Is investing in sustainability really worth it?

Weighing the costs and benefits of sustainability investments can be difficult even for the most experienced business leaders. Here are five things to keep in mind:

For businesses considering capex spending on new or upgraded equipment, metrics like energy usage are an important factor in the time it takes to recover the upfront costs.

More sustainable businesses can expect to benefit from lower energy bills and save on raw materials costs. Those commercial benefits can also improve their access to finance from banks like HSBC.

In Indonesia, PT Indo-Rama Synthetics used a USD20m green loan from HSBC to fund the installation of new energy-efficient machines in its yarn manufacturing facilities, targeting a 20% improvement in energy efficiency.

Direct investments in clean energy – such as solar panel installations on rooftops – can also help protect businesses from shocks in wholesale energy prices and deliver cost savings over time.

Any cost-benefit analysis will depend on many factors, including the availability of subsidies or grants and the local electricity market.

Companies looking to understand the energy efficiency of the buildings they own or occupy can participate in energy rating and green certification schemes, as well as making use of free tools like HSBC’s Building Sustainability Assessment Tool. Such applications not only help identify areas for improvement and enable the cost of an upgrade to be modelled, but also illustrate the savings that companies can expect to make and over what period of time.

For tenants, this information can be a powerful tool in negotiations with landlords on the cost of building improvements.

Many governments offer incentives to encourage businesses to reduce their energy use, as this contributes to national emissions reduction targets or local policy goals. Businesses that align with this direction can benefit from grants, tax relief or other benefits that reduce the cost of investing in more sustainable operations.

According to the IEA’s government energy spending tracker, governments around the world have put in place more than 300 energy efficiency or retrofit support measures, totalling more than USD450 billion.

The UK has a range of green grants that are available to SMEs, including the Industrial Energy Transformation Fund (IETF) to help businesses with high energy use to cut their energy bills and carbon emissions. In Singapore, the government offers co-funding for purchases of energy-efficient equipment for eligible businesses with annual sales of up to S$500 million (USD372 million). Businesses able to meet local criteria have access to a wide range of grant opportunities.

Government grants can be especially powerful for businesses looking to take advantage of innovative technologies where the commercial investment case is not yet proven. In California, for example, the state energy commission funded a USD2.8 million upgrade to a Walmart store in 2023 to demonstrate the savings available from new energy-efficient retrofitting technology.

The benefits of a sustainability upgrade are not captured in annualised costs alone. Businesses that can align with their customers’ sustainability objectives can also secure a competitive advantage.

This may be most obvious in the real estate sector, where green-certified, energy-efficient buildings routinely command a rental premium. JLL research in 2023 showed an average premium of over 7% in North America,10% in Asia Pacific, and more than 11% in London.

Businesses with real estate assets see investments in sustainability as a commercial opportunity. In India, for example, the owner of a research and development campus targeting the life sciences sector has invested in a number of green features, which also helped it secure a USD35m green loan from HSBC.

In Hong Kong, plastic packaging manufacturer Finest found that an improving ESG score from specialist ratings firm EcoVadis helped it access new customers and preferential financing.

Small and medium-sized enterprises that improve their sustainability credentials also stand to gain from being able to present themselves as more viable partners for any large buyers that are re-evaluating their supply chains in order to reduce their own Scope 3 emissions.

Investments in sustainability can also open up new revenue streams. In 2022, HSBC provided a loan to PT Eco Paper Indonesia, which was intended to help the business increase its production of recycled paper.

Regulation around sustainability – including energy efficiency – is complex. In Hong Kong, for example, the government introduced a ban on some single-use plastics in 2024 and has tabled producer-responsibility schemes for others, including plastic bottles, which could be introduced as early as 2026. Firms face higher costs from switching to other products or paying an environmental levy.

Businesses can reduce this burden and the risk of non-compliance by staying ahead of the curve.

Keeping up with the pace of regulations, however, is challenging. In a survey of SMEs for the European Commission in 2024, administrative or legal procedures ranked as the number one barrier to implementing resource-efficiency measures (35% of respondents) – even ahead of costs (28%). Many businesses may benefit from expert advice from specialist consultants in the markets where they operate. And while it may not be a simple task, those that act earlier to understand and prepare for new regulations are likely to enjoy an advantage over the long term.

In a competitive situation, sustainability metrics can be a deciding factor. A 2024 report from the Thomson Reuters Institute found that 81% of businesses see environmental, social and governance factors as an important or very important factor in their choice of suppliers.

In the European Commission survey, 93% of SMEs are implementing at least one resource-efficiency measure, with saving energy and minimising waste at the top of the list.

With the majority pushing for more sustainable practices, businesses that fail to keep up with their peer group risk losing out on contracts or being squeezed out of supply chains.

In some cases, savings can be generated by making better use of existing resources. For many businesses, energy efficiency begins with simple steps like installing automated lighting systems or smart thermostats to optimise energy usage. Meaningful improvements, however, may require an investment in new equipment, such as energy-efficient machinery, solar panels or electric vehicles.

HSBC has developed a number of financing tools to support the capital costs required to unlock long-term savings, including Green Loans for specific activities and Sustainability Improvement Loans that link the cost of finance to overall sustainability performance.

With the potential to improve margins through cost savings and open up new growth opportunities, the commercial case for sustainability is a strong one. Business owners looking to understand how their sustainability initiatives can unlock business benefits can turn to HSBC and its network of partners for more tools and financial support.