A majority of investment plans by public company CFOs will likely incorporate environmental, social and governance (ESG) metrics within a few years, according to a Gartner report.
By 2026, 60% of public companies will have updated their investment methodologies to include sustainability metrics as a key part of their return on investment analysis, according to the study.
Organizations that can account for the enterprise value of their sustainable investments and connect them to broader corporate strategy will likely be seen favorably by investors and other stakeholders, it said.
Gartner has previously flagged ESG as a rapidly growing area of regulatory risk for corporate boards.
According to this latest study, many organizations are now shifting away from a purely “risk management” approach to ESG and are viewing it as a way to attract customers, investors and talent.
“Many CFOs have already experienced positive returns from placing an emphasis on sustainability and through small-scale, green capital investments,” Melanie O’Brien, a vice president in Gartner’s finance practice, said in a press release.
Gartner predicted that more than $3 trillion of ESG-linked bonds will be issued by 2026, accounting for 30% of total market issuance.
The SEC is expected before May to release a final rule requiring publicly traded companies to report on greenhouse gas emissions and the risks from climate change.
In addition, the International Sustainability Standards Board plans by June to release global guidelines for reporting on both sustainability and climate risk.
Meanwhile, over 70% of companies implementing recommendations from the Financial Stability Board’s Task Force on Climate Related Financial Disclosures shared climate-related information in financial filings or annual reports for fiscal 2021 compared to 45% for fiscal 2017, according to a study released by the task force last October.
“As the market becomes more sophisticated at reporting, assessing, reviewing and using this information to make investment and consumer choices, the benchmark will be raised, resulting in further enhancement and competition between organizations,” the Gartner report said. “This will drive more organizations to invest in sustainability initiatives unique to their business rather than setting goals and transparent reporting to match their competitors.”