While organisations worldwide are setting increasingly ambitious decarbonisation targets, a troubling gap persists between ambition and execution. This disconnect isn’t merely about insufficient funding – it reflects a fundamental challenge in how organisations approach their carbon reduction journey.

Current implementation models are often fragmented, with organisations pursuing isolated carbon reduction projects across different sites or departments. The high cost of robust carbon mitigation investments, combined with the lack of a whole-business perspective towards decarbonisation, often leads isolated teams to secure funds for low-cost, quick-payback projects at specific sites or facilities. This approach, while delivering short-term wins, fails to address systemic challenges or capture economies of scale.

Many organisations lack a comprehensive strategy that connects corporate sustainability goals with practical, fundable implementation plans. The result is a widening gap between decarbonisation ambitions and actual progress.

Rethinking investment criteria
Traditional investment criteria often create barriers to meaningful decarbonisation projects. Applying a conventional corporate investment approach that expects a return on investment within three years would disqualify most decarbonisation projects. With environmental, social and governance (ESG) becoming increasingly important, investment proposals must go beyond traditional financial metrics to be both persuasive and comprehensive.

When evaluating carbon impacts, organisations should quantify expected emissions reductions and translate these into potential cost savings, particularly as internal carbon pricing becomes more widespread. Additionally, considering social benefits – from job creation to community development – helps align investments with stakeholder values and facilitates regulatory approval processes.

Many organisations lack a comprehensive strategy that connects corporate sustainability goals with practical, fundable implementation plans – the result is a widening gap between decarbonisation ambitions and actual progress.

Organisational alignment
Success requires breaking down departmental silos and fostering collaboration between finance, sustainability and operations teams. For corporate decarbonisation efforts to succeed, finance functions must collaborate with sustainability experts and business unit heads to identify and fund carbon projects. This means establishing cross-functional teams for project evaluation and developing shared key performance indicators (KPIs) that balance financial and environmental goals.

Non-financial profiles within the company should be aware of the potential financing options and must be able to understand, articulate and measure the business case for decarbonisation investment. Organisations need clear governance structures for decision-making, ensuring senior leadership buy-in and support, while building internal capacity for project implementation.

Moving forward
To bridge the implementation gap, organisations should develop a portfolio approach that balances quick-win projects with longer-term, transformative initiatives. Creating dedicated funding mechanisms through ring-fenced budgets or internal carbon pricing schemes can support decarbonisation projects effectively.

Essentially, building robust business cases is essential, incorporating both traditional financial metrics and broader value considerations. These should account for energy cost savings, maintenance and replacement costs, carbon reduction potential, regulatory compliance benefits and reputational value. Organisations should also leverage external expertise by partnering with specialists who can provide technical knowledge and innovative financing solutions.

Systematic monitoring through clear metrics and reporting mechanisms is crucial for tracking progress and demonstrating value. This helps maintain momentum and justify continued investment in decarbonisation initiatives.

Financing options
Organisations typically have three primary financing routes for decarbonisation projects. The first, internal funds, typically consist of existing capex budgets or dedicated funds for decarbonisation projects. While offering the most direct control, internal funds often compete with core business investments and can be limited by budget cycles. Additionally, self-implementation adds complexity, as implementing a carbon reduction programme requires considerable time commitment and robust technical capabilities.

The second, debt financing through green loans and bonds, can enable larger-scale solutions but may impact an organisation’s debt profile. While external funds won’t solve complexity issues, they do enable companies to implement larger-scale solutions by lowering impact on internal funds.

The third option, service agreements, are emerging solutions gaining traction as they remove many barriers to the carbon transition process. In these agreements, the service provider retains asset ownership and assumes responsibility for their performance, which reduces financial risk for the client and offers greater operational flexibility. Service contracts are usually longer than loans, resulting in lower annual expenditures, and enable the implementation of a broader range of projects while maintaining financial viability through off-balance sheet solutions.

Bridging the decarbonisation implementation gap requires more than just setting ambitious targets or securing funding. It demands a fundamental shift in how organisations approach investment decisions, structure their operations and measure success. By adopting a more holistic approach to financing and implementation, organisations can move beyond incremental improvements to achieve meaningful carbon reduction at scale.

The views and opinions expressed in this article are strictly those of the author only and are not necessarily given or endorsed by or on behalf of the Energy Institute.

• Further reading: ‘The critical role of finance in delivering just transition pathways’. The question of a just transition is about how justice is contemplated, articulated and implemented in the transition to low greenhouse gas emissions and climate-resilient development. Tiffanie Chan, a Policy Analyst at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, and Jodi-Ann Wang, a Global Policy Analyst at the Just Transition Finance Lab, which is hosted by the same Institute, explain.
• Find out why coordinated action, including continuing political support, will be essential if 2030 renewable energy targets are to be met, according to Michiel de Haan, Global Head of Energy Sector, ING bank.