Accelerate your company’s access to sustainable finance

Regular finance, commonly known as conventional finance, prioritises economic growth and profits. Financial decisions are based primarily on factors such as profitability, risk assessment, and liquidity. This approach has driven economic growth, but it has often come at a cost, as it does not usually take into account the environmental and social impacts of the investments.

But as sustainability has grown in importance over the past decade, environmental, social and governance (ESG) factors have also come to dominate the investment decisions. How does this affect financing?

Understanding sustainable finance

Enter sustainable finance. This is a broad perspective that integrates ESG factors into financial decision-making. Instead of looking only at short-term gains, it focuses on the medium- and long-term social and environmental impacts of these investments, such as climate change, biodiversity, labour practices, and board diversity.

Benefits of sustainable finance for companies

In the first quarter of 2024, sustainable finance volumes expanded by US$ 272.7 billion, reaching a global cumulative total of US$4.709 trillion, according to Climate Bonds Initiative Q1 2024 Market Update. This growth was fuelled by aligned green, social, sustainability, sustainability-linked and transition bonds.

Given the surge in sustainable finance volumes, a key question for many companies is: Are we eligible for or prepared to access sustainable finance? Companies should note that sustainable financing can potentially lower borrowing costs for those with a proven track record of strong environmental and social performance, as measured against established benchmarks. Strong ESG credentials also improve a company’s risk profile, attracting a wider pool of lenders, including banks, institutional investors, and capital markets.

The bumpy road to sustainability

The benefits are clear, but many companies still see sustainability as a compliance checkbox or an annual report. This can be attributed, in part, to the belief that certain ESG initiatives or actions may not deliver short-term financial benefits.

On top of that, sustainability transition also requires upfront investment in operational changes, employee training, and new technologies. These can lead to higher initial costs, impacting short-term margins. Additionally, the ongoing implementation of ESG initiatives incurs further costs.

It should be noted, however, that inaction on sustainability can result in higher costs. The longer companies wait to integrate sustainability into their operations, the more difficult and costly it becomes due to the narrower window of opportunity. Market forces, including regulatory changes, peer pressure, and industry standards, point to a growing emphasis on sustainability and climate action.

Sustainability can only work if it is integrated into the business strategy and existing operations. This can be challenging and require changes to the business practices. Accurately tracking and reporting these initiatives is important but choosing the right structure, platform, and standards can be a significant challenge for many companies.

How to get on the path towards sustainable finance journey

It is becoming increasingly important for all organisations to integrate sustainability practices into their business models. Companies that ignore sustainability risk management face limited lending opportunities and potentially higher interest rates.

So, how can companies get started in accessing sustainable finance?

Have an actionable sustainability strategy

It is recommended that a company develops a customised sustainability strategy that is aligned with its current journey. The process should begin with stakeholder engagement. The board and senior executives need to identify and prioritise the material sustainability issues that can significantly impact the company.

It also requires a comprehensive assessment of the current sustainability readiness, identifying gaps and optimising resource allocation. This step enables the creation of an actionable roadmap that strategically aligns business objectives with sustainability initiatives to maximise opportunities.

To ensure successful implementation, sustainability needs to be integrated into the existing corporate governance structure, fostering a top-down commitment.

Establish a governance structure for implementation

When embarking on a sustainability transformation, a strategy document with a clear roadmap is essential to guide the initiatives. To ensure the effective implementation of these initiatives, a specific governance structure should be established. This structure provides a framework for overseeing the process, ensuring that the strategy is not just a static document, but a dynamic roadmap with clear roles, responsibilities, and accountability for all stakeholders involved.

This enables organisations to effectively coordinate and monitor the implementation process. This structure also ensures that there is a robust monitoring system in place to track the progress of various strategic initiatives and identify any deviations from the planned course. It allows for timely corrective actions to ensure that the strategy remains aligned with the organisation’s changing needs and goals.

Sustainability Reporting

Reporting can create pressure. Building data collection, management, and reporting capabilities across portfolios can be challenging, especially for companies that lack in-house expertise. Developing accurate data frameworks, implementing quality controls, and designing compliant reporting mechanisms requires specific skills. A well-designed reporting process should deliver a clear, insightful report with actionable data. This report, which reflects the company’s actual operations, can present a compelling story and become a key driver in attracting new capital.

The key to realising the benefits of improved access to new capital, reduced borrowing costs, improved operational performance and stronger brand and stakeholder trust is a comprehensive sustainability transformation that integrates ESG into all aspects of operations.