Is sustainability a value generation opportunity for business?

A majority of businesses anticipate that climate change will affect their business model by 2050.

This is according to a recent report by the Morgan Stanley Institute for Sustainable Investing, based on a survey of more than 300 private and public companies with annual revenues exceeding $100m, spanning North America, Europe and Asia-Pacific Countries (APAC).

As per the survey findings, approximately 85% of participants view sustainability as a means to create value within their long-term corporate strategies, with half of the companies stating it as a ‘highly significant’ factor driving their sustainability initiatives.

Other primary motivations include adherence to regulations and fulfillment of corporate ethical obligations, as well as expectations from external stakeholders such as lenders and the broader civil society.

Moreover, nearly a quarter of businesses perceive climate change as currently affecting their business, comparable to risks such as technological change and geopolitical conflict.

However, the report emphasises that a range of challenges are hindering companies in their efforts to promote sustainable action.

The respondents highlighted the level of sustainable investment required (31%) as the primary obstacle in advancing sustainability initiatives, followed by conflicts with the financial objectives of the company (28%) and macroeconomic uncertainties (25%).

According to the survey findings, investment requirements outweigh other barriers, such as deficiencies in corporate leadership or employee skills, by 1.5 times.

Nevertheless, nearly all respondents (92%) anticipate that climate change will affect their business model by 2050, with 23% noting that it already has made an impact.

Morgan Stanley’s chief sustainability officer Jessica Alsford said: “Sustainability strategies and core business strategies are converging, with companies increasingly seeing sustainability factors as integral to the company’s long-term value creation.

“There may yet be challenges in developing expertise and financing models, but corporate leaders view sustainable business practices as fuelling the creation of value as well as the mitigation of risk.”

Key survey highlights

According to the report, a majority of companies (84%) believe that investor support in financing their sustainability strategies is vital. Additionally, 76% foresee sustainability efforts potentially leading to reduced costs of equity and/or debt over the next five years. However, only 42% of businesses report meeting or exceeding expectations in aligning corporate financing with sustainability goals.

While nearly half (55%) of businesses have integrated sustainability criteria into core business functions such as capital expenditures, research and development, and mergers and acquisitions, only a little over one third believe that their boards have sustainability expertise.

The most commonly cited gap in board expertise (57%) pertains to sustainability-related regulations. This comes as recent research revealed that heightened reporting requirements are placing constraints on sustainability teams, to the extent that they are facing the risk of not being able to deliver impactful action.

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