Sustainable Finance - Business' green agendas a key consideration in financial decisions

Growth in Gross Domestic Product (GDP) is now decoupled from fossil fuel growth and with the release of various sustainable finance initiatives, green finance has never been more relevant

The release of the government’s Green Finance Strategy in July 2019 highlighted 3 main areas of focus:

  • Greening Finance: The integration of climate and environmental risks and opportunities into mainstream financial decision-making
  • Financing Green: Accelerating finance in support of clean and resilient growth to deliver the UK’s carbon targets
  • Capturing Opportunity: Establishing the UK as a hub for green finance, at the forefront of green financial innovation, data, and analytics

A shift in business approach

There has been a considerable shift in how organisations are approaching their environmental responsibility over the last few decades. The sustainable business approach attempts to balance traditional financial business aims with environmental protection and social justice, establishing longer term considerations and goals rather than the traditional short-term thinking from one quarter to the next. This has all stemmed from increasing criticism, pressure, and demand from society on businesses to become more sustainable and take environmental impacts into account.

Fossil fuels no longer driving growth

Another factor influencing the rise of green finance has been the discovery that growth in GDP is no longer coupled to growth in fossil fuels. In the past, unprecedented economic growth has tracked very closely with increased fossil fuel consumption, increased material consumption, and contributed greatly to human induced climate change and global warming.

However, developments in the modern economy have lead to better technologies, increased environmental awareness and stronger environmental regulations. In recent years, despite continued economic growth and increased production, carbon dioxide (CO2) emissions are no longer increasing at the same rate, primarily as a result of improvements in energy efficiency, energy intensity, and substituting fossil fuels with renewables. Between 1985 and 2016, UK GDP grew by about 70% per person while CO2 emissions fell by 34%. Meanwhile, between 1990 and 2017, renewable energy increased by 1267% while fossil fuel energy consumption declined by 22% (Office For National Statistics, 2019).

Source: IEMA

Risks and Opportunities

70% of banks in the UK now consider climate change as a financial risk. Businesses which are transparent in reporting emissions and how they intend to reduce their environmental impact by producing standardized reports immediately become much more appealing, not only to the public but also to potential investors and stakeholders. Opportunities include:

  • Resource efficiency – seeking the best use of resources
  • Innovation, research and development
  • Differentiation – marketing as a sustainable business
  • Cost-saving – protection against future liabilities by managing risk
  • Image enhancement – reputational capital

Streamlined Energy & Carbon Reporting (SECR)

SECR is not just a legal obligation, but allows investors to assess a company’s sustainability performance to influence their investment decisions. When approached in the right way, SECR can help with strategic planning and risk management, structuring a sustainable business model, increasing resource management and eco-efficiency, and ultimately improves the business both environmentally and economically.

To find out if your company is obligated under SECR requirements, please click HERE.

If you believe your company may be affected by SECR and you’d like to find out more about how we can support you to ensure compliance, please don’t hesitate to contact our sustainability experts – email or call 01756 794 951