Sustainable finance: How early movers drive collective action

Like ripples expanding across water when a pebble breaks the surface, sustainability has been quietly growing into an undeniable force in the world.

In 2022, it has become arguably one of the most critical tenants of business. Indeed, for the past few decades, this ripple effect – whereby an initial disturbance to a system propagates outward to disturb an increasingly larger portion of the system – has led us to a place where we need prominent and consistent narratives around key issues across organisations to drive collective action.

In recent years, most advancements made in the sustainability space have come from a competitive action sparked by a trail-blazing organisation aggressively moving ahead in its field. In this scenario, early adopters change the game by triggering systemic adjustments to policies and regulations, pushing others to meet the climate change imperative – something that can often set them apart in the eyes of stakeholders.

In fact, we have seen that solid sustainability propositions by early adopters are providing more diverse options for financing and investment across industries to deliver and help meet regional goals significantly. As no corporation can do it alone, everyone must act to solve the climate catastrophe. The big question remains, when will this ripple touch the majority and what can businesses do to tip the scales toward a new order of sustained prosperity?

The opportunity
Organisations with strong and well-articulated ESG targets hire better and register sustained employee retention. They attract some of the best talent in the market because workers and job seekers are increasingly considering sustainability when making their career choices. In fact, in 2020, the intranet company, Unily, released survey results, which revealed that 83 per cent of workers thought their employer was not doing enough to be more sustainable and tackle climate change. What’s more, 65 pr cent said they would be more likely to work for a company with robust environmental policies.

Additionally, businesses with aggressive climate agendas also benefit from higher revenues because sales of green alternatives to traditional products are rapidly gaining momentum in multiple sectors. Take, for example, between 2017 and 2020 in the US., sales of plant-based meat substitutes rose 16 per cent points faster than sales of animal meat. Globally from 2016 to 2019, electric vehicle sales increased by 26 per cent annually, while conventional car sales dropped by 2 per cent yearly. It set industry first movers like Tesla and Volkswagen at multiple advantages – not only did they benefit from lower regulator risks but committing to climate consciousness also ensures their continued access to future supplies of critical metals through long-term contracts with producers.

Even regarding future investments, first movers with defined sustainability targets enjoy better financing terms, including a lower weighted average cost of capital. New debt financing vehicles offer lower-cost financing to companies funding green projects or tie financing costs to the achievement of sustainability targets.

The point is further emphasised when you consider that Nestlé and Unilever have already invested $30m and $15m, respectively, in a private equity fund that invests in and supports the development of companies in the plastics recycling value chain. This is because Unilever is committed to getting there and doing it first! They have already sourced low-cost renewable electricity, achieving $900 million in savings, which more than offset the premiums paid to source plastic and palm oil sustainably. They’re saving both cash and carbon-reducing costs while cutting emissions. Not only are they benefiting the environment (net-zero emissions by 2039), but they are also looking good doing it! It’s also why 90 per cent of their workforce feel proud working there, while 79 per cent feel their job contributes to the company’s ‘Sustainability Living Plan’.

However, overall, businesses must do more to meet their ESG mandates across their supply chains. Economic and social turmoil pre- and post-pandemic has highlighted even greater accountability that is necessary on a global scale – and we need to do it together to achieve what is ultimately our higher purpose.

Ziad Chalhoub is the chief financial officer at Majid Al Futtaim