'Sustainability' is the business community's latest buzzword. Sustainable practice, sustainable products, sustainable logistics. Their email list is endless.
Behind the veil of PR, the shift from businesses towards sustainability is grounded in commercial benefits.
According to some recent study by the Business Commission, private sector companies could unlock more than lb9 trillion price of savings and revenue by 2030 through pursuing sustainable, low-carbon operating models.
As firms start to recognise the opportunities that sustainability presents, investors are also responding to the trend with dedicated products. Most recently, BlackRock, the earth's largest asset manager, announced six new sustainable equity exchange-traded funds.
At Frontier Development Capital, we too have seen this shift and adjusted into it. By backing businesses with green credentials, we're future-proofing our portfolio – financing firms as they improve their sustainable product, service or business model.
This approach is emblematic of the wider sentiment; companies who embrace sustainability now, is going to be those probably to reap commercial rewards in the future. In the business-to-customer market this has become increasingly apparent.
Termed the 'Blue Planet effect', elements for example plastic usage and business pollution are actually firmly in the spotlight. High-profile TV documentaries, social networking and also the 24-hour news cycle are all playing a crucial role within the increasing amounts of scrutiny around sustainability.
The business-to-business market is under the same pressure. Multi-national firms are actually assessing their supply chains and integrating suppliers who align using their own sustainability targets. The SMEs that can use their green credentials to tap into larger supply chains pose an enormous opportunity for investors, with accompanying stronger order books making for a more attractive finance proposition.
However, to unlock the potential linked to the shift towards sustainability, investors, need to adapt their approach to providing finance to ensure that a business's green credentials, and also the subsequent impact on market position and strength, are considered during the time of an investment.
In line with emerging regulations, the initial step investors can take to embrace this method is thru incorporating sustainability into their commercial research process. When you are aware of any current or forthcoming alterations in environmental regulation, investors can identify barriers to entry and potential competitive benefits of the investee business's industry.
Beyond reviewing new and existing prospects, investors should also remain attuned to working with firms who've made steps to becoming green in the long-term – acknowledging the impact sustainable business practices can have on reducing costs, increasing sales and, ultimately, bolstering the bottom-line.
The challenge for sustainable SMEs when approaching investors for funding is that green services and products are historically costing reasonably limited. While consumers are becoming more environmentally conscious, businesses should be wary when the current economic uncertainty continues, saving money agenda will become less of a priority, as consumers inevitably look to reduce costs.
While traditional lending can be difficult to gain access to, especially during a downturn, you will find alternative funding options available for green businesses seeking finance.
Consumers are actually more aware of and prepared to criticise the outcome a company is wearing the environment, along with a flexible approach to funding might help businesses address the commercial implications of this growing vocalisation. With your an assorted selection of investment now offered, what kinds of funding should sustainable businesses be pursuing?
Debt finance can provide needed amounts of flexibility. This will make it well suited to meeting the short-term spikes in demand for capital often felt by sustainable firms when undertaking research and development. Additionally, it avoids business people having to forego any equity stake.
Another viable choice, designed for sustainable firms posing higher risk to investors, is mezzanine finance. This allows investors to bolster their security by using equity as a form of collateral, while providing larger deal amounts and extended repayment terms which can be good for green firms whose success may be realised on the longer period, especially when absorbing initial costs for example sourcing sustainable materials.
Most importantly, investors must approach sustainable businesses prepared to cultivate staged growth. You will find, of course, risks associated with this and merely just because a clients are committed to being green does not always mean that it will succeed. However, by incorporating both strong investor support along with a robust roadmap for transition to sustainable practices, growth potential could be maximised.