The world of sustainable finance is constantly evolving, and recent trends suggest an ever-hastening demand for cash to move in greener circles.
Green money is among the top trends on corporate minds across the world. As Net Zero and sustainable transitions become more urgent, working out how to leverage cash and finance to encourage greener business is praying on many minds.
Every indication is that the sector as a whole is gaining pace, traction and importance. Sustainable investment house OnePlanetCapital has just targeted two new investments in GoThrift and Adaptavate, in its mission to support the next generation of startups making positive contributions to climate change.
After receiving clear interest from IFAs, the investments mark the latest companies the OnePlanetCapital Climate Change EIS fund has deployed financing into. Crucially, and as part of a growing movement, the fund only targets investments that will make a real impact on climate change as they scale.
Thrift for good
GoThrift sells used and second-hand clothing as the industry moves away from fast fashion and its environmental impact. With the resale industry growing 11 times faster than traditional retail there is an opportunity to create a shift in the market towards more sustainable retail practices.
On the metrics front, a new item of clothing takes 77 gallons of water to produce with 4kg of CO2 emitted. Today we produce 100 billion items of clothing per year, a 100 per cent increase over 15 years. Second-hand purchasing can reduce this impact by 82 percent, claims GoThrift.
In a more industrial field, Adaptavate produces a range of products for the construction industry. Its Breathaboard product is a wallboard made of a bio-composite instead of gypsum. The construction products market is claimed to be worth $109 Billion by 2028, but traditional resources are finite and the industry is rapidly seeking alternatives.
In the UK alone, plasterboard is responsible for 3.5 per cent of the country’s annual emissions, according to a University of Bath study. Globally, the building sector accounted for as much as 38 per cent of energy-related emissions in 2019, according to the United Nations Environment Programme. Hence the value of pushing money at scalable solutions to genuinely impact on Net Zero progress.
ESG versus impact
These investments illustrate the kinds of companies investors in the space are examining, and this is further reflected by the huge growth in environmental and social governance (ESG) funds. But there is a growing realisation amongst both retail investors and institutional investors that this in-pouring into ESG is not without problems.
The difficulty with ESG surrounds a loose definition of terms and targets, which are largely self-policed and not well regulated. The ESG ratings agencies are massively divergent in their approaches. In February Morningstar removed 1200 ESG funds from its sustainable investments list representing some $1.4 trillion in assets.
Matthew Jellicoe, Co-Founder of OnePlanetCapital, explains: “If investors want genuinely sustainable investments with impact at their core, they need to look outside the ESG traditional markets and at the venture capital space where much of the action is happening.
“We’re proud to invest in GoThrift and Adaptavate. We’re seeing increasing interest from IFAs in backing companies that are genuinely benefiting the environment and both companies are having a truly positive impact on the world we live in.”
Change however is coming across ESG too. Another recent new program has been launched to support business in African to engage with sustainability reporting and increase accountability, thanks to funding from Switzerland’s State Secretariat for Economic Affairs (SECO).
The GRI-SECO Sustainability Reporting for Responsible Business (SRRB) program, which runs until 2024, is being implemented in Africa, Hispanic America and South-East Asia through local partnerships with GRI’s network of regional offices.
It aims to encourage companies to report on their sustainability impacts, contributing to an improved environment for transparency and increased engagement on corporate sustainability data by stakeholders, with associated impacts on ESG and the confidence investors can take into placing green money.
“This program from GRI and SECO is an important entry point to support companies, especially down the supply chain, to comply with sustainability reporting requirements,” said H.E. Dr Nicolas Brühl, Ambassador of Switzerland to South Africa.
“We are very pleased that, with the launch of the programme, we can contribute to further improving the environmental, economic, and social performance and competitive advantage, in South Africa and the region.”
Eelco van der Enden, GRI CEO, said: “Collaboration is absolutely crucial, if business and society are to do more to work together to reach the Sustainable Development Goals and tackle the significant sustainability challenges facing the global community, and Africa in particular.
“That is why I am delighted that GRI and SECO are continuing to work together in support of sustainable change, as enabled by transparency as the catalyst for responsible business.”
And Franziska Spörri, Head of SECO in South Africa, said: “Sustainability reporting is an important puzzle piece to improve competitiveness, to increase transparency, and to build a sustainable economy. The SRRB program offers companies the ability to adapt to this new reality and new requirements, which also creates opportunities to comply and fit into global value chains.”
The Big Money
There are crucial reasons why getting ESG and reporting right is essential, largely surrounding the massive amount of green money washing through global markets.
The UN’s International Fund for Agricultural Development (IFAD) and the Government of Mexico have just signed a financial agreement that will support the implementation of the Balsas Basin – Reducing Climate Vulnerability and Emissions through Sustainable Livelihoods Project (Balsas Project), a rural development operation aimed to fight rural poverty by reducing small-scale farmers’ vulnerability to climate change in one of the Mexican regions most affected by this phenomenon.
Tellingly, the project will have a total investment of US$ 55 million ($38.45 million from IFAD and $13.35 million from Mexico’s Government) and will benefit around 59,000 people, 40 per cent of them women.
An additional $54 million in funding from the Green Climate Fund (GCF) is expected to be confirmed in the following months, increasing the project’s total investment to $109 million and the number of participants to more than 162,000 people.
“Climate adaptation investments are greatly needed to counter the effects climate change is already having on the lives of small farmers, especially in most vulnerable regions like the Balsas Basin,” said IFAD’s Director for Latin America and the Caribbean, Rossana Polastri.
“These type of investments, especially those in sustainable agroforestry, have proven effective in reducing poverty and promoting development.”
Despite being the second largest economy in Latin America and the Caribbean and ranking high on the Human Development Index, Mexico continues to face structural barriers to inclusive rural growth, which are further aggravated by gender, age, ethnic and territorial inequalities.
In 2018, poverty affected 41.9 per cent of the population (52.4 million people), and the pandemic crisis pushed another 9.5 million people into poverty. There are telling human reasons for getting green money right too.
Other than economic inequality and poverty, Mexican populations suffer from significant food security and nutrition challenges.
The project will promote initiatives including climate monitoring and alert systems and plans that integrate governmental, private and community resources and help small-scale farmers make the right decisions about planting and harvesting times and the types of crops they should dedicate their efforts.
It will also promote the elaboration of land use plans, as well as initiatives to increase small-scale farmers’ productivity and participation in sustainable and profitable agricultural value chains.
To achieve all this, the project will heavily invest in technical assistance focused on the conservation, restoration and sustainable management of ecosystems. Specifically, investments and assistance will support sustainable processing and valuation of timber and non-timber forest products; strengthening of indigenous food systems based on traditional knowledge and products; and improved access to water.
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The Final Word
Self-evidently, green finance is here to stay. ESG and reporting require plenty of vigilance from investors and greenwash remains a risk. But increasingly, agencies like the GRI and UN are putting the tools in the box that can ensure green money does its very best work.
A recent survey of 100 UK pension funds, institutional investors, and wealth managers from Downing LLP reveals almost all say they will increase allocations to renewable energy as part of a diversification strategy.
Ninety-two percent of UK professional investors surveyed, who collectively manage around £118 billion in assets under management, are looking to diversify their portfolios using renewable energy assets over the next 18 months. Be in no doubt; green finance is today’s top business trend, and one every corporate should be watching.