Financing a Sustainable Future

Committing to a program that promotes sustainability is more than a social obligation – it is a financial opportunity.

The Paris Agreement was adopted in late 2015 with the goal of limiting global warming. In 2021, as part of the United Nations Climate Change Conference (COP26), there has been renewed focus on what it takes to limit global temperature rise to 1.5 degrees and protect communities and natural habitats.

Implementation of the Agreement requires significant economic and social transformation. One of the key approaches resulting from COP26 to realise these goals is that finance must be mobilized – developed countries must raise at least $100 billion in climate finance per year. Financial institutions must also play their part in order to unlock the trillions in public and private sector finance required to secure global net zero. Former Bank of England governor, Mark Carney, has suggested that a $130 trillion commitment would be “more than is needed” to achieve this goal.

What is being suggested here is not a vague commitment or general well-meaning hope. It is a set plan which requires every company, financial firm, bank, insurer, and investor to adjust their business models and develop credible plans to rewire the economies of the world.

In order to encourage the financial sector to do more, the COP Presidency, the UN High Level Climate Champions, and the UK Prime Minister’s Finance Adviser for COP26 have launched the Glasgow Financial Alliance for Net Zero (GFANZ). Consisting of nearly 300 firms and responsible for assets in excess of $90 trillion, they are attempting to accelerate the transition to net zero emissions by 2050.

It is vitally important that every company develops plans to transition to a low-carbon, climate resilient future in order to protect the future of our planet. However, there are also significant financial reasons to do so.

According to PwC, 45% of Fortune 100 companies have executive bonuses tied to ESG measures, which speaks to a growing corporate hunger to address these issues, while recent research from Deutsche Bank claims that 95% of all assets under management will fall under the ESG umbrella by 2030. If you want to be an attractive investment, you will need to meet investor ESG expectations.

Further, rather than just being viewed as a cost, there has been a realisation that sustainability initiatives contribute positively to the balance sheet, in part due to the growing number of consumers that actively switch allegiance to brands with strong ESG principles.

However, having a public-facing ESG vision is not equitable to having a pragmatic plan and direction for realizing this vision.

According to McKinsey, supply chains account for over 80% of greenhouse gas emissions and more than 90% of the impact on air, land, water, biodiversity, and geological resources. Companies can thus reduce costs, as well as improve their ESG profile by focusing on building a sustainable supply chain.

Sustainable supply chain finance, then, is one way in which an organization can track and reward the ESG performance of its suppliers, offering an economic ‘carrot’ to those who participate and achieve ESG objectives.

Taulia, for example, offers ESG Supplier Financing, or sustainable supply chain finance, as a way to integrate ESG into supply chain finance activities and reward positive ESG performance from suppliers. Taulia works with enterprise organizations and ESG technology providers (such as EcoVadis) to set and measure the ESG performance of suppliers. Those organizations can then provide tiered liquidity in early payments; a low financing rate to suppliers that enroll, and an even lower rate to those that meet certain targets, qualifications, or objectives.

The transition to net zero should not be looked at as arduous or complicated but instead as a commercial opportunity. Recent environmental, social, and governance disasters have made it clear that the opportunity for investment is significant, with commensurate returns for those that support the technology and infrastructure of a zero-carbon future.