The benefits of a green strategy
Lenders have responded to the global COVID-19 pandemic over the last few months by making available short-to-medium term liquidity facilities on an extraordinary scale. This, combined with a global recession means that accessing new debt facilities in the short to medium term is likely to be more difficult. Knowing how to make your application for facilities stand out will be important.
Lenders are committed to sponsoring sustainable objectives
Most lenders have made commitments to sponsoring sustainable objectives. In particular, most lenders are committed to supporting the goal adopted by the UK government of combatting climate change by achieving carbon neutrality by 2050. So far lenders are pursuing this goal voluntarily. Given the scale of the changes required to achieve the goal, in the future we may see regulatory intervention which either requires or incentivises lenders to be even more proactive.
How does this affect borrowers?
Does your business need funding for a "green purpose" - for example, to transition to a renewable energy source through the introduction of solar panels or an anaerobic digester? Many lenders are keen to provide green loans (loans for "green purposes"), often using project finance techniques. So if any part of your funding is required for a green purpose, it's important to make that clear.
Only need general working capital or funding for a non-green purpose?
If your business has already made a strategic commitment to sustainability and adopted measurable targets, you may be able to access sustainable finance. Essentially, the pricing of the debt is linked to the achievement of sustainability targets to incentivise the borrower to pursue sustainability objectives. Those objectives need not be linked to pursuing carbon neutrality. For example, they may relate to the social impact of your business.
Sustainability not yet a board priority for you?
The sustainability of your business, including its impact on both the environment and society is set to become an ever- increasing focus, not only for lenders but also for equity investors, customers and employees. Even if you are not inclined to focus on sustainability for altruistic reasons, it makes sense to do so for financial ones.