The vast majority of companies view sustainability as a value creation opportunity, with more than three quarters anticipating potential benefits ranging from higher revenues and profitability to lower cost of capital, although many also expect increased sustainability-related costs and a need for significant investment, according to a new survey released by Morgan Stanley.

For the study, “Sustainable Signals: Understanding Corporates’ Sustainability Priorities and Challenges,” Morgan Stanley surveyed more than 300 public and private companies with revenues greater than $100 million, across North America, Europe and Asia Pacific, and representing a broad range of industries.

The survey indicated that nearly all companies now recognize the impact of sustainability on their long-term corporate strategies, with 85% of respondents reporting that they see sustainability as a value creation opportunity, including 53% who view it primarily as value creation and 32% as both value creation and risk management, while 15% view sustainability primarily as risk management. Only 1% responded that sustainability is not material to long-term corporate strategy.

Sustainability as a value creation opportunity topped the list of “very significant” reasons reported by companies for pursuing sustainability strategies, cited by 50% of respondents, followed closely by compliance with government regulation at 48%, and a moral obligation at 47%.

According to the survey, more than 80% of companies see potential financial opportunities from their sustainability strategies over the next five years, including 81% who see sustainability as somewhat (41%) or very (40%) likely to drive higher profitability, 79% to drive higher revenue (35% very likely, 44% somewhat likely), and 82% to improve cash generation capabilities (38% and 44%). Another key benefit highlighted by the study was improved access to capital, with 77% of respondents reporting that sustainability could drive lower costs of equity or debt over the next five years.

While respondents saw opportunities to benefit from sustainability, the survey found that companies are also aware of the potential challenges and costs associated with their sustainability strategies, including 69% anticipating very (28%) or somewhat likely (41%) costs from changing processes, 72% seeing higher costs or legal risks from sustainability regulation, and 73% seeing higher costs or scarcity of raw materials over the next five years. The most cited challenge reported by respondents was restructuring supply chains to meet human rights obligations, viewed as somewhat or very likely by 74% of companies.

Accordingly, respondents reported the high level of investment required as a very significant barrier to delivering or establishing a sustainability strategy, cited by 31% of companies, in addition to 28% citing conflicts with the financial goals of the company, while 22% said that it is hard to justify the near term negative financial impact, even with the long-term benefits.

The study also found nearly all companies, 92% expect climate change to impact their business models by 2050, while 23% report that it is already a risk to their business model today, similar to risks including technological change (25%), competitor actions (25%) and supply chain instability (23%).

The survey also highlighted a perceived need by the companies for sustainability expertise at the board level, with 57% of respondents reporting that board members could benefit from more knowledge regarding sustainability regulations, 43% in sustainability-labelled financial instruments, and 40% in sustainability disclosure. Overall, only 37% of respondents agreed that their company’s board has sustainability expertise.

Jessica Alsford, Chief Sustainability Officer at Morgan Stanley and CEO of the Institute for Sustainable Investing, said:

“Sustainability strategies and core business strategies are converging, with companies increasingly seeing sustainability factors as integral to the company’s long-term value creation. There may yet be challenges in developing expertise and financing models, but corporate leaders view sustainable business practices as fueling the creation of value as well as the mitigation of risk.”

Click here to access the survey.