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Green Finance: What are the common myths?

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Although green finance is a relatively new concept, it is crucial that it continues to gain traction as the business community seeks to take accountability for its environmental footprint. Currently, SMEs are responsible for around 25% of the country’s CO2 emissions.

In response, the UK Government launched its Together for our Planet campaign urging SMEs to take small and practical steps to cut emissions in the run up to the UN Climate Summit COP26 in Glasgow this November. However, in order to reach our climate goal of net-zero emissions by 2050, we need to make sure the finance is readily available to kickstart green projects.

Despite this need for green finance to fund sustainable businesses and projects, a few remaining misconceptions about the costs and benefits mean that businesses are putting their initiatives on ice. It’s absolutely crucial to allay some of the fears and concerns below, and encourage enterprises to take sustainability seriously going forward.

 

Myth 1: Sustainability is only about reputation

Without a doubt, ‘going green’ can be hugely beneficial for corporate reputation. With sustainability at the top of the agenda, demonstrating a conscientious outlook on the issue can help establish trust between businesses and their customers. Beyond this though, environmental practices are proving to be profitable as well.

Adopting an economic model that is viable in the long-term is essential to a business’ success, and the rise of the ‘conscious consumer’ means that the goalposts have shifted. Increasingly, customers are prioritising the social and environmental credentials of the companies they associate themselves with.

A report by HSBC titled ‘Who Cares Wins: The rise of the young, socially and environmentally motivated consumer’ found that the majority of US respondents would spend more on sustainable products. As well as this, it identified a trend towards rejecting businesses that fail to demonstrate a commitment to environmentally conscious business practices.

Figures from the Investment Association (IA) also show that UK investors put almost £1 billion a month on average into responsible investment funds in 2020. Putting sustainability first can aid businesses in attracting and retaining more customers, as well as protecting themselves from reputational risk.

Myth 2: Green projects are too expensive                                                                                                                                                                                                      

Many SMEs are put off investing in green projects due to the fallacy that it negatively impacts a business’ bottom line. According to an Oxford University and Arabesque Partners meta study based on over 200 case studies around environmental, social and corporate governance (ESG), companies with superior sustainability performance experienced a lower cost of capital.

A growing number of lenders are joining our Green Finance Marketplace, which indicates the general direction that the market is headed in. The appetite among business finance lenders to fund green businesses or projects is increasing every day, whether it be to fund the switch to an electric vehicle fleet or installing solar panels on the roof of business premises.

Myth 3: Only large businesses need to worry about green finance

Naturally, larger businesses have to prioritise sustainable practices within their own organisation and throughout the supply chain. Failure to do so could leave them languishing behind the competition. However, it’s just as significant for the SME community, which makes up 99.9% of the UK business population, to play its part. Not least of all to ensure they remain competitive and profitable in the future.

Across various sectors, smaller businesses are adopting the circular economy business model. This movement away from the traditional linear approach and towards repairing, recycling, refurbishing and reusing can save SMEs a great deal of capital, as well as being more environmentally friendly. Reducing energy usage also enables small businesses to operate leanly and reinvest into other departments of the business.

Myth 4: Sustainability doesn’t mean anything to investors

As green finance grows in popularity, investors are placing greater value on the performance of startups and scaleups with regard to sustainability efforts.

According to recent research, over a fifth (21 per cent) of UK investors plan to make an ESG investment in the coming 12 months, while 25 per cent intend to do so by 2025. Most interestingly, this figure rose to 48 per cent among investors aged 18 to 34, demonstrating the passion for sustainability among this next generation of investors.

Myth 5: Sustainability is just a passing fad

As we continue to witness the impact of climate change and extreme weather events become more frequent, there is no doubt that sustainability will be a topic of conversation for the foreseeable future. Environmental damage can cause untold financial harm to businesses and wider economies. In fact, many companies simply can’t operate without adequate weather conditions.

Business leaders have to view environmental initiatives as both a method of investing in the future of their own enterprises and that of the planet. In the coming years, the most successful companies will be those that put their head above the parapet, taking immediate and proactive steps today to become more sustainable.

To support this, SMEs need to be provided with choice and competition when it comes to funding this journey towards net zero. Similarly, lenders need to be offered the opportunity to engage with these businesses directly and power the move to a more sustainable future. Enabling these smaller businesses to build the right industry relationships and get access to the appropriate funding will be crucial to shifting the dial on climate change in the UK.

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