Just 19% of global executives are quantifying how sustainability will impact their future performance, despite 72% saying that they ‘understand’ their company’s sustainability strategy, a new report from KPMG has found.
KPMG’s Closing the Sustainability Valuation Gap report surveyed more than 2,000 senior executives across 19 countries and territories, and found that sustainability is now ‘firmly on the boardroom agenda’, with three fifths of organisation stating that they consider sustainability risks and opportunities as part of their financial planning, and half embedding it into core strategy.
However, most firms have yet to effectively translate sustainability into financial metrics such as EBITDA, cash flow and capital expenditure impacts, resulting in what KPMG describes as a ‘sustainability valuation gap’.
‘Robust quantification’
“Boards increasingly understand sustainability risks and opportunities, but understanding alone is no longer enough,” commented Simon Weaver, global head of sustainability advisory, KPMG International.
“A real challenge is turning that insight into financial outcomes that can inform decisions. Without robust quantification, companies risk missing both the downside risks and the upside value creation opportunity.”
Some sectors are making more progress than others in terms of closing this valuation gap, the report noted. A third (33%) of banking and capital markets firms, and a similar percentage (31%) of energy and natural resources firms are already using advanced valuation methodologies to quantify sustainability impacts, KPMG noted. The automotive sector also ranks higher than the global average, with 27% of firms having adopted similar approaches.
‘These sectors are leading due to the more immediate and material impact sustainability risks have on their financial performance and capital allocation decisions,’ KPMG noted.
The next phase
According to KPMG, the ‘next phase’ of corporate sustainability will depend less on disclosure and awareness and more on financial integration, which will require firms to step up their efforts to embed sustainability decisions into financial planning, capital allocation and valuation, and develop consistent methodologies to quantify sustainability impacts.
“While systemic change is undoubtedly on its way, it will likely be built from the bottom up as much as being mandated from the top down,” added Julie Vasadi, global lead, sustainability deals and value, KPMG International.
“Understanding the business case for action is a starting point; without that, progress may be limited. A real risk lies in doing nothing. Companies that take the initiative now will likely be better prepared to protect and create value and competitive advantage at their own organisations.” Read more here.
