The majority of public companies will update their investment methodologies to include sustainability metrics as a key part of their return on investment (ROI) analysis by 2026, according to technological research and consulting firm Gartner.
Research conducted by Gartner suggested sustainability metrics in investment plans will be standard practice for chief financial officers (CFOs) by 2026 as well as 30% of total debt capital markets funding being directed towards ESG initiatives.
Furthermore, the study indicated that many organisations have evolved from a risk-oriented approach to environmental, social and governance (ESG) concerns and have begun to optimise their programs to improve their reputation and actively attract customers, investors, and talent. The next stage is to drive sustainability transformation by making return on investment a key focus of their ESG strategies.
“Many CFOs have already experienced positive returns from placing an emphasis on sustainability and through small-scale, green capital investments,” said Melanie O’Brien, VP analyst, research, in the Gartner Finance practice. “We predict that 60% of public companies will have updated their investment methodologies to include non-financial information related to sustainability by 2026, which will facilitate longer-term and transformative sustainability investments.”
O’Brien argued that traditional investment methodologies often overlook the value of non-financial and intangible benefits when considering investment returns. Organisations that are embracing sustainability as a driver of returns have begun to update their investment criteria in a similar fashion to how leading organisations assess the benefits of their digital investments.
Organisations that can account for the value of their sustainable investments, connect them to broader corporate strategy and show clear benefits to the organisation, will likely be seen favourably by investors and other stakeholders, according to the firm. Gartner also predicts that more than $3 trillion of ESG-linked bonds will be issued by 2026, accounting for 30% of total market issuance.
Gartner further estimates that 30% of multinational organisations will streamline geographies and subsidiaries due to sustainability regulatory requirements by 2026. Ensuring that investments which demonstrate a clear nonfinancial but significant benefit to the organisation are considered equal to projects with financial returns.
The consulting firm also suggests companies should start leveraging current frameworks and accounting models that have been established to support the growth in organisations calculating the value of intangibles. These include the UN Value Driver Model, the Return on Sustainability Investment (ROSI) methodology, Economic Value Added (EVA) calculations and Value-based management (VBM).
This report follows another recent survey conducted in June 2022 by Gartner that revealed that 87% of business leaders expect to increase their organisation’s investment in sustainability over the next two years.
Customers were cited as the main reason for applying pressure for organisations to invest or act on sustainability issues, selected by 80% of executives, followed by investors (60%) and regulators (55%).
