How climate risk is redefining competitiveness in European business

From political issue to business mandate

Following Bill Gates’ recent remarks on the need for realism in climate action, a broader debate has emerged across business and policy circles. It is a debate about climate targets versus feasibility, political ambition versus business logic, and ultimately about how the climate transition can be financed without undermining corporate competitiveness.

Climate has long been treated as a political issue. For companies, however, it is now a business risk. When extreme weather disrupts production, when energy prices and carbon costs shift competitive conditions, and when capital markets reassess asset values, cash flows, investments, and valuations are directly affected. These are not distant scenarios or long-term aspirations; they are factors that must already be integrated into financial decision-making.

This view is shared by some of the world’s largest capital owners. Norway’s sovereign wealth fund, the world’s largest state-owned investment fund, manages approximately SEK 20 trillion in assets. They state plainly in their climate strategy: climate risk is financial risk. Capital does not move based on conviction, but on risk and expected return. Companies that fail to integrate this into their financial strategy risk falling behind as capital flows and investment priorities shift.

How academia supports a sustainable business narrative

Against this backdrop, a clear pattern is emerging at the intersection of academic research and business practice. Through collaboration between the Stockholm School of Economics and Position Green, experience and data point in the same direction: Companies that outperform over time are those that integrate climate and sustainability into their core operations, rather than treating them as isolated from mainstream business management.

When sustainability is linked to efficiency, innovation, and risk management, tangible business value emerges: more resilient supply chains, more predictable energy costs, improved access to capital, and stronger employer attractiveness. What these effects share is that they influence cost structures, risk profiles, and investment conditions, and therefore long-term profitability.

Experience from companies’ practical work reinforces this conclusion. In Position Green’s latest benchmark analysis of approximately 1,900 companies, 98 percent consider climate action material to their business, and three-quarters link it directly to financial performance.

At the same time, the analysis of emissions and risks across the entire value chain is intensifying, meaning climate considerations increasingly affect procurement, pricing strategies, and business models.

Compliance as a vehicle for activating strategic value

The question for companies is how climate and sustainability risks are integrated into decisions that shape investment, growth, and profitability. While many companies actively work with sustainability, too few allow these risks to fully inform their financial decisions. Those that do not only safeguard their position, they strengthen it. When sustainability is embedded in governance, investment processes, and performance monitoring, competitive advantage is built on measurable risk assessment and financial analysis, supported by a clear link between sustainability data and capital allocation.

Investors and banks are integrating climate and nature-related impacts into their financial analyses. This is not about labeling companies as “green” or “brown,” but about assessing how well they understand, measure, and manage risks that affect cash flows, investments, and valuations.

From this perspective, the EU’s reporting requirements (CSRD) and the European Banking Authority’s new ESG guidelines are not threats but expressions of a new market logic. Companies that can demonstrate how climate and sustainability risks are embedded in business decisions and capital allocation will have improved access to capital and greater strategic flexibility. Those that cannot will face higher risk premiums or restricted financing.

Bill Gates is right that climate action must be grounded in realism. But realism does not mean lowering ambition; it means making the transition investable and executable. For businesses, this means treating climate and sustainability as integral components of financial strategy.

Companies that integrate climate and sustainability risks into investment decisions, governance structures, and capital allocation build resilience and competitiveness that endure. Those that fail to do so risk making decisions based on incomplete information and underestimating risks that markets are already pricing in.

Find out what sustainable business value means for you

The climate transition will not be determined by the ambition of targets alone, but by the investments that are actually made. It will be decided in boardrooms, investment committees, and credit assessments where profitability, risk, and capital allocation ultimately prevail.

Climate is not a side issue for business. It is a financial reality and the next defining chapter in Europe’s competitiveness. This is something we have explored at length in our recent Sustainable business playbook, a guide for business leaders looking to understand how to unlock their own competitive edge. Harnessing insights from industry, Position Green’s expert advisory team, as well as Rickard Sandberg himself, it gives you a clear process to understanding and enabling your competitive, sustainable strategies.