Reflections on sustainable return on investment

“It is crucial that the classic return on investment indicators start to be adapted”

"The gap between what is really achieved and all the net zero scenarios already available will depend on the speed of our actions. However, there is no doubt that we need to act sooner rather than later to limit global warming.

The electrical infrastructure is playing a leading role in this decarbonisation effort, growing and diversifying every day, with electrical transformers playing a crucial role.

A transformer with a higher carbon footprint has higher shadow costs, and these should also be considered by the ultimate owner when buying, operating, or refurbishing an electrical transformer. In the Netherlands, for instance, an environmental cost indicator (ECI) has been introduced, which means that even if the actual price of the offer is higher, a better environmental performance increases the chance of winning the tender.

Transformer liquids can be a relevant part of this new environmental equation. To simultaneously maximise performance and minimise the transformer’s environmental impact, Nynas has launched a comprehensive portfolio of transformer liquids with enhanced sustainability credentials.

There is no single transformer liquid to address all societal goals; the choice depends, as always, on multiple aspects. However, it is crucial that the classic return on investment indicators start to be adapted to include use-phase, end-of-life, and shadow costs. The best part of the news is that solutions already exist; they are not under research, they are market-ready, and the clock is ticking louder and faster than ever."

“Concentrate on embedding sustainability practices focused on the most material risks and opportunities”

"To drive financial value from sustainability strategies, companies should concentrate on embedding sustainability practices focused on the most material risks and opportunities for their sector into their business strategy. They should review how those practices might drive operational efficiencies such as reducing energy, water and waste, as well as driving innovation such as new products or services that tackle sustainability challenges for customers. They should also consider employee recruitment, productivity and retention – studies show that sustainability drives excellent employee relations. Risk mitigation, which involves managing reputational, operational and market risk, is also essential.

Other factors include customer loyalty and sales – our research finds that sustainably marketed consumer packaged goods in the US are growing twice as fast as conventional products.

Due to the growing regulatory reporting and disclosure requirements, companies are beginning to rely on sustainability through ESG reporting metrics. That is a huge mistake. The ESG reporting metrics are process and output based and will not drive better societal or financial performance. They ask you if you have a policy on X or if you have trained people on Y, but this doesn’t tell you the outcome of those actions.

Nor do they benchmark the financial performance before and after the changes that are made. To overcome these challenges and errors, we’ve developed our Return on Sustainability Investment (ROSI) methodology to bridge the gap between sustainability strategies and financial performance, helping to build a better business case for both current and planned sustainability initiatives."

“We’re seeing more companies issuing transition bonds”

"Sustainable return on investment is very much about the long term and companies are beginning to realise that. It also takes into account a wider range of factors than traditional return on investment – it’s not just thinking about the car in front of you, it means thinking about the cyclist next to you and the pedestrians on the crossing way ahead of you.

As ESG issues enter the mainstream new methodologies for measuring sustainability are evolving all the time, as are new regulations, and companies need to be aware of these changes. They need to know what qualifies as sustainable these days when they’re making investments. That’s why it’s important to think about an independent advisory to ensure that they’re fully compliant.

We sometimes hear companies telling us that they’re moving from coal to gas and so they believe that they’re doing the right thing. Gas might be marginally better than coal, but they need to understand what’s coming down the line over the next few years. They also need to regularly update their sustainability plan and ensure that someone is taking ownership of it. Companies need to remember that investors and regulators are increasingly aware of greenwashing.

We're seeing more companies, especially in Asia, issuing transition bonds. These raise money to enable companies to pay for their transition from fossil fuels to a to a more sustainable option. We’ll be seeing a lot more of these in other parts of the world too."