Published 14 April 2025 in Sustainability • 14 min read • 
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In 2023, Solvay completed the strategically planned and highly anticipated separation of its business into two independent entities: (the new) Solvay and Syensqo. The move was designed to better capture market opportunities, drive growth, and enhance the Belgian chemicals multinational’s strategic focus by segregating its core operations from its high-growth specialty businesses.
The “new” Solvay (once referred to in the company’s document as EssentialCo) inherited Solvay’s foundational activities, including soda ash, peroxides, and silica – industries with stable, long-term demand but lower growth potential. EssentialCo aimed to establish a focused platform for reliable, cash-generative businesses that underpin industrial applications worldwide. Meanwhile, Syensqo (or SpecialtyCo) would concentrate on high-growth markets with differentiated products, such as advanced materials, composites, and specialty solutions for selected industries.
This separation allowed both companies to manage and operate their assets with greater clarity, a more specialized and appropriate management, and the necessary agility in their respective markets, empowering them to seize growth opportunities that align with their core strengths. The spin-off was effective on 9 December 2023. Solvay and Syensqo started trading as separate entities on Euronext Brussels and Paris two days later. On 12 December, the combined value of the two was €1.6bn or 13.4% higher than the “old” Solvay market capitalization from three days before – a result in line with stock market reactions to similar spin-offs.
We believe the Solvay approach can be extended to help companies manage broader environmental, social, and governance (ESG) challenges, particularly firms with legacy or traditional operations with significant environmental footprints and slower growth potential. Just as Solvay spun off its operations to enhance growth and focus, companies can take a similar path to separate and manage their “ESG-heavy” and “ESG-light” assets.
Finding the appropriate way to ringfence ESG-heavy from ESG-light assets enables companies to strategically position themselves in a transforming market. By segmenting their operations, companies can focus on what matters most: pursuing growth by allocating the right resources, assets, and talent to each business unit without compromising efficiency.
This strategic ringfencing not only clarifies a company’s value proposition but also has the potential to accelerate the green transition. By isolating and managing ESG-heavy assets separately, companies can drive progress in their sustainable business units while addressing the complex, long-term sustainability challenges of traditional assets. Ultimately, this segmentation helps companies achieve a balanced, forward-looking growth strategy, meeting consumer expectations while advancing green transformation goals.
There are several strategies companies can deploy to pursue ringfencing of high-impact assets. Each strategy offers a variation in the organizational complexity and level of sustainability responsibility the company retains, allowing it to choose the best fit for its business model and long-term goals.
We envision four archetypal strategies depending on how companies want to mix and match complexity and sustainability.
The company keeps ownership of assets with significant ESG challenges but segregates them into a separate business unit within the group. By doing so, it retains all the sustainability responsibility and gains some strategic focus benefits with minimal transformational complexity. This strategy can enable the company to capture new growth segments, enhance talent retention, and better position itself for the green transformation.
Many companies across industries have adopted different versions of this solution. The global bank HSBC created a Climate Solutions Unit to focus on sustainable finance, carbon markets, and investment in climate-friendly initiatives. By setting up this specialized unit, HSBC could align with the green transformation without a full-scale restructuring, attract talent passionate about sustainability, and adapt to the growing demand for green finance.
Swedish automaker Volvo acquired Polestar in 2015 and later ringfenced its electric vehicle (EV) operations under the Polestar brand. Still part of the Volvo Group, this separate entity could be dedicated to high-performance EVs, enabling Volvo to retain its main, traditional vehicle business while positioning Polestar to capitalize on the fast-growing EV market. This allowed the brand to innovate more freely within the EV segment without disrupting its core operations and enhanced Volvo’s appeal to talent interested in green technology.
Lastly, Nestlé established its Health Science division to focus on nutrition, health, and wellness products, aligning with the shift towards a more health-conscious consumer market. By targeting emerging markets in health and sustainability, Nestlé was better able to attract talent interested in innovation within nutrition science and could position itself as a proactive player in the shift toward healthier consumer choices.
These examples highlight how ringfencing enables companies to pursue growth in new, sustainable segments while keeping legacy operations intact, enhancing focus, and fostering innovation.
Selling ESG-heavy assets but continuing to operate them under a lease contract from the purchaser allows the company to reduce its direct sustainability liabilities while retaining operational capacity and control.
A key advantage of a sell-and-lease-back arrangement is its relatively low complexity. There’s no need for significant restructuring, new management teams, or complex regulatory approvals, making it a less disruptive yet effective way to address sustainability challenges. Additionally, this strategy unlocks capital that can be invested to capture growth opportunities in sustainable sectors. From a reporting perspective, accounting rules allow companies selling high-emission assets to transfer ownership – and the liability for the associated Scope 1 emissions – to the buyer. Under the Equity Share Approach, companies can continue to use their divested assets through lease-back agreements while reporting the related environmental impact as “value chain” Scope 3 emissions – effectively transferring the responsibility for any ESG impact to the buyer. This approach risks being perceived as greenwashing when stakeholders view the move as an attempt to hide or sidestep any negative environmental impacts rather than actively addressing them, especially if the buyer has a poor green track record.
Several companies from different sectors have used sell-and-leaseback strategies to manage their assets, even in contexts unrelated to sustainability. In 2023, British Airways sold and leased back four large aircraft (two Boeing 787-10s and two new Airbus A350-1000s) to Griffin Global Asset Management. The airline freed up capital for investments while retaining fleet access, enabling better adaptation to market changes. Tesco, the UK-based grocery giant, has leveraged this strategy to optimize its real estate portfolio: starting in the 2000s, it initiated a large-scale program to monetize its property holdings. In 2024, a BNP Paribas offer document highlighted a deal in which Tesco sold seven Tesco Express assets across central and southern England and leased them back under a 15-year agreement. This arrangement typifies the sell-and-lease-back model, whereby Tesco retained operational control of the assets while transferring ownership to another party. This strategy allowed Tesco to generate significant capital that was then reinvested to strengthen its core retail operations.
In conclusion, the sell-and-lease-back strategy can provide an effective way for companies to manage their ESG-heavy assets, capture growth in sustainable sectors, and support their green transition, all while keeping organizational disruption to a minimum. However, it is important to recognize the potential risks from accusations of greenwashing, depending on the nature of the assets and the type of buyer involved.
“Ringfencing ESG-heavy assets from ESG-light ones is more than just a financial strategy – it can be a powerful catalyst for unlocking value and accelerating a company’s green transition.”
In a spin-off of an ESG-heavy unit, the company will ringfence its high-impact business units into a standalone entity. This strategy involves significant complexity and requires a major organizational transformation. The process includes creating a separate legal entity and forming a new management team, recalibrating leadership in the existing business, setting up independent operations, and handling the financial and regulatory processes for listing the new company (if publicly traded). The challenges associated with dividing assets, personnel, and liabilities between the parent and the new entity should not be underestimated.
This strategy has the potential to unlock value, particularly if the market perceives the ESG-heavy business as a drag on performance. It is often pursued to allow the core company to focus on growth areas aligned with sustainability and innovation while enabling the spun-off entity to manage its high-impact operations independently. A spin-off can accelerate the green transition by freeing the parent company from ESG-heavy operations and allowing the spun-off entity to target sustainability improvements at its own pace.
In late 2024, TC Energy completed the spin-off of its liquid pipelines business into a new company called South Bow. The decision was part of the company’s long-term strategy to focus on natural gas, natural gas storage, and power and energy solutions, aligning with its commitment to the energy transition.
TotalEnergies had intended to spin off its Canadian oil sands assets to align with its strategy of focusing on low-carbon investments and reducing its carbon footprint as the company considered these assets incompatible with its climate ambitions. However, in 2023, it received an unsolicited offer from Suncor Energy to acquire these assets, and the spin-off did not proceed.
In conclusion, the spin-off of an ESG-heavy unit is a complex but effective way for a company to find growth, streamline its operations, and accelerate its green transition. It allows both the parent and the spun-off company to thrive in their respective areas while addressing their specific ESG challenges in a more focused manner.
Selling assets entirely with no future involvement offloads all environmental and social responsibility to the buyer. While this may involve complex negotiations, significant organizational change, and financial restructuring, it allows the company to distance itself fully from the associated high-impact activities. An advantage of this strategy is that it can expedite a company’s green transformation by allowing it to focus resources exclusively on sustainable initiatives. While divestment removes direct sustainability responsibility, similar to the sell-and-lease-back strategy, it risks greenwashing criticism if not communicated transparently because stakeholders may view it as an attempt to merely offload and avoid being accountable for any environmental impact.
In 2021, Finland-based Neste divested its fossil fuel-related assets to focus on renewable energy. This extreme form of ringfencing enabled the firm to reallocate resources toward developing greener products, thereby transforming its portfolio. Today, the company is recognized as a global leader in renewable fuels, playing a critical role in worldwide decarbonization efforts. In the early 2000s, Ørsted (then Dong Energy) embarked on a transformative journey to address regulatory and environmental pressures. By pivoting from fossil fuels to renewable energy, Ørsted successfully reshaped its business model.
“In the 1990s, Nike’s reputation took several hits because of allegations related to child labor in supply chains. It effectively 'ringfenced' the problem by isolating supply chain reforms while continuing its core business operations.”
Strategic focus, the ability to capture more granular growth opportunities, sharper capital allocation, and access to a specific investor base are often cited as key drivers of ringfencing. This move enables each entity to align its resources and management with distinct goals, serving as a catalyst for unlocking value. It was in this context that Ilham Kadri, CEO of Solvay, announced in an investor call on 15 March 2022 about Solvay’s separation into two companies:
“By launching two independent, strong companies, we will create two new leaders in our industry, each with sharpened strategic focus, well-positioned to enhance value for shareholders, customers, and team members alike.”
Based on our research, including cases such as Solvay, we’ve found that ringfencing can offer distinct advantages that address the complexities of sustainability transformation and stakeholder engagement – not only with regard to CO2 emissions as considered in the examples above but in a much broader context of ESG. For example, the Solvay spin-off enabled its two new companies to follow distinct “customized” sustainability policies: more aggressive for Syensqo, with targets to reach carbon neutrality by 2040 and to reduce Scope 1 and 2 greenhouse gas emissions (GHG) emissions by 40% by 2030 (compared with 2021); while Solvay committed to carbon neutrality by 2050 and to reduce Scope 1 and 2 GHG emissions by 30% by 2030 (compared with 2021).
Here are three benefits to consider from a ringfencing approach:
“By isolating and separately managing their ESG-heavy assets, companies can focus their sustainable business units on growth and innovation without the operational and reputational constraints of carbon-intensive operations. This approach smooths the path to sustainability.”
Ringfencing ESG-heavy assets from ESG-light ones is more than just a financial strategy – it can be a powerful catalyst for unlocking value and accelerating a company’s green transition. While we have featured some examples from the energy industry to showcase our ideas, we believe that this approach could be deployed to address ESG issues beyond energy and emissions. Consider supply chain and labor issues, for example, where companies face reputational, regulatory, or operational risks due to unethical practices in one division or part of its supply chain. In the 1990s, Nike’s reputation took several hits because of allegations related to child labor in supply chains. While Nike did not explicitly use any of the strategies outlined in this article, it effectively “ringfenced” the problem by isolating supply chain reforms while continuing its core business operations. Nike set up separate governance structures to manage its supply chain ethics and then implemented stricter labor standards and audits for its manufacturing partners.
Times have changed, and a similar backlash today could bring down an entire company. However, a well-executed ringfencing strategy would shield the company from a financial or reputational collapse due to issues in one division. Through a proactive approach, the affected company could maintain trust with customers and investors while working toward ethical reform in a contained, more controlled environment (and with less “noise” from other parts of the business).
By isolating and separately managing their ESG-heavy assets, companies can focus their sustainable business units on growth and innovation without the operational and reputational constraints of carbon-intensive operations. This approach smooths the path to sustainability and positions businesses to capitalize on emerging opportunities in more sustainable markets. In an era of urgent challenges, ringfencing offers a practical, forward-looking solution for companies committed to leading the charge toward a more sustainable future.
The concept of a good bank and a bad bank is about creating focus and clarity in financial strategy. In times of distress, banks with troubled assets often divide themselves into two entities: the “bad bank,” which takes on high-risk, non-performing assets, and the “good bank”, which retains healthy, low-risk assets. This separation allows each entity to focus on its specific goals and challenges.
The bad bank has a clear mandate to manage, restructure, or dispose of toxic assets without affecting the operations of the more profitable segments. It becomes a focused unit dedicated to handling risks and maximizing the recovery of value from distressed assets. The good bank can concentrate on its core, stable business operations, free from the burden of problematic assets. This focus enables the good bank to attract investors, rebuild trust, and expand its services without the distraction of managing losses.
By separating the two, the bank prevents the bad assets from impacting the good ones. As long as they remain combined, investors and counterparties would be uncertain about the bank’s financial stability and performance, which hinders its ability to borrow, lend, trade, and attract capital.
The four ringfencing methods offer unique advantages best suited to different strategic goals and organizational contexts. But how to choose? Here’s a guide on when to use each:
This approach is suitable for a company that wants to maintain ownership and sustainability responsibility of high-impact assets but seeks focus and agility without major restructuring. It is ideal for companies with stable, cash-generative ESG-heavy units and a need to balance legacy operations with growth in sustainable segments.
This method best suits companies seeking lower complexity when unlocking capital and reducing sustainability responsibility while retaining operational control over high-impact assets. As it reduces direct ESG accountability by transferring ownership to the buyer, this solution comes with high greenwashing risks. There is also the option of the “partial sale” of some assets, mixing the complexity of divestiture with the operation control of a sell-and-lease-back transaction.
Suitable for companies ready to fully separate ESG-heavy units to allow both the parent and new entity to focus on their core strengths. This approach is useful when a company’s high-impact operations risk diluting overall performance and market value and when a separate entity can operate with its own management, strategy, and ESG focus. The complexity is high, but the potential to unlock value and provide a clear sustainability path for both entities can outweigh the challenges.
The preferred solution for companies aiming to completely distance themselves from high-impact assets and redirect all resources toward sustainable growth. This method is highly transformative and best suited for companies committed to pivoting fully into green segments. As in Quadrant 2, this strategy carries high reputational risk because it reduces the sustainability responsibility by transferring the “hot” assets to another entity.
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