A climate-action conundrum?
Although CEOs may recognize the seriousness of the climate crisis, many still grapple with the question of how companies can create value by acting on business opportunities and risks stemming from climate change. Just 30% of the 4,702 chief executives polled in PwC’s 27th Annual Global CEO Survey said they consider climate change a factor that will drive shifts in their business models over the next three years—far fewer than the 56% who said so about technology or the 49% who cited customer preferences. Doubts also persist about the business case for climate-related moves: about half of CEOs say that the lower returns they perceive for climate-friendly investments inhibit their ability to decarbonize their company’s business model.
Trade-offs not required.
Further analysis of the survey data, though, suggests that climate-friendly investments needn’t come at an extra cost. We asked CEOs whether their companies use their normal hurdle rates or set lower rates for climate-friendly investments. Then we compared the profit margins and revenue-growth rates of companies taking each approach (for more, see the “About this analysis” sidebar, below). As it turns out, CEOs in both groups reported equal profit margins, on average—suggesting that there may be little financial downside from lowering hurdle rates for climate-friendly investments. Reported revenue growth is slightly higher for companies that apply their normal hurdle rates to climate-friendly investments. In other words, when it comes to deciding on actions that address climate-related opportunities and risks, the logic of value creation looks as sound as ever.
From trade-offs to payoffs.
Other survey data points to a link between business actions related to climate change, such as selling products or services that enhance customers’ climate resilience, and superior financial performance. For virtually every mode of climate-minded business action, CEOs reporting that their companies have completed the action also reported higher profit margins and revenue growth than CEOs who said their companies have no action plans. This finding should give CEOs further reason to think that such actions pay off. And moves to retool a company’s offerings for the demands of a net-zero economy have the most pronounced effect on profits and revenues. Innovating climate-friendly products and services, for example, is associated with higher margins and quicker growth than improving energy efficiency. Such advantages should only increase as public policies and customer preferences continue shifting in favor of sustainable business practices.
Looking forward, looking up.
Business action on climate change also seems to allay a common CEO concern: the long-term prospects of their companies. In our past two surveys, around 40% of CEOs said they believe that if their companies continue on their current path, they won’t be viable for more than ten years. But those CEOs who report taking more action to address climate-related opportunities and risks are also more likely to express confidence about the future of their business, over three-year and ten-year time frames. This association, too, looks strongest for actions focused on products and services.
Untapped opportunity.
Many CEOs report that their companies have started or completed certain actions related to climate change, such as improving energy efficiency. Still other actions have seen far less uptake. These include moves that have strong associations with high profit margins and high revenue-growth rates. For executives who believe in the potential to create value by aligning their businesses with today’s climate imperatives, these actions may be worth exploring.
The authors thank Shir Dekel for his contributions to this article.
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Renate de Lange is PwC’s Global Sustainability Markets Leader. She is a partner with PwC Netherlands.
Will Jackson-Moore is PwC’s Global Sustainability Leader. He is a partner with PwC UK.