ESG Gap Persists as Firms Struggle to Link Sustainability to Financial Value

According to KPMG’s Global Survey, 72% of managers claim a full understanding of ESG strategies, but only 19% use advanced financial models to translate their impact on EBITDA, cash flow, and enterprise value. 81% of companies still do not integrate sustainability risks and opportunities into their economic assessments in a structured way.

Sustainability has now firmly entered the boardroom agenda, but remains largely absent from the models that guide financial decisions. While 72% of managers report having an in-depth understanding of their organization’s sustainability strategy, only 19% use robust methodologies to quantify its economic and financial impacts.

As a result, ESG risks and opportunities continue to be inadequately incorporated into corporate valuations, capital allocation processes, and investment decisions in most companies.

This is the finding of Closing the Sustainability Valuation Gap, a new report published by KPMG based on a survey of 2,024 senior executives and C-suite members at companies with revenues exceeding $100 million, spanning 19 countries and over 20 industries. The study aims to analyze the gap that still separates sustainability from corporate finance and understand why, despite the growing focus on ESG issues, their economic impact often remains difficult to measure and value.

“Valuation gap”: when sustainability doesn’t factor into the accounts

The report focuses on the concept of the valuation gap , or gap between understanding sustainability factors and the ability to translate them into measurable economic value. According to KPMG, many companies have now identified the main climate, environmental, and social risks that can impact their business. The challenge is no longer recognizing the existence of these risks, but understanding their impact on the company’s economic fundamentals: revenue, margins, cash flow, investments, cost of capital, and enterprise value.

The result is an increasingly evident disconnect between sustainability strategy and enterprise value (EV). On the one hand, organizations invest in ESG programs, transition plans, and decarbonization initiatives; on the other, finance teams often lack shared tools to quantify the financial returns of these actions or the costs of inaction.

Without credible measurement, sustainability risks remaining confined to reporting and compliance, without truly impacting strategic decisions. Conversely, investments potentially capable of generating medium- to long-term value may fail to meet internal valuations, while seemingly profitable decisions could expose companies to future losses in value.

Sustainability is strategic, but not yet financial

The survey data clearly demonstrates this contradiction. Sixty percent of companies say they consider sustainability risks and opportunities in their financial planning processes , while 50% state that sustainability is an integral component of their corporate strategy . Forty percent also integrate it into their innovation and product development processes.

However, when we move from planning to quantification, the picture changes radically: only 19% of respondents use advanced assessment tools , such as Monte Carlo simulations or digital twins, to estimate the financial effects of sustainability on operational performance, innovation, and value creation.

“Boards are increasingly understanding the risks and opportunities associated with sustainability, but understanding alone is no longer enough,” observed Simon Weaver, Global Head of Sustainability Advisory at KPMG International. “The real challenge is translating this awareness into financial results that can guide corporate decisions. Without robust quantification, companies risk ignoring both the risks of loss and the opportunities for value creation.”

This explains the gap that still separates sustainability from corporate finance and explains why, despite the growing attention to ESG issues, their economic impact often remains difficult to measure and value.

The role of regulation: Europe leads the way, Italy among the most mature countries in ESG

The study highlights a direct correlation between regulatory maturity and the integration of sustainability into corporate strategies.

Europe emerges as the most advanced geographical region. The combination of the European Green Deal, CSRD, ISSB standards, and other regulations on transparency and ESG risk management has significantly increased awareness among corporate executives.

Italy is among the most mature countries in the sample: 64% of executives interviewed say that sustainability is an integral part of their corporate strategy and is regularly discussed at board level. This percentage is higher than that recorded in Germany and the Netherlands (58%), the United Kingdom (51%), and significantly higher than in the United States, where the figure is only 34%.

France and Spain also show high levels of strategic integration, both at 61%, confirming how the European regulatory framework is helping make sustainability an increasingly central theme in corporate governance.

Also interesting is the case of India, where the introduction of the BRSR (Business Responsibility and Sustainability Reporting) framework for major listed companies appears to have accelerated management’s understanding of ESG metrics. In fact, 43% of Indian executives claim to have a detailed understanding of corporate sustainability performance, compared to 28% in the United States and 22% in China.

Banking, energy and automotive lead the quantification

Not all sectors are moving at the same pace. The industries most exposed to climate and transition risks are also those that have developed advanced assessment methodologies most rapidly.

The Banking and Capital Markets sector leads the ranking: 33% of operators use sophisticated models to measure the financial impact of sustainability. Energy and natural resources (31%) and automotive (27%) follow .

These are sectors in which ESG factors directly impact economic fundamentals: credit risk, capital adequacy, stress tests, carbon pricing, stranded assets, electrification infrastructure, and investment returns.

According to KPMG, the very need to make capital allocation decisions in environments characterized by high uncertainty has pushed these industries to adopt more sophisticated scenario analysis and valuation tools than other sectors.

For many other companies, however, the connection between sustainability and economic performance is still perceived as less straightforward. This belief, according to the report, risks rapidly becoming obsolete in light of growing regulatory, financial, and competitive pressures.

The cost of inaction enters the investors’ agenda

One of the report’s most important messages concerns the progressive shift underway in capital markets. Sustainability is no longer evaluated solely as a reputational or regulatory compliance factor. Investors, financial institutions, and asset managers are increasingly demanding quantitative evidence on ESG risks and opportunities .

According to KPMG, financial markets are starting to more systematically incorporate ESG risks into investment decisions, with some large investors already divesting from companies deemed insufficiently resilient to the risks of the transition.

In this context, the real risk is not data uncertainty, but rather the lack of tools capable of estimating the cost of inaction. This cost can translate into a loss of competitiveness, erosion of margins, devaluation of assets, or an increase in the cost of capital.

From compliance to value creation

To bridge the valuation gap, KPMG advocates developing a common language between sustainability and finance. The report shows how ESG initiatives can be linked to traditional corporate performance drivers through structured valuation models. In a case study involving a food and beverage company controlled by a private equity fund and preparing for a public offering, the analysis identified six sustainability initiatives capable of generating a potential increase in EBITDA of between 17% and 35%. These include the valorization of production waste, product innovation, improved brand positioning, and employee engagement programs.

The study’s final message is clear: sustainability can become a concrete lever for value creation only when it is treated as a financial variable and not exclusively as a reporting topic.

For CFOs, investors, and boards of directors, the challenge of the coming years will no longer be to demonstrate that ESG factors matter, but to develop tools that can credibly measure their economic impact. This is where the next stage in the evolution of sustainable finance will be played out.

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(Featured image by Akil Mazumder via Unsplash)

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First published in ESG NEWS. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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