Last October, the COP26 was held in Edinburgh, shining a light on the global push for sustainability. One of the principles stressed during the event was the need for businesses to prioritise net-zero objectives into their strategies.
It is no surprise more businesses are now considering what they can do to reduce their carbon footprint and support the environment in their operations.
Simultaneously, customers expect the brands they buy from or companies they partner with to consider the environment, enabling them to make sustainable purchases that empower their own eco-friendly activities.
With the increasing pressure to be green, many businesses need to undergo adjustments to address the impact of their operations. However, these changes often come at a price and access to finance continues to be a crucial barrier.
This is why sustainable finance is more vital than ever. Through it, more businesses should achieve their environmental goals with the funding they need.
This article explains what sustainable finance is in more detail, including its role in encouraging eco-friendliness and how to access it for your business.
- What is sustainable finance?
- Why is sustainable finance important?
- How to get sustainable finance for your business
What is sustainable finance?
Sustainable finance takes an environmental, social and governance (ESG) focus when deciding which ventures to fund. By doing so, businesses are supported in embodying eco-friendly initiatives into their operations and encouraged to participate in sustainable activities.
The concept of ESG can pertain to various topics but will typically refer to aspects like climate change, reduction of emissions and pollution, promoting equality and supporting minority groups. Businesses that wish to be eligible for sustainable funding will need to have such values at their core.
It’s also worth noting that sustainable finance can come from many routes, including loans (often referred to as ‘green loans’ or ‘sustainability linked loans’) and investment. There may even be specific grants created to support eco-driven ventures or help other businesses incorporate eco-friendly processes into their running.
Why is sustainable finance important?
There are many reasons why sustainable finance is important, especially in the modern-day.
Companies are under increased pressure to do their part to tackle issues such as climate change and inequality. There needs to be appropriate support and incentive to encourage them.
By offering finance that actively aims to assist those who place ESG goals at the heart of their operations, more ventures can get the funding they need to implement sustainable objectives successfully and have more of a reason to do so.
More funding may also encourage innovation and research to overcome the challenges, especially as success stories emerge and the financial barriers are reduced. This will lead to further progress towards net-zero targets and make sustainability a priority across industries, businesses and lenders.
Beyond this, sustainable finance may improve equality across finance by ensuring more entrepreneurs have access. This includes offering funding to minority groups who may otherwise find themselves locked out of traditional routes or ventures that do not pursue a typical commercial idea for their idea but can bring value in other ways.
With more companies able to incorporate eco-friendliness and corporate responsibility into their strategies, and more entrepreneurs able to bring their sustainable ideas to market, there can be substantial progress for the UK’s climate objectives – and even a global impact.
As the number of sustainable companies grows, empowered by finance that allows them to enter the market and survive, customers will be able to make better purchasing choices that benefit the environment and society.
This leads to everyone doing their part to mitigate the climate crisis, leading to reduced emissions worldwide, less environmental damage, equal opportunities across social groups and better quality of living. In this sense, everyone benefits from sustainable finance.
How to get sustainable finance for your business
The sustainable finance market is still developing, meaning that there is a limited pool of companies able to access it. As it increases in the provision and more avenues of funding hopefully become available, we may see more enterprises secure finance.
If you want to increase your chances of getting sustainable funding, you need to incorporate ESG goals into your business planning. We’ve listed some top tips to improve your eligibility.
- Find solutions to genuine problems. The main aim of sustainable finance is to fight against the world’s issues. You, therefore, need to ensure your business is helping to overcome one of those issues.The problem you aim to tackle should be linked to the ESG goals we’ve already discussed. This might include bringing an eco-friendly product to market, serving a forgotten niche or commercialising environmental protection. Whatever it is, you need to be prepared to demonstrate how your business can actively make a difference and bring value.This will make you more attractive to sustainable lenders and investors by fitting into their altruistic motivations.
- Have a strong business plan. As with any form of funding, you will only receive sustainable finance if you prove that it will succeed. This means having a solid business plan that wins over your audience.Start by explaining the aims of your venture and how they relate to sustainability. You will also want to highlight the predicted impact of your work and how it will work on a commercial level. Ultimately, your aim should be to prove the potential of your idea and your ability to bring it to fruition successfully.
- Provide financial rationale. A crucial part of your business plan will be providing economic context for your business, relating to how it will succeed commercially and what any funding you secure will be used for. Remember to do your maths carefully so that everything makes financial sense, and clearly present this to lenders.This will include the financial rewards that stem from your business, including how much revenue and profit you expect to make and when. You may choose to utilise data, research and forecasting to build an accurate view of this.
- Research financial providers. Many investment groups and banks are now offering sustainable finance. That being said, this is still a developing sector, which means fewer businesses are receiving funding.By researching the current providers in the market and staying up to date with new schemes, you will better understand the sources of sustainable finance. It’s also worth reviewing the criteria of each and the businesses they have previously funded to determine if your venture may be a fit for funding.
- Invest in your sustainability. While finance is a barrier for some businesses, many may be able to start incorporating sustainability already. If this applies to you, do not hold back. Examples may include using more eco-friendly supplies or refining internal processes to reduce waste and energy consumption.By incorporating such practices into your company, you will progress towards your goals. As more businesses jump on board, we are likely to see a shift in the industry, including sustainable finance becoming more available for further growth.
Conclusion
With the call to businesses to embed environmental objectives into their processes, there needs to be the appropriate funding to enable them to do so. By doing so, we can fuel sustainability across industries, helping to meet the changing demands of consumers and increase eco-friendliness.
Sustainable finance can achieve this, provided the right companies have access to the funding they need. As pressure increases to bridge societal gaps and fight climate change, this is more crucial than ever.
If you want to find an investor or lender for your sustainable business, we’re here to help. We can put you in touch with several funding sources until you find the perfect fit.