It’s good news that 80 per cent of large corporations have now made a net-zero commitment. According to Science Based Targets initiative, as of October 2024, 13,419 companies have published science-based targets, up from 585 in 2020. While many global organisations have spent the past few years assessing the magnitude of their financial exposure to climate change and planning their transition to net positive, the emphasis now is on taking action to make plans a reality, which means getting down to the business of financing sustainability.

Make a profitable sustainability plan

Building the business case for sustainability is no easy task. Spending and organisational change is required in the short term to create benefits for the company in the next few decades; the proposition of spending now to reap rewards later is a significant hurdle for many companies. Investing in sustainability is not a charitable donation, it is a business calculation and requires the financial business case for funding a profitable sustainability plan. Shareholders need to know the investment has a very material and real return.

That said, not investing in sustainability is a risky business and could cost a company dear. Headwinds from climate change, through both transition and physical risks, should not be underestimated. Physical risks can bring damage and disruption to facilities and crop yields while transition risks include regulation and taxation that is driving big business to demonstrate and report on environmental stewardship, investor and consumer pressure demanding the same, plus the threat of climate-and-nature-related litigation, where organisations failing to meet expectations can be placed under the critical glare of the media spotlight, and even find themselves in court. These risks can be ruinous to brand reputation and result in significant loss of business value.

Develop the financial narrative for sustainability

Taking a data-led approach and gaining insights through advanced analytics enables a company to understand, manage and monitor the business of sustainability. Financially quantifying the potential impact of climate-and-nature-related risks and opportunities on a company’s bottom line surfaces priorities and provides a lens to identify earnings at risk and build resilience into the organisation.

Securing support across the company is key to making the business case for sustainability. The Chief Sustainable Officer, Chief Risk Officer and Chief Financial Officer must be on the same page and financially quantifying climate-and-nature-related risk provides a narrative and a language that speaks to everyone. The potential for a large erosion of company value is an unacceptable risk and one that will align teams in needing to reduce the risk to acceptable levels. In short, sustainability mitigates a principal risk to the business.

However, there are upsides too. Financial opportunities will accrue from implementing a sustainability plan, including new products and services to attract the green consumer, building a more resilient and efficient supply chain, access to a lower cost of capital, talent retention, and improved productivity to name a few. All of these benefits can support the business case for the sustainability plan.

Build a cost-effective and achievable plan

Developing an effective sustainability plan means evaluating a number of potential initiatives to decide the best route to securing the company’s emissions-reduction goals, from low-hanging fruit through to harder-to-abate and more expensive processes. A well-designed plan will build a process of decarbonising from a collection of these initiatives, ensuring the strategy achieves its aims at the minimal cost, is practical and achievable. Typically, many people across an organisation, in different geographies and business divisions, may already be pursuing some of these initiatives so coordinating and optimising activities is critical to success.

Deciding how to prioritise initiatives is determined by the amount of emissions removed and at what average cost. This requires understanding an organisation’s carbon footprint and what emissions come from which activities, together with assessments of decarbonisation options, costs and practicalities. Initiatives can be ranked using a marginal abatement cost curve, a graphical representation of the different initiatives, their potential for reducing emissions and the associated costs. The cheapest initiatives are implemented first, leaving the harder and most expensive options to the end.

Ensuring initiatives are practical and achievable is key; some may not be viable today or may take a while to become a practical option in key markets or geographies. For example, in the US, decarbonisation of land freight transportation of goods will ultimately require emission-free heavy-duty trucks, such as electric vehicles. However, the charging infrastructure available for EVs varies significantly from state to state, making trips of certain lengths unviable without improved infrastructure.

Make sustainability a business reality

Developing an achievable and affordable transition plan can optimise expenditure on net-positive transformation; even improving a plan by a few percentage points can be significant if a business is faced with spending tens or hundreds of millions of dollars on decarbonisation.

Quantifying the reduction in the loss to the business that will occur as a result of reduced emissions, and identifying the benefits that sustainability brings, making these financially measurable, is a strong story to tell the CFO, told in a narrative they will understand. Companies mastering the narrative of sustainability to make the business case will be best positioned to make sustainability a business reality by securing the all-important buy-in from the board.

  • Risilience Head of Client Development Saim Ghouse will present ‘Mastering the financial narrative of sustainability: securing buy-in and driving impact’ at ReutersSustainabilityUSA2024, in New York, on Tuesday 8th October, at 9.40am. Make a diary date to hear him talk to the tangible business benefits of unifying sustainability and business strategies and how to make a solid business case to get buy-in from the board, live, on the Reporting & Net Zero Stage.