Most companies say sustainability is driving value creation

Companies across the globe are pursuing sustainability goals mostly because they believe the strategy will create value for their shareholders, a new study from Morgan Stanley’s Institute for Sustainable Investing finds.

Compliance with government regulations and believing they have a moral responsibility to do so were also listed as top reasons for prioritizing sustainability, according to the results of a survey of more than 300 corporation executives with decision-making responsibilities for sustainability efforts. Only 1% of those executives said sustainability was “not material” to their operations.

“Sustainability strategies and core business strategies are converging,” Jessica Alsford, chief sustainability officer at Morgan Stanley MS said in a release announcing the study results. “Companies increasingly see sustainability factors as integral to the company’s long-term value creation.”

Authors said other data in the survey suggest participants see sustainability efforts as supporting business objectives rather than being in response to societal pressures: Just 26% said nongovernmental organizations, activists or media drove them to make sustainability pledges, the lowest-ranked reason in the survey.

Another sign that sustainability is becoming more integrated with all important functions within a company: 55% of companies say sustainability criteria come into play in key business decisions, including capital expenditures, research and development, new products and mergers and acquisitions.

The biggest hurdle companies face in implementing their sustainability strategies is the high level of investment needed. Asked to assess a range of obstacles, 70% of respondents say required investment is either a very significant or somewhat significant barrier.

“Sustainability as an investment theme continues to evolve towards more nuance and rigor as investors must confront competing priorities – such as climate and the social costs of high energy prices – and focus on ‘real” impact,’ said Melissa James, head of the Global Capital Markets ESG Center of Excellence.

“As a consequence, companies continue to engage on the topic of accessing capital to finance their sustainability goals and initiatives. As we approach deadlines for various climate commitments from corporates and investors, there will be a continued push for financing clean tech and facilitating the energy transition, resulting in a natural maturation of the market,” she said.

Climate change may be the biggest factor forcing companies to boost sustainability efforts: 23% of respondents say there is already an impact from climate change on their business models, on par with more traditional business risks such as supply chain instability and geopolitical conflict (both 23%), and technological change and the action of competitors (both 25%).

When respondents considered medium and long-term risks in addition to short-term risks, 92% expect climate change to impact their business model by 2050.

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

Read the full report: “Sustainable Signals: Understanding Corporates’ Sustainability Priorities and Challenges”

Read more: Investors have a new tool for analyzing sustainability disclosures