Global Corporations Embrace Sustainability as Strategic Growth Driver Despite Mounting Investment Costs

Corporate commitment to sustainability has reached a new high, with an overwhelming majority of global companies now viewing environmental and social initiatives as fundamental drivers of long-term value creation rather than mere compliance obligations. According to the Morgan Stanley Institute for Sustainable Investing, 88% of companies globally identify sustainability as either a primary or partial driver of value creation—a three-percentage-point increase from 2024.

The finding, revealed in the institute’s Sustainable Signals: Corporates 2025 report, marks a significant milestone in how businesses approach environmental, social, and governance considerations. The survey, which polled over 300 sustainability decision-makers at private and public companies across North America, Europe, and Asia-Pacific between March and April 2025, demonstrates that despite economic headwinds and political uncertainties, corporate leaders are doubling down on their sustainability commitments.

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Value Creation Supplants Risk Management

The shift in corporate perspective represents a fundamental transformation in how businesses conceptualize sustainability. When asked how sustainability affects their long-term corporate strategy, 53% of respondents said it is primarily a value creation opportunity, while an additional 35% view it as partly creating value. This stands in stark contrast to the 12% of corporates that see sustainability primarily through a risk management lens, down from 15% in 2024.

“The data suggest that sustainability remains central to long-term value creation,” said Jessica Alsford, Chief Sustainability Officer and Chair of the Institute for Sustainable Investing at Morgan Stanley. “Companies around the world report an alignment between corporate strategies and sustainability priorities as they seek to build resilient, future-ready businesses.”

The evolution from risk mitigation to value creation reflects a broader recognition that sustainability initiatives can drive tangible business benefits. According to sustainability experts, this shift represents companies moving beyond viewing environmental and social programs as defensive measures to embracing them as offensive strategies that can unlock new markets, enhance competitiveness, and attract capital.

Quantifying Return on Investment

Perhaps the most significant finding in the Morgan Stanley report is that companies have developed robust capabilities to measure the financial returns on their sustainability investments. More than 80% of companies say they can measure return on investment for sustainability-related capital expenditures, research and development, and operational costs just as they do for other investments.

This capability marks a maturation of sustainability functions within organizations. The ability to quantify returns means that sustainability initiatives can be justified through traditional performance frameworks, bolstering board-level support and stakeholder engagement. According to the survey, 83% of respondents report that they can measure sustainability ROI with the same confidence they bring to conventional business investments.

However, this represents a significant improvement over broader industry benchmarks. Separate research from The Conference Board found that only 9% of surveyed executives rate their ability to measure sustainability ROI as good or excellent, while 38% consider it poor. The discrepancy suggests that while leading companies have developed sophisticated measurement capabilities, a significant portion of the corporate sector still struggles to quantify the business case for sustainability.

The most effective sustainability teams start with direct, measurable returns. Energy efficiency programs typically offer the clearest ROI demonstration, with companies achieving 10-30% cost reductions through optimized energy consumption. Water conservation initiatives provide similar clarity, particularly for manufacturing operations in water-stressed regions.

Regional and Industry Variations

The perception of sustainability as a value driver varies significantly across geographies and industries. North American and European respondents reported the largest increases in viewing sustainability as value creation, up nine and ten percentage points respectively compared to 2024. Meanwhile, companies in Asia-Pacific shifted toward emphasizing sustainability’s role in risk management by eight points.

These regional differences likely reflect varying regulatory landscapes, stakeholder expectations, and exposure to climate risks. North America and Europe have seen intensifying disclosure requirements and stakeholder pressure, while Asia-Pacific companies face more immediate physical climate risks that elevate risk management concerns.

Industry perspectives are also diverging markedly. Respondents in utilities, consumer staples, real estate, materials, and financials increasingly position sustainability as a core value driver. By contrast, sectors such as information technology, industrials, energy, and communications services focus more on balancing value creation with risk mitigation.

The industry variations reflect differing business models, regulatory pressures, and stakeholder expectations. Utilities face stringent emissions regulations and transition risks, making sustainability central to their long-term viability. Consumer-facing industries respond to growing consumer demand for sustainable products, while capital-intensive sectors focus on managing transition risks to their existing asset base.

Climate Disruptions Reshape Operations

The physical impacts of climate change are no longer theoretical concerns but present realities reshaping corporate operations. Fifty-seven percent of companies reported experiencing business disruption from climate-related events in the past year, with Asia-Pacific firms reporting the highest incidence at 73%.

Among companies affected by climate events, extreme heat emerged as the most common disruption, cited by 55% of respondents. Extreme weather or storms affected 53% of impacted companies. These events drove up operational costs for 54% of affected businesses, disrupted workforces for 40%, and caused revenue losses for 39%.

The frequency and severity of climate-related disruptions align with broader trends in natural disaster impacts. According to the World Economic Forum, total global economic losses from natural catastrophes rose to $162 billion in the first half of 2025, up from $156 billion the previous year. Professional services firm Aon projects that insured losses may reach up to $100 billion by the end of 2025, which would be the second-highest total on record since 2011.

A separate survey from Sentry Insurance found that 90% of executives report their businesses have been impacted by severe weather over the past five years. The impacts extend beyond physical damage to facilities, encompassing supply chain interruptions, employee absences, and system outages that prevent critical operations.

Building Climate Resilience

Despite the mounting impacts, companies express confidence in their ability to enhance resilience. Looking ahead at the next five years, more than 80% of companies feel “very” or “somewhat prepared” to increase their resilience across infrastructure, supply chains, financial risk management, and community engagement.

This confidence reflects growing corporate investment in adaptation measures. According to the World Economic Forum, companies are increasingly identifying “low-hanging fruit” that offers practical approaches for corporate balance sheets over short time horizons, with impact measured in both cost savings and total potential emissions reduced. These include low-cost energy-efficiency investments, transitioning to lower carbon energy sources, and optimizing resource use.

However, preparing for future climate risks requires sophisticated risk assessment capabilities. Leaders need perspective on future projections of weather perils that have solid grounding in meteorological science and statistics. Organizations are ramping up expertise in climate risk modeling, hiring climate scientists, geospatial analysts, and software engineers to create, validate, manage, and deploy robust weather-peril projections.

The urgency of adaptation is underscored by projections of future impacts. Research indicates that utilities, telecommunications, and travel sectors face upwards of 20% profitability losses year on year by 2035 under high emission scenarios. Even industries that seem less directly exposed to extreme weather events, such as high-tech, software, and life sciences, are expected to suffer financial strain due to supply chain disruptions and climate-related risks to infrastructure.

Progress on Sustainability Strategies

The Morgan Stanley survey reveals encouraging progress in the delivery of sustainability strategies. Sixty-five percent of companies say they are meeting or exceeding expectations on their sustainability strategy, up from 59% in 2024. Asia-Pacific reported the strongest progress gains, growing from 53% to 60% year-over-year.

This progress occurs despite significant barriers. High investment needs again topped the list of challenges, with 24% of respondents naming this among their top three barriers to delivering on sustainability strategies. Uncertainties over the political, macroeconomic, and regulatory outlook closely followed, each cited by approximately 15% of companies.

The challenge of demonstrating ROI has intensified in 2025 amid inflation, supply chain disruption, and geopolitical uncertainty. According to Harvard Law School’s corporate governance research, boards and C-suite executives expect credible evidence that sustainability drives operational efficiency, mitigates risk, ensures regulatory readiness, and contributes to long-term value.

Building credible ROI measurement requires collaboration across functions. Sustainability teams must work closely with finance, procurement, human resources, and operations to establish consistent measurement frameworks and shared accountability structures. The most advanced companies are embedding climate considerations into enterprise risk management frameworks, capital allocation processes, and executive compensation structures.

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Future Opportunities and Challenges

Looking ahead, companies identify significant opportunities from sustainability initiatives. The top opportunity cited for sustainability over the next five years is improved profitability, mentioned by 25% of respondents. Other priorities include revenue growth at 19% and lower cost of capital at 13%.

These opportunities reflect multiple pathways through which sustainability creates value. Sustainable products are growing 28% faster than traditional goods, with leading companies commanding price premiums for environmentally responsible offerings. Energy efficiency initiatives deliver direct cost savings, with some organizations reporting reductions of $1-$2 per square foot annually.

However, costs remain a top concern for the future. Half of companies flagged cost-related challenges—including higher prices or reduced profitability from process changes—as their biggest threat over the next five years. This tension between opportunity and cost underscores the need for strategic prioritization and effective execution.

The most frequently cited enablers for successful sustainability strategy include technological advancements at 33%, a favorable economic and operating environment at 32%, and growing client demand at 28%. Technology is emerging as a powerful counterbalance to cost pressures, enabling companies to achieve sustainability objectives more efficiently.

Transition Risks Loom Large

Beyond physical climate impacts, companies face mounting transition risks related to policy changes, shifting markets, and rising stakeholder expectations. Between two-thirds and three-quarters of companies see a likely business impact from these transition factors over the next five years.

The most likely outcomes from transition risks include higher operating costs at 71% and increased investment requirements at 69%. These projections reflect the costs of adapting business models, upgrading infrastructure, and meeting evolving regulatory requirements as economies shift toward net-zero emissions.

Climate action is becoming more important by the day, with over 80% of S&P 500 companies now publicly identifying climate change as a business risk. The focus has shifted from basic disclosure toward strategic integration into core business operations, with leading companies embedding climate considerations into capital allocation decisions and executive compensation structures.

The regulatory landscape continues to evolve rapidly. Companies must navigate diverging frameworks across regions, from the European Union’s Corporate Sustainability Reporting Directive to various disclosure requirements in North America and Asia-Pacific. According to Harvard Law School research, 80% of sustainability executives have adjusted their strategies in response to the evolving policy landscape, strengthening legal and risk oversight and refining public messaging.

Spending Allocation and Priorities

The Morgan Stanley survey reveals relatively balanced spending across sustainability goals. Twenty-two percent of companies focus primarily on capital expenditures and research and development for new projects, 30% emphasize operational expenditures for risk reduction, and 31% pursue a blend of both approaches.

Industry patterns emerge in spending priorities. Utilities and technology sectors prioritize new investments in clean energy and innovation, while communication services and real estate emphasize operational risk mitigation. These differences reflect varying business models, asset bases, and exposure to climate risks.

The allocation patterns suggest that companies are taking diversified approaches to sustainability, recognizing that both transformative investments and incremental operational improvements contribute to long-term value creation. This balanced strategy allows organizations to capture quick wins from efficiency improvements while positioning for longer-term structural changes.

Regional Spotlight: MENA and Latin America

While not included in global totals to maintain comparability with the 2024 survey, the Morgan Stanley report also polled companies in the Middle East and North Africa and Latin America regions. Their responses provide valuable insights into sustainability perspectives in emerging markets.

MENA has the highest percentage of companies at 86% that see sustainability as a way to create value. This finding challenges assumptions that sustainability is primarily a concern for developed markets, demonstrating that companies across all regions recognize the business case for environmental and social initiatives.

In Latin America, 88% of companies expect climate-related business risks over the next five years, higher than other regions. Despite this elevated risk perception, 67% still see sustainability as a value opportunity. This demonstrates resilience and forward-thinking among Latin American businesses, which face significant climate vulnerabilities but continue to view sustainability strategically.

The Business-Led Transition

The Morgan Stanley findings align with broader trends toward what experts call a “business-led transition” to sustainability. According to the World Economic Forum, this shift prioritizes return on capital, business continuity, and broader policy enablers such as permitting, liability, and financial incentives.

This approach represents a shift in tone, investment, and at times even corporate organizational charts. However, it should be welcomed as an accelerant in decarbonization—ensuring target achievement is at the heart of the new business as usual. While a returns-centric transition may seem less aspirational than mission-driven approaches, it provides a sustainable foundation for long-term progress.

The integration of sustainability into core business strategy is creating a new “business as usual” marked by adoption of new metrics to evaluate investments. Valuation frameworks are evolving, with traditional indicators now supplemented by assessments of carbon intensity, water use, biodiversity impact, and agricultural resilience. Decades-long asset investments require new ranges of metrics and risk assessments to be future-proof.

Navigating Policy Uncertainty

The political and regulatory landscape for sustainability has grown increasingly complex. According to Harvard Law School research, navigating ESG policy shifts has become the top corporate sustainability priority in the second half of 2025.

Recent changes in U.S. federal climate, energy, and disclosure policy—including the suspension of the SEC climate disclosure rule and a pullback from international engagement—have disrupted core policy signals, reshaped stakeholder expectations, and added new layers of complexity. Companies have responded by refining public messaging, substituting charged terms like “ESG” with “sustainability” or “resilience,” and placing greater emphasis on demonstrating ROI.

In this environment, materiality, defensibility, and alignment with enterprise value have become guiding principles. The most effective approach requires treating ESG data with financial-grade standards, implementing robust internal controls, engaging audit committees early in the process, and establishing systems capable of supporting external assurance requirements.

The Path Forward

The Morgan Stanley Sustainable Signals report paints a picture of corporate sustainability at an inflection point. While 88% of companies view sustainability as a value creation opportunity and more than 80% can measure returns on their investments, significant challenges remain. High investment costs, political uncertainty, and the mounting impacts of climate change test corporate commitment and execution capabilities.

The companies most likely to succeed in this environment are those that can balance short-term cost pressures with long-term strategic positioning. This requires sophisticated capabilities in ROI measurement, climate risk assessment, stakeholder engagement, and technology deployment. It also demands leadership willing to make bold investments in resilience and innovation despite economic headwinds.

The shift from viewing sustainability as a risk management exercise to embracing it as a value creation opportunity represents a fundamental evolution in corporate strategy. Companies that successfully navigate this transition—quantifying returns, building resilience, and integrating sustainability into core business operations—will be best positioned to thrive in an economy increasingly shaped by environmental and social considerations.

As Jessica Alsford noted, companies around the world are reporting alignment between corporate strategies and sustainability priorities as they seek to build resilient, future-ready businesses. The question is no longer whether sustainability creates value, but how companies can most effectively capture that value while managing the risks and costs of the transition.

The next phase of corporate sustainability will likely be characterized by greater integration with financial planning, more sophisticated measurement of both tangible and intangible returns, and continued innovation in technology and business models. Companies that invest in these capabilities today will be the value creators and market leaders of tomorrow.

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By: Montel Kamau

Serrari Financial Analyst

12th January, 2026