Part 8/13 of the Business Sustainability in Nigeria Series with Adiya Atuluku and Jennifer Uchendu
Whether it’s a small startup company or a large multi-national organisation, there is need to implement / carry out initiatives to ensure business sustainability once the decision to create a sustainability culture has been reached. For this reason, mapping out a budget for the actions and processes that should follow is highly essential as not much can be achieved without due financial commitment. But this financial commitment is one of the biggest things that businesses struggle with. Why is this?
Businessmen/women will tell you that their business is, at least partly, here to make money, but funding sustainability sometimes seems like an expenditure which bring no direct value to the business. This reasoning has simply become an excuse because of two main developments:
- Many sustainability initiatives can now bring a business both direct and indirect value, whether through making profit or reducing costs (we talked about benefits here); which is why it’s important that your initiatives are material to your business, like we talked about here. Many companies can now make a good business case for sustainability initiatives.
- There are so many international and national funding opportunities that both corporations and small businesses (yes, even from Nigeria) now have access to.
There are several ways that businesses can fund their sustainability initiatives. Four of the most common ways are:
In-House Budgeting:
Sustainability champions in organizations have a big part to play in making sure that the company has the needed budget and once they can show a clear business case (i.e. how the business is getting value from the sustainability initiative) then they have crossed the main hurdle. For example, Google made a clear business case for their equipment recycling program when they showed that it cost less for them to recycle and repurpose than it would have cost for them to purchase the 300,000 new equipment that they needed at that time. Similarly, making the business case for energy efficient light bulbs instead of the traditional incandescent bulbs is easy if you can show that they last longer and so, cost less in the long run.
In the end, including sustainability initiatives in the company budget will be much easier if the company’s leaders are also sustainability champions.
Green Investors:
Companies can now take advantage of the growing number of Green Investors / Impact Investors who are looking to fund social and environmental projects and businesses. There are already so many incubators and investors that are targeted only at sustainable businesses. For example, Echoing Green, Skoll, Ashoka and a host of others that you can find here. Their application processes are usually annual, and pretty straightforward.
Similarly, companies, especially corporations, can now issue Green Bonds to fund their sustainability projects. Green Bonds are like the traditional Bonds which are issued to people and organizations who lend money to the business to allow the business finance a project. But Green Bonds are specifically for projects that have a social and environmental impact. Green Bonds are relatively new in the finance world and as such are not yet that well regulated, but they are already seeing massive global growth and expected to reach a value of almost $158 billion globally by the end of 2016 (from about $41 billion in 2015), according to HSBC. So you see, more and more people and organizations are looking to invest in corporations’ sustainability projects, especially if they have to do with climate change adaptation and renewable energy!
Green Funds:
Banks are also a good source of funding for sustainability initiatives because more of them, particularly those that adhere to the Equator Principles, are specifically targeting sustainability initiatives/projects with special loans that consist of particular incentives and allowances. The Nigerian financial sector has also gone the extra mile to develop the 2012 Banking Sustainability Principles which mandates banks to check the environmental and social risks of projects before providing finance. Particular banks that take these two principles seriously, e.g. Access Bank which was recently recognized as a sustainability leader, should be first point of call for financing sustainability initiatives.
But small and medium enterprises may not want to be indebted to a bank, no matter how good the banks’ incentives for green projects are. So microfinance banks and companies like the SME Fund provide green financing on a smaller scale. Banks and such funds also provide some form of educational support in terms of information dissemination on managing environmental and social impacts of projects.
Funding is also available from multinational development partners such as the United Nations, Department For International Development (DFID), the World Bank, African Development Bank, African Union, European Union, etc. For example, businesses can partner with Sustainable Development Goals (SDG) Fund, through UN agencies, to deliver their sustainability projects while accessing available funds from the SDG Fund. Similarly, the African Development Bank currently administers at least three funds, totalling about $10 billion towards sustainability projects in Africa, namely Sustainable Energy Fund for Africa, Climate Investment Fund, and Green Climate Fund. These funds are accessible for businesses implementing sustainability initiatives/projects.
Carbon Finance:
Carbon finance, where a price is put on emitting carbon and other GHG gases, is an area that is still growing globally, slowing but steadily. But this growth has been slightly stalled due to a lack of necessary regulations to guide trade and the inability of stakeholders to arrive at a fair and globally acceptable price for carbon. Still, several governments are trying different things, most notably Cap and Trade (i.e. governments mandate how much carbon a company can emit via their operations but allows them to buy and sell carbon credits when they have emit more than or less than their cap respectively); to Carbon Tax (i.e. governments put a tax on carbon emissions). Last year, there were reports of the first carbon credit exchange in West Africa between two companies (a financial institution and a car rental business). You can read more about that here. Nigeria also has a Carbon Credit Network, an initiative by the SME Fund for small businesses that want to offset their carbon footprint.
All in all, opportunities for businesses to fund their sustainability initiatives and projects abound. As such, the old arguments against sustainability being an expenditure and being too expensive no longer hold much weight. What’s more, funding sustainability is getting cheaper and a business can just as easily do so with external funding which would cost them next to nothing.
So now we’ve tackled how a business can become sustainable, how it can cultivate a sustainability culture, and how it can fund the implementation of initiatives. But is all this effort worth it in the end in terms of the real impact to socioeconomics and the environment, or are these businesses just chasing an utopia that is elusive? That’s the focus of our next post.