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Sustainability
Energy efficiency equals smart strategy, so why the inertia?
Published October 28, 2025 in Sustainability • 9 min read • 
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Doing more with less energy is the fastest and cheapest way to cut emissions. Business leaders must do more to translate words into action.
In the past decade, energy efficiency has moved from the margins of energy policy to center stage. More than 80 governments have endorsed the International Energy Agency’s call to double the global rate of efficiency improvement by 2030. The commitment was formally recognized in the COP28 Global Stocktake in 2023 and is supported by major institutions, including the European Commission. The reason is simple: doing more with less energy is the fastest, cheapest way to cut emissions, strengthen energy security, and cushion household and business budgets against volatile fuel prices.
This should be energy efficiency’s moment. Political momentum is strong, with multilateral development banks backing it through dedicated credit lines, and net-zero plans increasingly rely on ambitious efficiency gains. And yet we are falling well short of the pathway we should be on, as shown by the latest IEA tracking report. Ambition exists on paper, but little is happening in practice.
The urgent need to close this gap cannot be overstated. In 2023, global energy demand rose by 2.2%, outpacing efficiency gains in most regions. This is not a trivial matter; according to the IEA’s Net Zero by 2050 roadmap, energy efficiency should account for over 40% of the emissions reductions required by 2030, making it not just important but indispensable to the energy transition.
For companies, this lack of action translates into higher operating costs, increased vulnerability to energy price volatility, and mounting pressure to improve energy and emissions performance. Without stronger action, businesses risk being locked into costlier, higher-emission pathways that undermine long-term competitiveness.
There is an implementation gap
Why the disconnect? In many countries, enabling policies remain incomplete, weakly enforced, or entirely absent. Building codes are outdated or applied unevenly, appliance standards stop at paper regulations, and utilities lack incentives to invest in demand-side resources. Financing is another critical barrier: local banks may view efficiency loans as high risk or too niche, while ESCO contracts often struggle to gain traction in markets where clear policy frameworks and robust measurement and verification standards are lacking.
The EU is a stark example. Despite long-standing energy efficiency targets, over 75% of the building stock remains energy inefficient. At current renovation rates, it would take nearly a century to upgrade the entire stock. This shows how political ambition can mask significant delivery gaps.
Paradoxically, this policy vacuum creates space for bottom-up leadership. Cities adopt building performance standards ahead of national rules, forward-looking utilities design pay-for-performance programs, and institutional investors bundle retrofit portfolios into green bond pipelines. In emerging markets, rising demand creates a chance to integrate efficiency from day one, particularly in buildings, cooling, and transport.
One example is Senegal’s PPLEEF program, where the utility SENELEC distributed over 1.5 million free energy-efficient lightbulbs to households, helping reduce peak electricity demand and avoiding costly generation investments. California’s Flex Alert program uses real-time signals to reduce peak electricity demand through customer participation and smart appliances. This kind of localized, adaptive leadership demonstrates how market actors can fill the implementation gap when national policy is slow to act.
In many low- and middle-income countries, energy efficiency is a climate solution as well as a development accelerator. It creates jobs, reduces fuel imports, lowers household energy bills, and improves indoor air quality through better insulation and ventilation. Energy efficiency investments in emerging economies deliver especially high returns, with the potential to reduce import dependency, stimulate local job creation in construction and services, and enhance energy access in underserved areas. In South Africa, for instance, utility-driven efficiency programs have helped defer the need for costly generation capacity while creating thousands of skilled jobs.
The efficiency paradox
When it comes to climate action, it is hard to find a clearer goal. Efficiency saves money, reduces risk, and improves resilience. The technologies are proven. The financial case is strong. So, why is efficiency still overlooked, underfunded, and underdelivered?
One reason is narrative inertia. Too often, efficiency is framed in terms of payback periods, kilowatt-hours, or “negawatts”. These metrics matter, but they rarely excite boardrooms. Reframing efficiency as a tool for future-proofing business or competitive advantage can shift it from engineering detail to strategic imperative.
The second is structural inertia. For many firms, capital and operating budgets are siloed, obscuring lifetime cost savings. Split incentives, such as between landlords and tenants, can further slow uptake. Aligning incentives through green leases, performance-based contracts, or lifecycle cost procurement can help unlock stalled investments and accelerate decision-making.
Looking ahead, energy efficiency must not stand alone. It needs to ride the momentum of digitalization, electrification, and decarbonization. Smart controls, data analytics, and AI-powered optimization are transforming efficiency from a bolt-on upgrade into a core capability of the digital energy transition. These technologies allow for continuous tuning of energy performance, turning buildings, fleets, and factories into responsive, grid-integrated assets. In this context, efficiency is no longer just a budget item – it’s a lever for resilience, agility, and competitive positioning in a volatile energy future.
For instance, at its Leipzig plant, BMW has cut energy consumption per vehicle by over 40% since 2006 by combining high-efficiency equipment, smart energy management, and on-site wind turbines. The facility uses digital systems to optimize production and reduce peak load risks, turning energy efficiency into a competitive and resilient strategy. Efficiency isn’t just good practice – it’s business intelligence.
Why business leadership is key to the efficiency transition
While policy and technology set the stage, businesses are now poised to take the lead. Real-world examples show what’s possible when energy optimization becomes a core business strategy.
Take industrial and consumer goods manufacturer 3M. With a decades-long focus on energy conservation, including the creation of a Corporate Energy Management Department back in 1973 and the adoption of ISO 50001 standards, 3M has significantly lowered its operational costs, reduced its carbon footprint and supply risks, and strengthened its brand reputation.
Meanwhile, members of the EP100 initiative, the leading global businesses committed to doubling energy productivity, have collectively reduced emissions by 380 million tonnes of CO₂e, equivalent to removing the annual electricity use of 7.6 million homes, and have so far saved $1.2bn.
Across sectors and regions, these examples highlight that smart energy systems aren’t just feasible or green. They are profitable, scalable, and often achievable even in the absence of fully supportive policy environments. By rebranding efficiency as a strategic lever for competitiveness, companies are unlocking resilience, innovation, and growth as well as cutting costs.
Building codes are outdated or applied unevenly, appliance standards stop at paper regulations, and utilities lack incentives to invest in demand-side resources
What you can do now: five high-impact steps
Translating ambition into action requires practical, scalable action. The following five steps can accelerate progress, whether you’re shaping policy, managing portfolios, or overseeing operations.
- Adopt the total cost of ownership. Go beyond the upfront price. Assess the full lifecycle costs, including energy use, maintenance, and emissions over a building’s lifetime, to unlock long-term savings and resilience. This approach helps avoid “low bid” traps where short-term savings result in long-term inefficiencies. Governments and companies can institutionalize lifecycle costing in tender documents and asset evaluations. It also improves long-term financial planning by aligning procurement with actual operating performance.
- Bundle efficiency with resilience. Combine thermal retrofits with flood protection, cooling measures, or air quality upgrades to future-proof assets and reduce risk exposure. By packaging multiple benefits into a single project, owners can attract blended finance and increase overall returns. For example, energy-efficient windows can simultaneously reduce heat loss and improve protection against extreme weather. This holistic approach strengthens business continuity while boosting climate adaptation.
- Scale green finance mechanisms. Expand tools like green mortgages, performance-based incentives, and on-bill repayment so households and businesses can act without upfront capital. Policy support for loan guarantees or interest rate subsidies can catalyze uptake, especially among smaller actors with limited borrowing capacity. Aggregating smaller projects into investment-grade portfolios can further accelerate market deployment and attract capital.
- Integrate efficiency into core business strategy. Link retrofit investments to continuity planning, insurance premiums, and investor engagement. Use scenario analyses to compare the cost of inaction (e.g., rising energy bills and stranded assets) with the upside of early investment. Where possible, tie executive bonuses and compensation schemes to measurable improvements in energy performance to align leadership incentives with long-term efficiency goals. Cross-functional teams should be empowered to assess energy risks alongside other operational risks, using real-world data and climate scenarios.
- Standardize and upskill. Harmonize data metrics like Energy Use Intensity (EUI) to benchmark assets consistently, and train engineers, lenders, and auditors to recognize and reward high-efficiency solutions. National and regional programs can support workforce development through dedicated certification programs, online training, and knowledge-sharing platforms. Clear standards and training build confidence in performance outcomes, helping scale adoption across markets.
“Every new building, bus fleet, and industrial zone constructed today will shape national energy use for decades to come.”
Efficiency as a strategic imperative
Energy efficiency is not a peripheral fix – it’s a core strategic asset for policymakers, investors, and corporate leaders alike. The political will to double efficiency is a welcome signal, but ambition alone is not enough. Progress depends on execution. By translating policy targets into bankable projects, reframing efficiency as smart business, aligning incentives, and showcasing success, we can close the delivery gap and unlock the full value of doing more with less energy.
Reframing efficiency as a smart business strategy is critical. It enables companies and governments to address energy security, decarbonization, and cost control in one move. Demonstrating measurable success through case studies, investment-grade data, and peer learning can help close the implementation gap and normalize efficiency as a mainstream investment class rather than a boutique technical niche.
For emerging economies, the stakes are particularly high. With cities growing rapidly and infrastructure still being built, embedding energy efficiency from the outset is a once-in-a-generation opportunity. Every new building, bus fleet, and industrial zone constructed today will shape national energy use for decades to come. By acting now, these countries can avoid carbon lock-in, improve energy access, and build resilient, low-cost systems from the ground up.
In mature economies, the challenge is different but no less urgent. The path forward lies in large-scale retrofits of existing stock and redirecting capital flows toward high-impact efficiency measures. This requires new financial instruments, standardized data frameworks, and regulatory signals that reward deep, persistent savings. The business case is strong, but clarity, consistency, and scale are key to unlocking it.
The message is clear: efficiency is the foundation for resilient, future-ready economies and organizations. The challenge is equally clear: efficiency is ready to scale – are we ready to lead?
IN FOCUS
What is an ESCO?
An Energy Service Company (ESCO) is a business that designs, finances, and implements energy efficiency projects, getting paid based on the savings delivered. This pay-for-performance model helps overcome upfront investment barriers and shifts risk away from the building owner.
In India, the Energy Efficiency Services Limited (EESL), a public ESCO, has retrofitted more than 10 million streetlights, saving over 7 TWh of electricity annually. Meanwhile, in Europe, private ESCOs are bundling retrofits across municipal buildings to access concessional finance and aggregate returns. ESCOs can be potent levers for change in emerging markets when paired with standard contract templates, credit enhancements, and public-private collaboration.
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