With COP27 right around the corner, nations around the world are getting their climate action plans in place. At both international and national levels, the goals set under the Paris Agreement are crucial to combat the climate crisis we face. As a result of this, there have been increasing levels of awareness and reform involving environmental, social and governance (ESG) actions, laws and guidelines.
From the consumer angle, especially from the younger generation, there has been an ever-increasing awareness around sustainability – whether it is adopting sustainable practices at an individual level or demanding the same from the people and organisations around them.
Between these two fronts sits the protagonist of this piece – the corporates whose actions are critical to moving the needle on sustainability targets. These are the multinational conglomerates, digital platforms, retailers, manufacturers, distributors, small and large businesses that we know as the corporate or institutional sector. They are the primary contributors to a nation’s GDP and, as a result, also a primary driver of carbon emissions. For real climate action to happen, this is the ground zero that needs to be the starting point of nationwide and international sustainability overhaul.
Now, you may think – it’s the corporates that need to change their ways, but how? Well, as with everything in our largely-capitalist world, it boils down to money. While manufacturing processes do play a big role in carbon emissions, and that is an industrial overhaul that needs to happen, there is a general need for more sustainable financial practices to be adopted at the corporate level. And there is no other faction that can drive this change better than financial institutions (FIs) and FinTech solution providers – who control the flow of money to these large and mid-sized corporations around the world.
With that focal point set into the viewfinder, let’s take a tour of the Corporate Green Finance landscape to understand how companies, big and small, are introducing sustainable finance practices in their operations. Put on your binoculars and embark on this green safari!
We’ve bifurcated corporate green finance activities into six categories based on where the most action has been taking place this year. These include ㅡ
- Green Financing – Financial institutions offering and enabling financing for environmental sustainability-focused projects through instruments such as supply chain finance, trade finance, business loans, and capital market instruments.
- ESG Reporting, Data and Analytics – Fintech providers and FIs facilitating ESG reporting for corporates and data & analytics solutions for monitoring performance and decision making.
- Decarbonisation – Initiatives aimed at investing in carbon removal and carbon credits exchange solutions to enable corporations to meet their Net Zero targets.
- Carbon Footprint Management – Solutions that enable businesses to track their Scope 1, 2, and 3 emissions and nudge them towards decisions to reduce/optimise their carbon footprints.
- Insurance – Underwriting technology for climate risk insurance providers and innovative climate risk coverage offerings.
- Investment & Funds – Sustainability-centric private investment funds and investments made by financial institutions to support climate action initiatives.
Business Financing Goes Green
Corporations have introduced various green finance instruments into their operations or as offerings for other businesses. A green loan allows borrowers to use the proceeds exclusively for projects that contribute to the environment.
Supply chain finance has been one such focus area of companies such as apparel group PVH in collaboration with HSBC Bank USA, Coca-Cola powered by Rabobank, and specialist providers like Societe Generale Factoring. These initiatives incentivise and reward suppliers for improving their ESG performance. In Australia, Westpac and the CEFC have joined as partners to the Australian Industry ETI to drive down net emissions in industrial supply chains. While asset management firm Kimura Capital has taken a different approach by partnering with blockchain platform MineHub to launch a sustainable trade finance platform.
Green business loans have been launched in different markets by the likes of Natwest (UK), Fibank (Bulgaria), Kbank (Thailand), Bank of New Zealand in partnership with Deloitte NZ, and Valley Bank and the CPC (USA). Corporate repurchase (repo) arrangements are also witnessing a green twist, as shown by Qatar National Bank’s (QNB) partnership with HSBC in the Middle East. In Northern Europe, Nordea has issued a $400M bond to fund climate-focused sustainability-linked loans. On the other side of the pond, BBVA launched a carbon markets business line that offers its corporate clients the possibility of trading emission allowances and carbon credits. Asset managers like Blackstone and Carlyle have also embraced green finance by introducing sustainability-linked private credit programs for borrowers.
All of this goes to show that there is no lack of green options in business financing, and the incentive to offer such financial support is only rising.
ESG Reporting, Data and Analytics
Across the world, the number of countries mandating ESG reporting is ballooning. Hence, the need for relevant ESG data and analytics solutions for decision-making, compliant reporting, and disclosures is greater than ever before.
For ESG investment analytics, companies like J.P. Morgan launched ESG Discovery, and Morningstar launched Investable World for private investors. The Disruption House teamed up with the Temenos Exchange open marketplace to help users with ESG-benchmark FinTech solutions. Temenos also launched its ESG Investing-as-a-Service offering for banks and wealth managers in the UK to enhance time-to-market and compliance for ESG products.
ESG reporting is now a mandatory activity for companies in various countries. Solutions catering to this corporate need are growing too. Nasdaq’s acquisition of Metrio, BlackRock’s partnership with Clarity AI, BNP Paribas Asset Management’s partnership with Matter, and IBM, SMBC, & Persefoni’s collaboration for carbon accounting, are all examples of this.
ESG data providers are also gaining prominence in the corporate world to facilitate strategic decisions. To enhance access to such solutions, distribution and collaborative partnerships have been key, as can be seen with S&P Global’s alliance with Novata and a web3-esque collab between Hyphen, Chainlink, Glink Solutions and Northwest Nodes.
FinTech infrastructure platform NayaOne has launched its ESG-in-a-box offering to help financial institutions discover, evaluate and integrate with ESG tech providers. Some of their marketplace ESGTech partners for the offering include Cloverly, Ambee, Greenly, Connect Earth, Lune, and EarthChain.
Devoting To Decarbonisation
Any and every natural resource-linked activity emits greenhouse gases. “Decarbonisation” refers to removing or reducing carbon dioxide (CO2) emissions from the atmosphere. Carbon credits are rations for carbon emissions allotted to organisations, industries, and nations. Corporate green finance innovation in this segment involves solutions around carbon credit management and investments in carbon removal projects.
2022 has seen an influx of carbon credits technology solutions to facilitate credits transfers and exchanges among companies from various industries. Among these, some notable initiatives include Carbonplace’s pilot with Visa, Salesforce’s Net Zero Marketplace,
Climate Impact X’s (CIX) technology partnership with Nasdaq, and Flowcarbon‘s collaboration with carbon-negative blockchain Celo.
Institutions are also actively participating in decarbonisation projects across the globe. UBS has entered into a long-term partnership with Swiss-based carbon removal solutions companies Climeworks and Neustark. Stripe has teamed up with Alphabet and Meta to commit nearly $1B in spurring the carbon-capture market. Additionally, solutions like McKinsey’s Catalyst Zero, an end-to-end decarbonisation service for its clients, are also laying the groundwork for sustainable practices.
Business Carbon Footprint Management
When it comes to carbon footprint management and tracking, FinTechs have taken the helm globally with fast-acting solutions for retail consumers. However, it is important to note that about 100 of the largest companies generate a whopping 71% of all global emissions. The time has come for institutions to manage their carbon footprint and help their counterparts do the same. Proactive carbon footprint management will also act as a direct driver for fuelling decarbonisation projects.
Solution providers like Cogo, known for several consumer-facing carbon footprint tracking solutions, are now expanding their reach to B2B solutions. The company’s recent partnerships with Natwest and accounting platform Xero are a significant step in the very direction. CarbonPay launched its corporate prepaid card for businesses in the US and the UK that helps offset their carbon footprint automatically with every transaction. In India, the Small Industries Development Bank of India (SIDBI) is working with data and analytics company Dun & Bradstreet to create a quarterly SIDBI-D&B Sustainability Perception Index for MSMEs.
Immunising through Insurance
Recent years have seen an increase in natural disasters and erratic weather patterns, making climate risk insurance an effective tool to mitigate the devastating impact of disasters, facilitate timely recovery, and promote climate resilience. An increasing number of insurers and risk underwriting tech providers are expanding their scope to climate risk and insurance.
So far in 2022, some notable activities have been as follows –
- Moody launched its ESG Insurance Underwriting Solution for P&C insurers.
- Skyward Specialty Insurance Group launched a Renewable Energy Contractors coverage.
- One Concern, a climate analytics company, made a strategic alliance with WTW to provide the US insurance market with proprietary risk scores to understand dependency risk better and accelerate the adoption of parametric insurance.
- Athenium Analytics partnered with Duck Creek Technologies to offer on-demand climate intelligence solutions.
A Green Shower of Investments
Deployment of capital is one of the primary ways in which institutions support sustainable development goals globally. By funding sustainability-focused projects, larger corporations can help developing businesses achieve the needed resources and stability. The year 2022 saw massive sums of money being invested by significant players.
HSBC, in January, announced plans to launch a ~$564.5M (£500M) Green SME Fund to support businesses in the UK towards their transition into a low-carbon economy. In May, HSBC set aside a staggering $5B for GBA Sustainability Fund to fund projects in the Greater Bay Area and reduce carbon emissions. Further, venture capital investor Cathay Innovation launched a $1B global fund investing in startups that support industrial and social sustainable transformation.
The BigTechs have not fared behind either, actively contributing to the cause. We saw The Monetary Authority of Singapore (MAS) and Google Cloud launching the Point Carbon Zero Programme to drive the innovation, incubation, and scaling of climate FinTech in Asia. Not just them, but Accenture, Microsoft, and their digital, cloud and advisory services and solutions joint venture Avanade also announced the launch of a new partnership aimed at delivering solutions enabling organisations to address their key sustainability challenges.
Following the Footprints into the Future
So far, 2022 has witnessed an unprecedented wave of pledges and commitments from businesses vying to burnish their clout among this new generation of ESG-conscious investors. Terms like ESG and CSR that once served as a topping to the main course of corporate discussions nowadays are conversational staples – a ‘sine qua non’ across industries.
Today, companies are taking a deeper look at the value chain, not just considering their own carbon footprint but also the ones they are working with and building for, i.e. their customers, customer’s customers, and ecosystem partners. A growing number of ESG technology providers are building focused solutions for businesses to integrate sustainable mechanisms into their operations. Looking ahead, firms are speeding up and stepping up efforts to achieve COP26 goals – and it is just the beginning of what is likely to be a long, winding road.