Companies still lack bankable incentives to invest in net zero

Tangible business actions do not give priority to near-term emission reductions and instead focus more on compliance issues, including dealing with “squeaky wheel” shareholders and ensuring appropriate climate-related disclosures.

When asked about a list of possible actions, three of the most common related to governance and oversight measures. For example, businesses have assigned climate oversight to a board committee, or are requiring climate experience as a criterion in board and management selection. This is good, as we know what gets measured matters.

But only a minority of businesses is grappling with the difficult nuts-and-bolts strategy issues of how and when they should make substantive reductions in their emissions, the consequences for investment and product offerings, and the opportunities and risks for financial performance and long-term shareholder value.

For example, two of the five least common actions in the Sustainable Value Study are re-engineering supply chains to reduce emissions and divesting from companies or activities with high emissions.

Second: Businesses are rightly cautious about costs.

We see tensions between expectations and stated preferences across investors and managers. Almost four in five investors (78 per cent) say they want companies to focus on ESG even if it hits short-term profits, but less than three in five business leaders (55 per cent) are willing to do this.


This suggests that executives don’t think all investors are genuine about their willingness to accept a profit hit or will adequately reward improved ESG outcomes. More generally, about half of businesses report long-term investment efforts are impeded by investor pressure to show short-term gains, with one in five saying investors are indifferent to long-term investments, including sustainability-related investments.

Moving net zero from a ‘future problem’ to near-term challenge will require clearer and more specific signals.

The good news is that firms are identifying, and acting on, climate initiatives that have positive financial returns. This demonstrates that protecting the planet need not always involve a hit to near-term value. Initiatives also generally deliver multiple types of value, and substantially outperform expectations.

Third: Incentives are not sharp enough for urgent action.

The bottom line is that few companies are implementing the types of actions consistent with a net-zero transition. Most do not see the challenge as immediate enough to disrupt their current business model.

The principal exception is the electricity sector. This is where government is leaning in heavily, particularly at state level, but with the Commonwealth now taking a more prominent role. These government actions are progressively aligning the need to reduce emissions with the direct financial consequences.


Outside electricity, the clear sense we get is that the signals and incentives to reduce emissions are not yet sharp enough to be bankable. While some firms are moving to create a competitive advantage, such as Ampol’s diversification into zero emissions transport energy, real-world examples are sparse. In most cases, measures that could reduce emissions struggle to get through the investment committee.

Moving net zero from a “future problem” to a near-term strategy challenge will require clearer and more specific signals about mandatory obligations on firms. These mandatory obligations will also help align the disparate interests of businesses with their investors, employees and customers. For firms exposed to changes in the Safeguard Mechanism that signal may be just around the corner.