The ROI of transition: the new driver of corporate sustainability agendas

As the world grapples with high transition costs and limited time, the pendulum has swung from ambitious corporate commitments towards increased regulation and disclosure requirements. This impacts compliance and the bottom line – meaning organizations now aim to ensure that decarbonization delivers value. This new landscape of objective achievement enables organizations to comply with heightened regulatory requirements while remaining competitive.

This shift represents a significant change. While Environmental, Social and Governance (ESG) teams have successfully been working to define what needs to be done, their efforts have often been isolated from everyday operations and financial decisions. More recently, a trend of greater integration is creating a business-led transition, incorporating sustainability directly into operations and the bottom line. This shift prioritizes return on capital, business continuity, and advocating for broader policy enablers such as permitting, liability, and financial incentives, which broadens the political discourse on how to make transition “investment grade”.

While a returns-centric transition represents a shift in tone, investment, and at times even corporate organizational charts, it should be welcomed as an accelerant in decarbonization – ensuring target achievement is at the heart of the new business as usual.

The focus of corporate decarbonization has shifted to understand the return on capital. Returns are measured by financial gain, carbon intensity reduction, or electron efficiency. While there is still a desire among many to achieve “everything, everywhere, all at once”, there is an acknowledgement that proven decarbonization measures should be prioritized over the nascent technologies of tomorrow. This transition will occur progressively and not overnight.

Identifying "low-hanging fruit" offers a more practical approach for the corporate balance sheet over short time horizons, with impact measured in both cost savings as well as total potential emissions reduced.

For example, making low-cost energy-efficiency investments, transitioning to lower carbon energy sources, and optimizing resource use has risen on corporate agendas in response to achieving both financial and environmental gains. There is also a growing emphasis on supply chain management programmes, whereby companies can have impact beyond their operations by surfacing product carbon footprints to ensure feedstocks and therefore their products remain competitive long term.

Furthermore, whilst investor pressure to accelerate corporate net zero commitments has seemingly eased, financiers are now leading demand for transparency about climate-related risks and opportunities. There is a rising number of taxonomy reporting frameworks, sustainability linked loans, and green bond incentives. Whilst fragmented, this reframing of metrics has become a strategic financial tactic, pushing businesses to think innovatively about capital allocation towards sustainability.

As organizations integrate sustainability into their core strategies, a new "business as usual” is emerging. This approach is marked by the adoption of new metrics to evaluate investments.

Valuation frameworks are evolving: traditional indicators are now supplemented with assessments on carbon intensity, water, biodiversity, and agricultural resilience as companies seek to balance current operations with a long-dated lens of enhanced compliance standards. In particular, decades-long asset investments that will surely live through multiple regulatory evolutions require a new range of metrics and risk assessments to be future-proof.

The new business as usual isn’t only forward-looking. The financial impacts of climate change on the private sector are being felt in day-to-day operations. This is evidenced by record-high impacts on insurance losses, impacting the bottom line in the form of asset impairments, operational downtime, supply chain impacts, and increased insurance premiums. This requires companies to re-evaluate financial viability through an environmental resilience lens, including identifying vulnerabilities and investing in alternatives as required. This can range from safeguarding the security of supply, reducing insurance costs, or pursuing a lower carbon footprint to accessing regulated markets.

The regulatory landscape surrounding corporate sustainability is rapidly evolving. Legislation such as the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and Carbon Border Adjustment Mechanism (CBAM) significantly tighten reporting requirements, placing environmental performance firmly alongside financial performance. Whilst these initiatives have begun in Europe, they are expanding globally, as observed in developments in the UK, Singapore, Australia, and China.

In parallel, despite more reporting regulation there is a noticeable trend towards reducing bureaucratic obstacles, or "red tape", for sustainability projects. A business-led transition calls on regulators to include comprehensive policies for viability of investments — from permitting requirements for new hydrogen pipelines, to long-term liability clauses on geologic emissions storage, to surety of continuity on subsidies for low carbon fuels. Governments are recognizing the need to streamline approvals and to better collaborate with business on public-private partnerships to best manage liability and risk share, a necessary shift to expedite the implementation of decarbonization projects. Reducing red tape and increasing collaboration are essential for the private sector to achieve both environmental goals and economic returns without the risk of delays.

Additionally, with the growing regulatory attention to carbon removals through frameworks like the EU Carbon Removal Certification Framework (CRCF) and the EU Green Claims Directive, firms are provided a clearer pathway to meet commitments — even if progress with operational decarbonization lags. The CRCF and EU Green Claims are the first of their kind, forming the legal status of negative emissions whilst providing guidelines to corporates on how to communicate their use towards sustainability goals. These frameworks provide an alternative to the risk of target rollbacks, thus ensuring forward momentum even if inhouse decarbonization investments yield slower-than-anticipated results.

Corporate sustainability teams are no longer operating in organizational silos and are increasingly responsible for integrating in operational and financial strategy. This shift transforms organizations’ perceptions of value, competitiveness, and growth. This change impacts both the types of investments attracting capital but also the tone in which they are communicated. This is a natural and welcome evolution to ensure financial markets can reward that which is viable with significant private sector capital to scale. With the ROI of transition at the fore of sustainability strategies, companies are ensuring investments drive tangible financial results alongside environmental goals, ultimately accelerating transition – exactly when we need it most.