What does it take to encourage financial investment for sustainable businesses?
Back in 2018 The Beam Magazine investigated “Sustainable Investment: the future of financial markets in the light of sustainability”. This was just prior to the Sustainable Investment Forum that was held in Paris on March 13th and hosted by Climate Action and the UNEP Financial Initiative. But what has happened since?
Larry Fink, the Chairman and CEO of the almost $9 trillion investment fund company Blackrock, wrote in his 2021 letter to CEOs:
“We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.”
When the Chairman of the world’s largest asset management company writes this, we should all pay attention. However, we also need to understand the limitations placed on investment, and where investment flows. Research carried out by the not-for-profit company Profundo and reported in a press release from February 2021 calculated that:
“4,488 institutional investors held investments totalling US$1.03 trillion in companies operating along the thermal coal value chain.”
And further to this, they calculated that the top two investors were Vanguard and Blackrock with investments of US$86 billion and US$84 billion respectively. So what’s going on?
Caroline Le Meaux, Head of ESG Research, Engagement and Voting policy at Amundi, with €1.6 trillion under management, was interviewed in a BBC podcast “Does big money really believe green is good?”, where she answered her own question of “Are we going fast enough?” by saying:
“We need to put pressure in order to make sure that everybody is making an effort, but in a way that they can afford.”
And that is where the problem lies. The value of “the now” remains far more important than the cost of the future. Various attempts have been made to put value on the cost to the future, such as that by Stern in 2006, and just recently by Desgupta. There are also moves by Harvard Business School to develop the concept of impact-weighted accounts, and the International Financial Reporting Standards Foundation (IFRS) are consulting on how best to support sustainability reporting. It would appear as if momentum is growing, and soon financial regulators will be ensuring that investment is both profitable and has long term sustainability embedded into investment portfolios.
How does this affect me as a manufacturer?
There are increasing pressures on manufacturing companies, and these have been increased even more with the consequences of the COVID crisis.
First, there is pressure from consumers, with increased awareness of the environment, as evidenced by David Attenborough’s record breaking, albeit brief, appearance on Instagram and, of course, the movement of young activists that include Greta Thunberg. The latter highlighted by their 90-minute meeting with Angela Merkel in August 2020, what other pressure-group was getting this amount of time with a face-to-face meeting with Germany’s Chancellor?
Secondly, and as described above, the financial world is also recognising this, and slowly are making more funding available. This is true of the financial institutions, as well as some of the richest individuals in the world, such as Bill Gates, Elon Musk, and even Bernard Arnaut (CEO and head of some of the most luxurious brands in the world, such as Luis Vuitton).
All organisations that are looking for funding should be aware of the increasing opportunities to raise finance by recognising that for new products and processes that are more sustainable, then additional funding could be available.
Companies that are leading in this are taking matters into their own hands, for example Stora Enso announced their own Green Bonds, the total of which had a declared Nominal Amount (valued on 31 December 2020) of just over €1.5 billion.
However, if your company cannot raise its own funding via issuing bonds, there are many other ways to access finance. The UK Government’s own 10-point plan to create and support 250,000 jobs is proposed to “mobilise £12 billion of government investment”. Prior to the budget on 3rd March, pressure was being applied to the Chancellor to encourage more fiscal regulations to reduce funding. However, the March 2021 Budget focussed more on more generic support and further encouragement for existing plans, such as the actions highlighted in the 10-point plan, although it was announced that the UK will issue at least £15 billion in green bonds.
And if you are a start-up or SME looking for venture capital investment, the time is right to get investment as, according to the British Private Equity & Venture Capital Association (BVCA), the market is now at its tipping point for even the more conservative investors to enter the market en-masse.
The big question is not:
“Why should I spend time investigating sustainable manufacture?”, but
“Can I afford to ignore the opportunities that sustainable manufacture can bring to my organisation?”.
If you want to find out more about any items in this blog, or to talk to us about the opportunities for collaboration, funding and investment opportunities, then contact:
Ben Peace – Head of Manufacturing
Jordan Fletcher – KTM Investment Communities