Net zero does not facilitate return on investment Image By Dan Romito Current net zero strategies often overlook the importance of capital discipline. Achieving absolute net zero incorrectly assumes an unlimited supply of investor capital. This destructive mindset is categorically false, inflationary and punitive to those who can least afford to experience the ripple effects of poor policy. The scarcity of investor capital, particularly in the energy space, is incredibly high, and return on investment (ROI) must be the top priority when implementing any strategy successfully. The folly of subsidies ROI is the primary factor driving incentive, behavior and urgency. The reasoning is simple: investor capital is not unlimited, and to facilitate scalable and functional innovation, one requires consistent access to quality capital. That also means the reliance on subsidies is counterproductive. Subsidies prolong the existence of failing companies longer than they merit. For companies to obtain the necessary funding to adopt sustainable practices and achieve any goal, let alone a net-zero target, they must consistently provide attractive returns to attract long-term investment. The wisdom of the market The promise of future profits guides institutional and individual retail investors. No one should be expected to consistently sacrifice returns for any cause – that inherently implies the end of a functioning economy. This motivation means that for companies aiming to achieve net zero, financial performance cannot take a backseat to environmental goals. Delivering strong ROI ensures existing investors remain engaged and new capital flows into the organization. Without such financial incentives, businesses' ability to invest in large-scale sustainability initiatives diminishes significantly. Moreover, existing investors play a pivotal role in shaping a company’s strategic direction. They can influence management’s decisions and priorities, including commitments to net zero targets and sustainable practices. However, this influence is contingent on their initial investment in the company. For instance, shareholders can advocate for desired policies during annual meetings or push to adopt innovative technologies that reduce emissions. Still, their capacity to effect change hinges on their financial stake in the business. In this sense, ROI becomes the gateway for aligning corporate strategies with broader non-financial goals. Investment drives net-zero results A closer examination of emissions trends among the world’s largest companies underscores this dynamic. The five largest investor-owned companies globally, all based in the United States, have maintained a flat emissions profile since 2005. This accomplishment reflects the ability of these firms to integrate sustainability into their operations without compromising financial performance. By effectively leveraging investor capital, non-financial goals and ROI are not mutually exclusive – these companies have pursued decarbonization strategies while maintaining their competitive edge. In contrast, four of China's five largest state-owned enterprises have exhibited a roughly 33% increase in emissions over the same period. This divergence highlights the challenges of balancing environmental priorities with economic imperatives in state-owned entities, where ROI may not always be the primary driver. The absence of market-driven accountability and investor influence in these enterprises often results in slower adoption of sustainability measures and less efficient resource allocation. The lesson is clear: achieving any goal, especially net zero, requires aligning environmental goals with economic incentives. ROI attracts the incremental capital necessary to fund innovative initiatives and ensures businesses remain accountable to their investors and stakeholders. This accountability fosters innovation, operational efficiency and a pragmatic commitment to long-term sustainability. An entity wishing to pursue net zero cannot successfully do so without offering consistent returns. Companies prioritizing delivering consistent value to their investors to secure the resources needed for sustainable growth is non-negotiable. Dan Romito is managing director overseeing the Consulting & Advocacy practice at Pickering Energy Partners. He previously worked at Nasdaq, and his writing has been published in Harvard Business Review, Bloomberg and CNBC. *The opinions expressed in this column are those of the author and do not necessarily reflect the views of EnergyPlatform.News.
