Report: Companies leading on climate action seeing better financial returns

Published today (3 November) by EY, the ‘Sustainable Value Study’ assesses the actions that more than 500 large businesses, each with a valuation of $1bn or more, have taken to reduce emissions across their value chain. It also includes surveys among their chief sustainability officers (CSOs). A key discussion point for the survey was the link between profitability and environmental sustainability.

Almost two-thirds (64%) of the CSOs said that it is sometimes challenging to balance the non-financial case for climate action with the financials of a project. However, EY’s research on the financial impact of the climate initiatives conducted by the companies found that 37% generate a notable positive financial impact, compared with 19% that will have a negative impact.

EY is advocating for large businesses to create a “balanced portfolio” of schemes that reduce emissions, balancing out those which have a negative financial impact.

The report goes on to assess whether there is a link between companies exceeding financial targets and showing leadership on climate. The conclusion is that there is. Companies regarded as “pacesetters” on climate – those which have set ambitious targets and completed a broader set of actions than their competitors – were found to be 2.4 times as likely to report significantly higher financials than expected. 52% of companies classed as “pacesetters” have captured significantly higher financial value than expected this year, the research found.

Companies named in the report as being in this category include Unilever, Cisco, Cemex and Anheuser-Busch InBev (AB InBev).

Part of the financial success of pacesetters, the report explains, lies in the fact that they are leading in the development of new business models or services. 94% of these companies have taken this step. 51% have formed at least one strategic partnership or joint venture. These companies are also likely to save money in operational costs due to energy and material efficiencies and avoid fines for non-compliance.

Leading or lagging?

Aside from pacesetters, other terms EY uses to categorise the businesses are “explorers” and “observers”. The latter are taking no or few climate actions, while explorers are somewhere in the middle.

EY categorises most of the businesses assessed as being in one of these two categories. The report notes that, overall, corporate decarbonisation is not happening at the scale and pace necessary – despite most (seven in 10) businesses believing that they are making a “meaningful” contribution to climate efforts.

More than nine in 10 of the businesses assessed have set a public climate goal. But just one in 10 have a net-zero goal.

EY also found scant evidence of corporate planning for – and delivery of – steep emissions curs this decade. Just 35% of the companies assessed have set an emissions commitment for 2030 or earlier, and not all of these commitments are science-based.

Even pacesetter companies have completed, on average, just 18 of the 32 climate actions tracked by EY. Among the observer category, the average number of actions completed was one.

EY is calling on non-pacesetter companies to follow the lead of their peers and set bold, public commitments for the long, short and medium-term that are aligned with science. The report urges companies to think beyond their operations and collaborate with other companies, academics, NGOs and other suitable stakeholders; use their policy influence for good; engage with suppliers and assess new market opportunities for sustainable products and services.

Survey respondents were asked what was stopping them from taking some of the steps and becoming pacesetters. A common challenge cited by the CSOs was that they often have to grapple with ineffective collaboration between other groups internally. This was raised by 44% of people.

Talent was another key challenge. 35% of all companies surveyed say they have difficulty upskilling and retaining those with climate-related skills and 28% say it is challenging to hire new staff with these skills.