listed Companies: Targeted support for innovative unlisted projects, such as shared electric mobility platforms or next-generation battery technologies.

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In recognition of the critical role of finance in decarbonization, our methodology incorporates financial parameters that reflect a company’s strategic alignment with sustainability objectives. These parameters are key to understanding capital allocation and its support for the transition to a low-carbon economy, particularly in the capital-intensive transportation sector.

• ESG Integration into Investment Decisions: We assess investments that consider environmental, social, and governance aspects beyond mere financial risk, considering the materiality of impact. This includes, for example, Article 8 financial products under the EU Sustainable Finance Disclosure Regulation (SFDR) and investment funds employing robust exclusion criteria (e.g., fossil fuel producers).
• Sustainable Investments (SRI): This parameter identifies investments explicitly aiming for positive environmental or social impact, exceeding basic ESG integration. This covers qualifying Article 9 products under SFDR, thematic investments (e.g., renewable energy, low-emissions transportation), and direct impact investments (e.g., in EV charging infrastructure companies).
• ESG Integration into Credit and Loan Granting: We analyze whether credit and lending practices meaningfully incorporate ESG factors beyond traditional financial risk assessment, including impact materiality. This parameter includes loans that promote environmental and social objectives, such as those granted only if the financed project complies with specific emission limits.
• Sustainable Credit and Loan Products: This parameter assesses financial products specifically designed to support sustainability objectives. To qualify, the credit or loan must have a clear sustainable purpose, such as loans dedicated to financing low-emission transport projects (e.g., electric bus fleets or green logistics infrastructure).

Transforming the transport sector represents both a significant risk and a strategic opportunity for financial institutions. Leveraging robust ESG data is crucial for:

• Accurate Risk Assessment: Identifying and quantifying transition and physical risks associated with transport sector exposure.
• Informed Capital Allocation: Directing capital towards sustainable solutions and away from high-carbon assets.
• Product Innovation: Developing and structuring green finance products tailored to the transport transition.
• Regulatory Compliance: Meeting evolving disclosure and stress-testing requirements.

At Inrate, our science-based impact ratings and forward-looking financial parameters provide the granular insights necessary to navigate these complexities.

Contact Inrate today to learn how our ESG Impact Assessment can inform smarter decisions and drive meaningful, sustainable changes across your portfolios.

1. Precedence Research. (2024). Transportation Services Market Size, Share, and Trends 2024 to 2034.
2. Bassetti, F. (2024, February 9). The transport sector’s electrifying progress. Climate Foresight.
3. Research and Markets. (2024, September 20). Vehicle Electrification Global Strategic Business Report 2024: Market to reach $155.9 billion by 2030 at a CAGR of 7.5%
4. United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). (2025). Climate finance for lowcarbon transport: Developing effective transport financing mechanisms for Asia and the Pacific (Policy Brief). United Nations ESCAP.