Return on Sustainability Investment (ROSI™)

For companies, investing in sustainability isn’t only about doing what’s right for the planet and people; it’s also about doing what’s right for their business and the bottom line.

When a company invests in sustainability strategies and practices, it can positively impact a range of areas, including customer loyalty, employee retention and productivity, innovation, media coverage, operational efficiency, risk management, sales and marketing, supplier relations, and stakeholder engagement. To identify, quantify, and monetize these particular benefits, enter the ROSI methodology.

When Canada announced its decision to phase out coal-fired electricity by 2030, a North American power producer’s coal fleet suddenly became a significant risk. Recognizing the consequences of inaction, the company partnered with ALO Advisors and NYU Stern Center for Sustainable Business to apply the ROSI framework to assess whether it should phase out coal sooner than required.

“Because it’s based on financial and practical analyses, ROSI is a key tool to support decision making and deciding if a sustainable investment makes economic sense,” says Platko, vice president of sustainability and management consulting at SWCA. “When the economics work, the environmental and social benefits that we try to create last. When the economics don’t work, the benefits don’t last.”

As the initial step in this process, the company conducted a materiality assessment. Key internal and external stakeholders were engaged to identify the most impactful ESG issues for the company. Climate change emerged as the most substantial risk. It became clear that the company needed to formulate a business plan to transform into a more sustainable energy provider.

In 2022, the SWCA team analyzed the added advantages of adopting green hydrogen as a step to reduce reliance on natural gas for a consumer goods manufacturer’s facility in the United Kingdom.

The project didn’t initially advance as the cost of implementing green hydrogen was found to surpass that of natural gas, owing to its experimental nature as well as the associated production expenses.

“In this case, the initial cost analysis showing green hydrogen to be more expensive than natural gas is not surprising. Implementing green hydrogen strategies is still in the early stages, and initial investments can be higher,” explains Cavazos. “However, with ROSI, we consider the long-term benefits, including intangible opportunities and enhanced resilience in a changing market.”

Upon reevaluation through the ROSI methodology, it became evident that the project entailed intangible benefits in addition to the enhancement of energy efficiency that far outweighed its costs. The analysis revealed fewer greenhouse gas taxes, forecasted sales growth, and the ability to secure a federal grant in the United Kingdom, in support of the company’s commitment to exploring innovative energy sources.

Without clearer insight into the financial benefits of corporate sustainability efforts, they may never be scaled up in the face of climate change, pandemic, inequality, and many other perceived or real challenges to a company’s bottom line.

When questioned about their role in responding to deep-rooted problems facing all of society, companies often indicate that they can’t afford to invest in environmental protection, strong employee compensation, or other elements of a social issue because they must return sufficient profits to shareholders. 

“Based on research that I and my colleagues undertook at the Center for Sustainable Business (CSB) at New York University Stern School of Business, I contend that embedding environmental, social, and governance (ESG) concerns into business strategies is not only good for making money, but also essential to customer allegiance and protecting against the rising number of major threats to social stability, vibrancy, and inclusiveness that makes a healthy business possible in the first place.” said Tensie Whelan, the director of the New York University (NYU) Stern Center for Sustainable Business. 

By now most companies have committed to improving their sustainability performance. Such sustainability efforts have increasingly become table stakes. And yet many CFOs still see them as a cost rather than a source of value. That makes it hard to unlock the internal financing needed to scale them up.

Most recent studies show a correlation between sustainability and financial performance. Our own research finds that for many companies, nonfinancial metrics such as carbon emissions can reveal hundreds of millions of dollars in sustainability-related savings and growth. In large companies it can be billions.

Why don’t more CFOs see the connection?

Working with firms across sectors, we developed the Return on Sustainability Investment analytic method, which companies can use to measure the financial returns on their sustainability activities (you can find ROSI resources and tools on the NYU Stern Center for Sustainable Business’s website). It can be deployed to look retroactively at the value created by sustainability strategies, to track sustainability-related financial performance in real time, and to assess the potential ROI of future sustainability initiatives at both the firm and the division level.