Most Companies Still Struggle to Quantify Impact of Sustainability Risks and Opportunities: KPMG Survey

A significant majority of executives report that have a strong understanding of their companies’ sustainability strategies, yet fewer than one in five companies currently use robust methodologies to quantify the financial impact of sustainability on value creation and future performance, according to a new survey released by professional services firm KPMG.

According to KPMG, the survey findings indicate a significant gap between companies’ understanding of sustainability and their ability to translate it into financial value, leaving companies at risk of mispricing sustainability opportunities and costs in investments and decision-making.

Simon Weaver, Global Head of Sustainability Advisory, KPMG International, said:

“Boards increasingly understand sustainability risks and opportunities, but understanding alone is no longer enough. 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.”

For the study, Closing the Sustainability Valuation Gap, KPMG surveyed over 2,000 C-suite and senior executives at companies with annual revenues of at least $100 million, across 19 countries and a wide range of sectors.

The survey found that most companies now have a strong awareness of sustainability-related risks and opportunities, with 72% of executives reporting having a detailed understanding or familiarity with key aspects of their sustainability strategy, metrics and performance.

Additionally, the survey found that 60% of companies consider sustainability-related risks and opportunities in financial planning, and half report that sustainability is an integral part of their strategies.

While awareness and integration of sustainability has become the norm, however, the survey also indicated a lack of ability by companies to quantify its financial impact, with only 19% of respondents reporting that their companies apply commonly-used financial valuation approaches, such as digital twins and Monte Carlo simulations, to measure the impact of sustainability on value creation, for factors such as financial outcomes, operational gains and innovation.

By sector, the survey found that companies in banking and capital markets were the most likely to use robust valuation techniques to quantify the financial impact of sustainability, at 33%, followed by energy and natural resources at 31%, and the automotive sector at 31%. In the report, KPMG noted that for these more advanced sectors, “sustainability risks shape their financial fundamentals more directly and urgently,” with financial services companies seeking to address sustainability risks affecting portfolios, credit risk and stress testing, and energy and automotive companies facing capital intensive transition challenges.

According to KPMG, the gap between sustainability understanding and valuation is the result of a lack of tools capable of connecting sustainability with financial performance, with frameworks and value drivers not yet in place, and “quantification techniques, where they exist, are often fragmented and inconsistent.”

Julie Vasadi, Global Lead, Sustainability Deals & Value, KPMG International, said:

“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. 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 organizations.”

Click here to access the survey.