The World Business Council for Sustainable Development (WBCSD) published its report on evidence showing how sustainability performance influences company valuation and financing conditions. It offers guidance for C-suite executives and board leaders on how to integrate sustainability into financial and strategic decisions (December 2025).
Human Level’s Take:
- Financial markets are increasingly recognising sustainability as a contributor to growth, operational efficiency, and long-term resilience - with capital markets beginning to incorporate sustainability performance into company valuations
- This trend is also reflected at the executive level. Many CEOs now recognise the strategic relevance of sustainability to business performance. According to an EY survey conducted in January 2025, leaders of companies with fully integrated sustainability strategies report higher levels of business confidence than those without. In particular, 94% expect profitable growth, 92% anticipate improved ability to attract talent, and 87% anticipate stronger brands and customer engagement
- Although sustainability initiatives can involve upfront investment and present valuation challenges, the expected returns - whether through financial performance, risk management, strategic positioning, or stakeholder value - can justify these investments
- Research indicates that companies adopting both a defensive sustainability approach (focused on mitigating market, physical, legal, regulatory, and reputational risks) and an offensive approach (aimed at revenue growth, market expansion, and pricing opportunities) have achieved improvements in base EBITDA of between 5% and 20%
- By contrast, companies that are less prepared for the physical and regulatory impacts of climate change may face material financial impacts over time. Estimates suggest potential EBITDA reductions of between 5% and 25% by 2050, with carbon pricing alone contributing up to 50% of these impacts. Such organisations are often categorised as “wait-and-see” actors, in contrast to early or gradual adopters - a position that many risk specialists advise addressing proactively
- Overall, sustainability is increasingly viewed by business leaders as an important component of value creation and risk management. Companies that integrate sustainability considerations into their strategies may be better positioned to manage emerging risks and opportunities in a changing market environment
Some key takeaways:
- Financial markets are recognising the value of sustainability: Sustainability often faces valuation challenges. For instance, environmental issues - such as pollution or carbon emissions - are viewed as externalities i.e., a cost or benefit that impacts third parties not directly involved in the transaction. This leads to systemic underpricing. Environmental issues are also long-term so the significant discounting of longer-term cash flows in standard financial models makes them appear financially insignificant or too hard to price because of uncertainty. While there are valuation challenges, the evidence shows increasing signs that financial markets are recognising the value of sustainability. Capital markets are starting to reflect sustainability performance in company valuations, with emissions profiles and credible transition plans influencing borrowing costs and investment spreads. Separately, embedding sustainability also requires upfront investments in capital, leadership engagement, workforce training, and operational realignment. It may also require additional costs from sustainable product design, marketing, compliance, and potential demand constraints. However, cost considerations alone do not warrant deferring a sustainability strategy. The decisive factor with any capital expenditure is whether the anticipated returns justify the investment - which can take many forms such as financial measures, risk mitigation, strategic positioning and broader stakeholder value. The way that financial markets are structured means that short-term returns do not account for unique sustainability value drivers. This is despite the fact that according to a KPMG survey, most businesses (92%) reported quick (within one to three years) commercial returns from their sustainability initiatives.
- Sustainability supports growth, efficiency, and resilience: According to an EY survey in January 2025, CEOs of companies with fully integrated sustainability strategies report greater business confidence than those without these strategies in place. For instance, 94% expect profitable growth, 92% anticipate attracting top talent, and 87% foresee stronger brands and customer engagement. Profitability (measured by EBITDA) of sustainability strategies manifests in two ways: 1) a “defence mechanism” to mitigate market decline or hedge against physical risks, as well as legal, regulatory and reputational costs; or 2) an “offense mechanism” to expand revenue, capture growth and price premiums, make direct operations and supply chains more efficient, and promote higher employee productivity. Taken together, these two strands are shown to improve companies’ base EBITDA by between 5% and 20%. While some management teams are still hesitant to invest more in sustainability strategies for various reasons - for instance, because of high upfront costs, conflicts with financial goals, economic uncertainty, business model challenges, and insufficient government incentives - management interest in a more offense-oriented approach to sustainability is growing due, in part, to positive return-on-investment figures.
- Delaying action carries significant risk: J.P. Morgan categorises sustainability strategies into four groups: early adapters, gradual adapters, procrastinators, and wait-and-see actors. Each of these groups have distinct risk profiles. The consensus among risk experts is firmly against a ‘wait-and-see’ approach. Research by BCG suggests that companies that are unprepared for the physical and regulatory effects of climate change could potentially lose 5-25% of 2050 EBITDA, and the introduction of carbon pricing alone could account for up to 50% of these EDITDA losses. On the flip side, sustainability efforts is increasingly recognised by financial markets as contributing to key value drivers such as greater operational resilience, lower energy costs, and cheaper financing. Over the long term, returns on sustainable funds and on traditional funds have been comparable. For example, US$100 invested in 2018 grew to US$136 for sustainable funds and US$131 for traditional funds by the end of 2024. Sustainability has also begun to manifest in enhanced valuation metrics such as price-to-earnings and discounted cash flow. Research by MSCI reveals that investors increasingly recognise sustainability as an explainer of corporate performance. Furthermore, 91% of companies now feel pressure from investors to advance their sustainable practices; highlighting a shift in the market’s perception of sustainability. A similar trend can also be seen in relation to mergers and acquisitions (M&A), with acquiring entities increasingly demanding counterparties to evidence robust sustainability metrics as a precondition to a deal.
