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Financing your net zero transition

What you need to know

Halving the world’s carbon emissions by 2030 and reaching net zero by 2050 calls for major investment and a realignment of finance to a more sustainable future - a concept known as sustainable finance. By definition, sustainable finance includes any form of financial service that integrates environmental, social and governance (ESG) considerations into investment and lending decisions.

Five things you need to know about sustainable finance

Sustainable finance can support your net zero journey.

Businesses with a robust sustainable finance strategy in place will be in a better position to attract investment and access green lending products to support their net zero journey. Sustainable finance can provide specific funding to support your ESG objectives as both banks and investors have recognised the importance of promoting positive changes in ESG metrics.

The market is growing fast.

By the end of 2019, more than 2,500 investors representing over $80 trillion in funds had signed up to the UN Principles for Responsible Investment (PRI), thereby committing themselves to including sustainability factors in the investment process. It is estimated that the green bond market will grow to $1 trillion in 2021.

Any business can access ESG financing.

Even firms operating in industries that present challenges in terms of their ESG profile (e.g. carbon intensive industries) can use sustainable financing and, in fact, have been some of the most prominent players in this space as they finance their transition to net zero.

Your approach to finance needs to change.

While many features of sustainable finance are similar to those used in the conventional lending options, sustainable finance does introduce specific requirements. Your finance team will need oversight of your company’s carbon reduction strategy and you may need to adapt or establish a new suite of internal controls to finance your ESG objectives. As well as considering the accounting complexities of sustainability-linked bonds and new financial reporting disclosure requirements.

And your external reporting would also need to change.

Sustainable finance brings with it an increased focus on external reporting as you will be required to demonstrate how funds have been used or whether ESG related targets have been met. As a first step, most businesses publish a sustainable finance framework which communicates to lenders the nature of their financing strategy and how that relates to their corporate sustainability goals. Many also publish an annual statement covering the use of proceeds or the key ESG metrics associated with their financing.

Keep learning

For more insight and inspiration on how to approach your net zero journey, explore our collection of articles below.

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