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Gartner Says Sustainability Metrics in Investment Plans Will Be Standard Practice for CFOs by 2026 – EQ Mag

Gartner Says Sustainability Metrics in Investment Plans Will Be Standard Practice for CFOs by 2026 – EQ Mag


Experts Also Predict that 30% of Total Debt Capital Markets Funding Will Be Directed Towards ESG Initiatives by 2026

The majority of public companies will update their investment methodologies to include sustainability metrics as a key part of their return on investment (ROI) analysis by 2026, according to Gartner, Inc. The shift from viewing sustainability solely as a source of risk management to a new driver of returns will be transformative for many companies.

Many organizations have evolved from a purely risk-oriented approach to environmental, social and governance (ESG) concerns and have begun to optimize their programs to burnish their reputation and actively attract customers, investors and talent. The next stage in this evolution is to drive sustainability transformation by making ROI a key focus of their ESG strategies.

“Many CFOs have already experienced positive returns from placing an emphasis on sustainability and through small-scale, green capital investments,” said Melanie O’Brien, VP analyst, research, in the Gartner Finance practice. “We predict that 60% of public companies will have updated their investment methodologies to include non-financial information related to sustainability by 2026, which will facilitate longer-term and transformative sustainability investments.”

Embracing Sustainability as a Driver of Returns

O’Brien said that traditional investment methodologies often overlook the value of nonfinancial and intangible benefits when considering investment returns. Progressive organizations that are embracing sustainability as a driver of returns have begun to update their investment criteria in a similar fashion to how leading organizations assess the nontangible benefits of their digital investments.

Organizations that can account for the enterprise value of their sustainable investments, connect them to broader corporate strategy and show clear benefits to the organization will likely be seen favorably by investors and other stakeholders.

One way this is already being made tangible is in the debt capital markets, as organizations partially mitigate the challenges of a higher interest rate environment by issuing ESG-linked bonds, which receive more favorable discount rates than their conventional equivalents. Gartner predicts that more than $3 trillion of ESG-linked bonds will be issued by 2026, accounting for 30% of total market issuance.

Adjusting Investment Methodologies

To further accomplish financially aligned sustainability goals, Gartner recommends CFOs adjust their investment methodologies in key areas, including:

Assessing their geographic portfolios for opportunities to divest businesses that conflict with stated ESG objectives; Gartner further predicts that 30% of multinational organizations will streamline geographies and subsidiaries due to sustainability regulatory requirements by 2026.
Ensuring that investments which demonstrate clear nonfinancial but significant benefit to the organization are considered equal to projects with financial returns.
Tolerating a longer cash back period of six-to-10 years instead of the current two-to-three year period, aligned with strategic objectives and potentially by balancing longer term sustainability investments with additional more aggressive short-term investments.
Leveraging current frameworks and accounting models that have been established to support the growth in organizations calculating the value on intangibles. These include the UN Value Driver Model, the Return on Sustainability Investment (ROSI) methodology, Economic Value Added (EVA) calculations and Value based management (VBM).

Gartner clients can learn more in: Predicts 2023: Achieving ROI With ESG. CFOs and finance leaders can participate in Gartner research and get complementary access by joining the Gartner Research Circle.

About the CFO & Finance Executive Conference 2023

Gartner experts will provide additional insights on how CFOs can address slowing growth, persistent high inflation, scarce expensive talent and global supply constraints during the Gartner CFO & Finance Executive Conferences 2023, taking place May 31-June 1, in National Harbor, MD., and September 18-19 in London. Follow news and updates from the conferences on Twitter using the hashtag #GartnerFinance.

About the Gartner Finance Practice

The Gartner Finance practice helps senior finance executives meet their top priorities. Gartner offers a unique breadth and depth of content to support clients’ individual success and deliver on key initiatives that cut across finance functions to drive business impact. Learn more at https://www.gartner.com/en/finance/finance-leaders. Follow Gartner for Finance on LinkedIn and Twitter using #GartnerFinance to stay ahead of the latest expert insights and key trends shaping the Finance function. Visit the Gartner Finance Newsroom for more information and insights.

Source: gartner
Anand Gupta Editor - EQ Int'l Media Network