CEOs overlook climate change in business models: PwC

Over half of CEOs say lower returns from climate-friendly investments hinder their decarbonisation efforts.

Only three in 10 CEOs consider climate change a factor that will drive shifts in their business models over the next three years, fewer than the 56% who said so about technology or the 49% who cited customer preferences, according to a survey by PwC.

The survey, which polled 4,702 CEOs, revealed that 51% see the lower returns on climate-friendly investments as a barrier to decarbonising their company’s business model. 

Other factors obstructing decarbonisation include regulatory complexity (54%), lack of climate-friendly technologies in their sector (49%), lack of demand from external stakeholders (47%), and lack of buy-in from their management team or the board (26%).

However, PwC said climate-friendly investments need not come at an extra cost, as profit margins are the same at companies that lower hurdle rates for climate-friendly investments and at companies that do not.

Reported revenue growth is slightly higher for companies that apply their normal hurdle rates to climate-friendly investments. 

“In other words, when it comes to deciding on actions that address climate-related opportunities and risks, the logic of value creation looks as sound as ever,” said PwC.

Other survey data points to a link between business actions related to climate change, such as selling products or services that enhance customers’ climate resilience, and superior financial performance.

CEOs who reported that their companies have completed these actions also saw higher profit margins and revenue growth than those whose companies have no action plans. 

This finding, said PwC, should give CEOs further reason to think that such actions pay off. 

Innovating climate-friendly products and services, for example, is associated with higher margins and quicker growth than improving energy efficiency. 

“Such advantages should only increase as public policies and customer preferences continue shifting in favour of sustainable business practices,” said PwC.

Business action on climate change alleviates concerns from CEOs about the long-term prospects of their companies. In two separate PwC surveys, around 40% of CEOs believe that if their companies continue on their current path, they will not be viable for more than ten years.

However, those CEOs who are more proactive in addressing climate-related opportunities and risks are also more likely to be confident about their business’ future, over three-year and ten-year time frames, PwC said.

PwC said many companies have started or completed certain actions related to climate change, such as improving energy efficiency. Other actions have seen lesser uptake, including moves that have strong ties with high-profit margins and high revenue-growth rates.