What is sustainable finance and why is it important for my business?
Businesses don’t just exist in a bubble: they operate on earth and the success of a company is intertwined with the health of society and the planet.
Whether you’ve just started your business or you’ve been up and running for a few years, you may have heard of sustainable finance and be wondering, ‘why is it important?’
With this handy Bionic guide, we’ll walk you through everything you need to know about sustainable finance including what it means for your business, the benefits it can have and why it’s important to commit your business to a more sustainable future.
What is sustainable finance?
In essence, sustainable finance is an investment method that seek to encompass environmental and ethical business standards.
Sustainable finance can include:
- Sustainable investing — This allows companies to invest in businesses that are striving to have a positive impact on the world, such as aiming to tackle climate change.
- Microfinance — This type of banking provides financial services to low-income individuals or groups of people who would otherwise have no access to finance.
- Green bonds — Help to raise funds for new and existing projects which deliver environmental benefits and offer a more sustainable economy.
- Active ownership — The use of rights and position of ownership to influence the activities or behaviours of investees in a company.
Sustainable finance considers the environmental, social and governance (ESG) of a business, project or organisation.
Why is sustainable finance important?
For too long, too many businesses have operated in a way that disregards the environment and promotes harmful actions.
Sustainable finance has the potential to not only limit damage to the environment but more importantly, open a wider discussion about solutions for a more sustainable future.
Why is it important to commit your business to sustainable finance?
Sustainable finance was born as a result of a society where environmentalism wasn’t at the forefront of our minds.
No matter the business you run, every company depends on natural resources in our ecosystem to not only thrive but to survive.
As the global effort to fight climate change continues as a unified effort, sustainable finance is yet another pillar that can help us create simple finance and investment habits that decrease our carbon footprint.
If we continue to destroy the earth at the rate that we have, no business will have any natural resources left to work with.
What are the three main factors in sustainable finance?
ESG often refers to an ESG score which is made up of the three crucial components that companies use to measure the preventative environmental and sustainability measures that their business takes.
It takes into consideration:
- Environmental factors — Including the climate crisis, pollution and environmental degradation as well as the sustainable use of the earth’s resources.
- Governance factors — Relates to employee relations, organisational management and business practices including fair and just labour laws.
- Social factors — Encompasses the protection of all civil, human and animal rights, diversity and consumer protection.
In this way, sustainable finance aims to not only help the planet but promote a greater return for investors.
How does sustainable finance support ESG values?
Companies often strive to share their ESG data as a way to establish certainty, transparency and accountability in their environmental goals. This in turn is to help persuade investors, employees and customers to join and support the business.
Broken down, it looks a little something like this:
Sustainable finance helps the environment through the use of responsible investing and finance projects that use renewable resources to further reduce the risk of climate change. Find out more about the future of environmental sustainability for small businesses with our guide.
Sustainable finance supports social factors in a big way. It helps to increase trust and clarity between companies, customers and investors. It also helps to provide a better work environment for a company’s employees.
Helping to encourage better environmental organisational habits, sustainable finance works within governmental sectors to promote more eco-friendly investments and financial distribution habits.
In short, this powerful movement aims to encourage long-term investment that will, over time, create a more sustainable economy. It also helps to motivate institutional investors and economic regulators across the globe to manage their assets in a more sustainable way.
What are the benefits of sustainable finance?
Sustainable finance can have a range of benefits for your business.
Better product sales
Given the growing popularity of sustainability and environmentally friendly products and services on the market, subscribing to a more sustainable future can have a big impact.
But, it’s important to remember that customers can see through companies who push sustainability without actual sustainable intent. For a business to promote sustainability, they need to actually be sustainable for the right reasons and not just greenwash their business in the hope of extra sales.
If your business fully commits to sustainability for the right reasons, not only does it help to increase revenue through product sales and services, but it also helps to promote a newfound interest for future investors and customers who are seeking smarter and greener consumerism options.
We’re living in an ever-evolving eco-friendly society. In other words, businesses are presenting a more authentic portrayal of themselves with a genuine concern for sustainability.
Businesses can adopt a more sustainable style by avoiding fast fashion, eating plant-based or using public transport or shared cycle or scooter schemes to get around and reduce your carbon footprint.
Cost cutting and efficiency
Creating a sustainable business can help to deliver significant cost savings and efficiencies.
For example, if you’re using fewer resources, such as carbon or water, this will have a direct impact on the costs of your business.
Long-term integrated thinking helps to foster innovation by updating business models, processes and technologies.
Improved employee development and retention
Placing value on social and human capital, as well as investing in people, enhances a business's resilience and increases competitive advantage.
Some of these benefits include:
- Stronger stakeholder relationships
- Improved reputation
- Increased efficiency and cost savings across the business as a whole
- Better access to a pool of new candidates as well as longer staff retention
How does sustainable finance relate to CSR?
Corporate social responsibility, also known as CSR, is a pathway for businesses to achieve economic, social and environmental balance.
Sustainable finance relates to corporate social responsibility as potential investors are more likely to invest in a company that demonstrates its CSR.
Investors will be assured that if they invest in a company that denotes a strong level of corporate social responsibility, it will in turn directly benefit their future investments in sustainable finance.
Get your business on track with Bionic
The world of sustainable finance can be confusing, but it doesn’t have to be. In order for your business to succeed in the future, you need to invest in the present. Whether that’s finding the right investors who align with your values or you’re simply looking for the benefits of sustainable finance, our guide can help.