Failure to practice sustainable finance is a huge business risk. No one will trust you in this sustainable economy. Not with their money or career or health or safety or future. The issue is that, business models and projects that score low on sustainable finance tend to also score low on integrity. Both, capital and customers are now shy away from such arrangements. Not only that, but an increasing number of suppliers, and employees too, no longer want to do business with unsustainable ventures. Too risky. So what are some of the risks faced businesses and projects that sustainable finance can help to manage? Let’s see:
- You can increase your brand equity by adopting sustainable models, or put differently, you can damage your brand by not adopting sustainable models. See, products nowadays face increased brand risk if they are not sustainable.
- However, sustainable finance does not only allow you to manage this risk, but puts you on course to charge a premium for your product. And if you are smart you can even become the market leader.
- Think Tesla. It is making, by and large, a commodity product but still charging a premium. If you want one of their ‘commodities’ you will have to wait in a very long queue.
- Not only that, it is also the market leader in this ‘commodity’ manufacturing business. Why? Well, because it was the ‘first mover’, in sense (maybe ‘first successful mover’ would be more appropriate, but who cares). ?
- You can easily get new customers and increase your revenues, or lose existing ones and the related revenues, by either choosing, or not choosing, to adopt sustainable business practices.
- The demographic shift in societal values towards sustainability (including SDGs) is seismic.
- It therefore, means that if you make the right decisions then society is bound to notice and reward you accordingly. The opposite is also true. It works just like an open ballot system. The more approvals the more votes you are likely to get.
3.?????Going Concern Risk
- Speaking of voting, customers always vote using their money and when they vote they tend to vote in numbers. Serious.
- By discontinuing consumption of an unstainable unsustainable product a customer would have given you a vote of no confidence.
- Now if these voters vote in numbers you will be in big trouble. In actual fact you will have a new name – ‘going concern’. You will eventually have to close shop if you don’t start on sustainable finance. And one more thing – investors always know it (or, rather, know you).
- Now that investors know you, it simply means that, ‘it is now expensive for you to look for funding’. See, there is now a new breed of investors (and bankers) in town. And this breed only invests in sustainable business models and projects.
- This means any unsustainable business model is junk. No one will want to invest but just speculate. And those who speculate charge a premium as insurance for taking the (high credit) risk.
- This is usually in compliance to new legislation but can also be on existing ones. More and more governments are going to continue to enact statutes that promote sustainable economies and dissuade alternatives.
- The Russia-Ukraine War has put somewhat of a pause on this trend but definitely it will pick up. This means it’s worth it to go on and get a head start on your competition.
- Remember being reactive is always expensive.
- Think automobile industry and the extractive industry. Before Tesla everyone knew electric vehicles but the industry seemed not to care. Now after Tesla, all of a sudden, everyone cares. Every vehicle manufacturer is now talking about going all electric, or major electric, by such and such a date. Be warned!?
- Trust. It all goes down to this one word, doesn’t it? See, if stakeholders no longer trust you, then pretty much everything that you can think of that can go wrong will go wrong.
- Now, with the advent of social media monetisation where every other chap wants to piggyback on your bad press for them impressions your reputation risk is at its all-time high.
- Remember we are now living in a world where people get easily offended and angry about anything and everything. Imagine what will happen if your sustainability ignorance gets to play in the public domain.
- That goes without mentioning facing the wroth of the pressure groups from your local community (which are also on social media). If you don’t critically rethink your position on sustainable finance this is reality.
It is clear the risks are real and far damaging especially in the future. Unfortunately, the future is now! But some dudes seem not to realise it. Sad. It is imperative to note though, that, whilst the risks have been individually included they are not mutually excluding. A business/project is likely to encounter these risks at the same time. However, to manage all this ‘risky business’, one simply needs to do the right thing – and start practicing sustainable?finance. Thank you.?
