Explained byBCG

Fund your sustainability journey

How to help finance your low-carbon transformation

An overview of funding approaches

A critical piece of the sustainability transformation is funding. Companies will need to implement a range of levers to significantly decarbonize their operations. Some of these will entail simple operational changes, funded via existing operational budgets. However, many changes to reduce emissions or adapt and build resilience to the impacts of climate change will be capital-intensive. For reference, to attain Net Zero, public and private sector entities across the globe will need approximately $3.8 trillion in annual investment flows through 2025 (1). Public and private investments across a spectrum of solutions will be required, including decarbonization projects undertaken by corporations.

There are myriad options for funding in the market. Some examples of how companies can fund their transformation include: using their corporate capital and general budgets; taking out loans that are specific to sustainability; working with vendors who are able to use their capital to provide sustainability “as a service;” and leveraging subsidies and incentives.


The most straightforward, and most immediately cost-intensive, is self-funding – using your organization’s internal resources to fund climate initiatives. This approach is probably best suited to companies with large balance sheets to dedicate substantial sums to capital expenses, or toward low-capital transformations and/or ones that pay for themselves quickly. The typical challenge, however, is that internal capital for sustainability may need to compete with the use of these funds for other activities that may be seen to have greater economic value (which may or may not be the case).

Example: Interface, a global modular carpeting and flooring manufacturer, has self-funded a good part of its initiative to achieve net-zero impact by 2020 since 1994, accomplishing its goal in 2019. It invested heavily in low-carbon technology like solar panels and energy-efficient lighting and made changes to its manufacturing process, reducing waste and water consumption in that time (2).

Green financing

Receiving capital through green loans involves raising and using debt specifically for decarbonization or other sustainability projects. This approach may be suitable for companies that do not have sufficient capital on hand to kick-start their climate journey.

GSSS (green, social, sustainable, and sustainability-linked bonds) describes the nature of a growing volume of bonds issued to raise funding from the market, by signaling that a company wants to invest in a particular type of sustainability activity. A substantial portion of the debt issuances under this umbrella represents capital raised and used by companies to make investments in climate solutions, often at a lower cost of financing than standard bonds. GSSS bonds are growing significantly as a percentage of overall bond issuance. According to the Climate Bonds Initiative, GSSS bonds represent around 5% of the overall bond market and their issuance reached $863.4 billion in 2022. Green bonds, defined below, are a subset of GSSS bonds, and represent about half of the volume at $487.1 billion (3).

New vehicles for debt financing often offer lower-cost financing to companies that fund green projects. Some examples include:

  • Green bonds: Devoted to financing new and existing projects or activities with positive environmental impacts.

  • Sustainability bonds: Used to finance or refinance a combination of green and social projects or activities.

  • Sustainability-linked bonds (SLBs): Linked to the issuer’s overall social/climate achievements (not linked directly to sustainability projects). Sustainability-linked bonds are target focused, as opposed to activity based. Progress toward selected sustainability performance targets results in a decrease or increase in the cost of financing. The proceeds can be used for general corporate purposes; the other categories are activity-based, meaning proceeds are used for specific projects.

Your company can explore these opportunities, as more and more companies are successfully issuing green bonds at lower interest rates.

For more information, see: Raise capital for climate investments through green bonds.


Sustainability-as-a-service, whereby a service provider delivers turnkey sustainability outcomes, is an approach that is growing in popularity. Energy-as-a-service (EaaS) specifically, which involves deploying building energy management systems as well as energy efficiency assets for commercial buildings, is widely prevalent. This is typically offered by Energy Service Companies (ESCOs). Simply put, it is an option for companies and building owners to implement building energy management without using their own capital.

EaaS is typically a pay-for-performance financial arrangement, where ESCOs are paid on the basis of demonstrated energy performance and savings, over longer periods of time. ESCOs act as project developers for energy management systems according to building owners’ needs and usually assume ownership and risks associated with a project. ESCOs can also provide ongoing maintenance as well as management of the various energy assets (e.g., heat pumps, lighting controls) to ensure optimized performance. In some cases, special purpose companies can be set up to own both efficiency upgrades and even renewable power sources separately from the building ownership, enabling much deeper carbon footprint reductions. At the end of the contract, it may be renewed, or the assets can be bought back by the company from the ESCO.

Example: In 2017, AT&T partnered with Redaptive, an energy-as-a-service provider, to install smart and efficient lighting systems at nearly 650 company facilities. This resulted in nearly $20 million in annual energy savings and avoided 67,500 tons of greenhouse gas emissions (4).

Subsidies and incentives

In addition to private financing sources, there are also abundant public funding opportunities, especially through the US Inflation Reduction Act (IRA) and Infrastructure Investment & Jobs Act (IIJA) bills, and the EU’s Green Deal Industrial Plan (GDIP). The IRA and IIJA contain $479B of public incentives in the form of tax credits (which has in turn led to a wave of private investment). The GDIP contains $378B in supply-side incentives from EU funds and provides for more potential funding from member states.

With the US, EU, and other governmental bodies offering billions in public funding for sustainability projects, there is substantial public incentivization of (corporate) climate progress.

Example: Tesla and its battery supplier, Panasonic, are due to receive $1.8 billion from the US government in subsidies under the Inflation Reduction Act (IRA) battery manufacturing credits program. Additionally, under its consumer tax credit program, the IRA also offers a $7,500 tax credit for every eligible electric vehicle purchased by consumers until 2033, along with $45/kWh for any made-in-US battery pack, enhancing Tesla’s attractiveness on the domestic market (5).