ESG in Corporate Finance

70% of companies have maintained or increased climate-related investments 🌎 At first glance, corporate climate action appears to be losing momentum. Reporting rates are declining, fewer companies are setting full scope targets, and climate issues are less visible in CEO discussions. Beneath the surface, companies are steadily increasing investments in mitigation and adaptation, guided by the tangible value at stake. The 2025 BCG CO2 AI Climate Survey indicates that 70% of companies have maintained or increased climate-related investments, with a projected 16% rise in capital allocation over the next five years. 82% of surveyed companies report financial benefits from decarbonization. In some cases, the net value captured exceeds 10% of annual revenue, averaging 221 million dollars per company. Value creation stems from revenue growth in sustainable products, operational efficiency gains, and reduced exposure to regulatory and physical climate risks. Companies assessing risks estimate an average financial exposure of 790 million dollars by 2030. Those advancing resilience and adaptation measures are already securing gains equivalent to 1% of revenue. Leaders distinguish themselves by integrating comprehensive measurement, internal carbon pricing, and transition plans that align climate goals with corporate strategy. Digital tools represent the strongest differentiator. Organizations deploying AI, IoT, drones, satellite monitoring, and advanced computing are 2x more likely to capture significant climate value. Digital maturity enables forecasting of emissions, supply chain traceability, climate risk simulations, and automated reporting. This integration converts sustainability into a driver of competitiveness. 7% of companies are currently achieving significant value from climate initiatives, highlighting the scale of opportunity for those willing to act with urgency. Companies embedding climate within strategy, supported by advanced digital solutions, are advancing faster and achieving stronger business outcomes. The path forward lies in targeted investment where sustainability and value creation intersect. Those making these commitments today are shaping the leadership profile of tomorrow. #sustainability #business #sustainable #esg

The debate over the role of defense industries in sustainable finance is heating up. The pressure on responsible investors is intensifying, with growing calls to reconsider exclusions and align investment strategies with geopolitical realities. That pressure is understandable. This is not a minor issue—it’s a structural trend shaping the investment landscape. According to Eurosif - The European Sustainable Investment Forum 2018 European SRI Study, €9.5 trillion of assets under management in Europe were subject to some form of exclusion strategy, making it the most widely adopted responsible investment approach. Exclusions on controversial weapons (nuclear, chemical, cluster munitions) apply to over 63% of responsible investment portfolios, while broader exclusions on all weapons remain significant. This is not an isolated movement—it is a widespread and deeply embedded practice across Europe. In key markets: ▫️France: €1.9 trillion of assets are subject to exclusions. ▫️Germany: €1.5 trillion. ▫️The Netherlands: €724 billion. ▫️Switzerland: €2.3 trillion. These figures reflect a long history. The exclusion of weapons from investment portfolios is not new; it dates back to the Quakers in the 18th century, who refused to finance war-related industries. In the 20th century, this principle took hold in institutional finance: ▫️1971: The launch of the Pax Fund, the first modern SRI fund, in response to the Vietnam War. ▫️1980s-1990s: Divestment movements expanded to nuclear weapons and landmines. ▫️2000s: The rise of national and supranational regulations, including the exclusion of cluster munitions and anti-personnel mines under the Oslo and Ottawa treaties. ▫️2010s: Sovereign wealth funds, such as Norway’s Government Pension Fund Global, adopted explicit exclusions of weapons manufacturers. Yet, sustainable finance has evolved. The past decade has seen a shift from a binary “exclusion-only” model to a more complex ESG integration approach. Investors now combine exclusions with engagement, best-in-class selection, and impact strategies. But let’s be clear: exclusions remain the dominant strategy in sustainable investing. Even in 2018, despite a surge in ESG integration (+27% CAGR), exclusions still accounted for the largest pool of assets. What does this mean for the future? The debate will continue. Some argue that defense investments should be reconsidered in light of current global security challenges. Others emphasize that sustainability is not just about climate and social factors—it is also about peace and long-term stability. What is certain is that responsible finance is not static; it must continually evolve while staying true to its foundational principles. What’s your take? Should sustainable investors reassess their stance on defense? Or should exclusions remain a cornerstone of responsible investment? #SustainableFinance #ESG #ResponsibleInvestment #ImpactInvesting #FinanceForPeace

Can ESG & Defence Financing Coexist? 🤔 The war in Ukraine has reignited the debate: Can defence investments align with ESG principles? Many investors avoid the sector due to reputational risks & ethical concerns, yet national security is essential for stability. 🔹 Key Takeaways from Af2i’s Study: ✅ ESG Regulations Don’t Ban Defence Financing – But they don’t classify it as “sustainable” either. ✅ SDG 16 Supports Security as a Pillar of Sustainability – Defence can align with ESG under strict governance. ✅ Transparency & Due Diligence Are Crucial – Assessing weapon types, end users & compliance is key. ✅ The Risk of Greenwashing – Avoiding defence but funding high-emission industries raises questions. ✅ Shifting Market Sentiment – Some European banks are rethinking restrictions amid rising security concerns. 💡 The Bottom Line? The study highlights that ESG and defence are not inherently incompatible. With clearer criteria & better transparency, responsible defence financing can support stability. What’s your take? Should defence investments fit into ESG frameworks? Let’s discuss! ⬇️ #ESG #DefenceIndustry #SustainableFinance #ResponsibleInvesting #Security #Finance Joël PROHIN Hubert Rodarie Eric Sidot Kamel Omar Déprez Jean-Francois Coppenolle Olivia Blanchard Claire Berthier

Today, we welcome the core high-level findings of an independent report that UKSIF commissioned from the Royal United Services Institute (RUSI), the world's oldest defence and security think tank, examining the relationship between #ESG and UK #defence investing. With international tensions rising and global security increasingly at the forefront of many people’s minds, we have been concerned by a series of claims in the UK media and elsewhere that ESG approaches and principles are inhibiting defence #investment, particularly for small and medium-sized enterprises. We are therefore pleased that, after extensive analysis, this report makes clear: ESG investment approaches and rules are not the cause of financing challenges that many companies in the defence industry are facing. The report’s high-level central findings are as follows: • ‘ESG disclosure and labelling regimes, as well as many investors’ own ESG investment approaches, generally do not preclude financing and investment in defence and have little impact on the defence industry’s access to capital.’ • ‘Some fund managers have implemented defence-specific exclusions in the funds they manage and brand as sustainable. But such exclusions of entire sectors are not mandated by ESG rules.’ • 'Consequently, ESG regulatory requirements and ESG-related concerns have only a limited impact on investment in defence and the defence industry’s access to financial services.’ • ‘Some defence companies exacerbate the problem of ESG being framed as a reason for their lack of access to investment, but these claims are often unsubstantiated’ This report draws a line under the notion that ESG standards are stopping capital from flowing into the industry. We will be using this analysis to make the case to policymakers in the coming weeks and months that ESG is not a barrier to growth in the highly regulated UK defence sector. As this report was independently researched and written, we recognise that the views it expresses, in full, do not necessarily reflect UKSIF’s or members’ positions on this topic. https://lnkd.in/eUfW-9TM

What happens when a Fortune 500 company treats sustainability like a business lever? Mastercard’s 2024 Impact Report offers a compelling answer. They’ve cut global company emissions for Scopes 1–3 by 7% year-over-year, and 46% since 2016. At the same time, they reported $28.2B in net revenue, up 12% from the year prior. In short: they’re continuing to decouple emissions from growth.  Not just pledging, but proving it. Under the leadership of Chief Sustainability Officer Ellen Jackowski, Mastercard is embedding climate performance into the core of the business: • Scope 3 accounts for 90% of their total footprint — and they’re tackling it head-on • A global supplier engagement program is cascading science-based targets across the chain • Sustainability data is audit-grade, with third-party assurance and board-level oversight • Executive compensation and company-wide bonuses are directly tied to sustainability goals This isn’t optics. It’s operational discipline. And the logic is clear: emissions reductions, supplier engagement, and systems-level transparency aren’t side projects. They’re growth levers. We’re seeing the same shift across Tracera’s enterprise customers. The C-suite doesn’t want more reports. They want decision-grade data. Data that answers: → Where are our risk and cost hotspots? → Which suppliers are lagging on climate targets? → How do we turn emissions reductions into margin gains? The takeaway: high-integrity sustainability data isn’t a compliance task. It’s a strategic asset. The companies that understand that first won’t just report faster. They’ll compete better.

One of the most compelling areas to explore is the role of linking ESG issues to executive compensation as a critical step in driving the ESG agenda and embedding sustainability into a company’s core business strategy. Globally, the practice of tying executive pay to ESG issues has emerged as a key focus in corporate governance discussions. While still in its early stages, ongoing studies are exploring the tangible impact of this approach and its potential to generate long-term value for businesses and stakeholders. As part of investor dialogues, companies are expected to align the ESG issues identified in their sustainability reports with those reflected in executive pay packages. Any discrepancies between these issues and the metrics used for remuneration should be supported by a clear and transparent rationale. This assures investors that material ESG factors—those likely to impact shareholder returns—are fully understood and properly addressed. The PRI report, “Integrating ESG Issues into Executive Pay,” provides valuable guidance on how companies can design effective compensation structures to incorporate ESG incentives. Key insights include: 1. Materiality and Relevance Companies should focus on ESG issues that are most material to their operations and long-term strategy. Linking pay to these issues ensures alignment with corporate priorities and stakeholder expectations. 2. Balance of Short- and Long-Term Metrics ESG-linked compensation should encompass both short-term and long-term goals to maintain accountability. Short-term goals, such as annual emissions reductions, can be tied to bonuses, while long-term objectives, like achieving net-zero emissions, may be linked to equity or multi-year incentive plans. 3. Integration into Corporate Strategy ESG-linked incentives should reflect the company’s broader sustainability commitments and strategic objectives. For instance, organizations transitioning to a low-carbon economy might tie executive pay to metrics such as reducing greenhouse gas emissions or increasing renewable energy investments. 4. Transparency and Disclosure Transparency is critical when integrating ESG into executive pay. Companies should clearly communicate how ESG metrics are selected, how they align with corporate strategy, and how performance is measured. Investors increasingly view the integration of ESG metrics into executive compensation as a crucial indicator of a company’s commitment to sustainability. This alignment ensures that leadership focuses on achieving both financial and non-financial objectives, which are essential for long-term success. For further insights and detailed recommendations, the full PRI report can be accessed: #esg #governance

There's one concept (especially as it relates to Scope 3) that will change the way you speak to leadership about sustainability, guaranteed. The profit leverage effect. Every conference I've been to in the last year talks about how sustainability leaders need to drive shareholder value and embed themselves in the strategic direction of the business. Here's what the profit leverage effect means: Every dollar saved through reducing expenses goes directly to the bottom line!!! "To achieve the same impact on profit through increased revenue, a business must generate significantly more sales, typically 5 to 20 times as much, depending on its profit margin. For instance, if a company has a net profit margin of 10%, saving $1 is equivalent to increasing sales by $10." So what does this mean when you apply to scope 3? In short, every single metric ton of CO2e has a cost associated to it. For simplicity, take for example Scope 3 categories 6: Business Travel. Thanks to the fact that you are measuring your business travel CO2e you now have visibility into one of your organizations costs. To reduce business travel emissions, you might: ✈️ Implement policies favoring virtual meetings—cutting unnecessary travel and directly saving thousands on flights, hotels, and meals. 🚆Choose more efficient travel methods, such as trains instead of short-haul flights or economy over business class, immediately reducing expenses and emissions. 🤖Leverage technology to optimize scheduling, ensuring fewer, more impactful trips that maximize productivity and minimize waste. Suddenly, your Scope 3 strategy isn't just an environmental initiative, it's a powerful lever for improving your bottom line. If you frame sustainability efforts around the profit leverage effect, you bring a business framework and your message to leadership from a nice-to-have into a must-have strategic priority. Long post a bit longer, next time you pitch your Scope 3 strategy to leadership, consider the profit leverage effect. It shifts the conversation from sustainability being an expense to being an investment that directly enhances shareholder value. **this post was human written, AI edited. But I hand selected the emojis :))

I just sent out Social Impact World's weekly newsletter, which this week highlights the impact efforts of Moody's Corporation. One of the things that stood out to me during the initial research is how Moody’s holds executive leadership accountable for achieving sustainability goals. In 2020, the company introduced sustainability-related performance metrics for determining senior executive compensation. In 2021, they expanded these metrics to include diversity, equity, and inclusion targets in determining annual cash incentive payments for all senior executives. I'm not sure how many companies do this (if anyone has data, please let me know), but I like the idea of having a built in incentive at the leadership level to encourage accountability.