The spotlight on environmental sustainability has never been brighter than in recent years. As more and more reports emerge about how dangerously close the world is in passing climate tipping points, more needs to be done by businesses and industries to address climate change and the growing environmental issues we face.
Unsurprisingly, environmental sustainability has become a critical concern for the manufacturing industry as it’s one of the world’s biggest contributors to carbon emissions – it produces 20% of carbon emissions globally and uses 54% of the world’s energy. As the sector continues to grow and evolve, the need to minimise its environmental impact has become increasingly important. This is where green financing plays a pivotal role in driving sustainability within the manufacturing sector.
What is green financing?
Green financing refers to the use of financial products and services to support sustainable and environmentally friendly business activities. It comprises a spectrum of financial instruments, including green bonds, green loans, and other forms of green finance, which are specifically earmarked for projects and initiatives that have a positive impact on the environment.
The United Nations Environment Programme (UNEP) also describes green financing as a method of increasing “financial flows (from banking, micro-credit, insurance and investment) from the public, private and not-for-profit sectors to sustainable development priorities”.
Benefits of green financing
In general, there are several benefits that industries can look forward to with green financing. These include improved cost savings, enhanced brand reputation, and more.
Improved capital accessibility
Green financing provides manufacturers with access to capital specifically earmarked for sustainable initiatives. This enables them to fund projects such as renewable energy installations, energy-efficient upgrades, and sustainable supply chain practices that may have otherwise been financially challenging to undertake.
Enhanced brand reputation
Adopting green financing and implementing sustainable practices can significantly enhance an organisation’s brand reputation and marketability. Consumers are increasingly conscious of the environmental impact of the products they purchase, and a commitment to sustainability can set manufacturers apart in the marketplace.
Increased spread of technologies
Green financing can contribute to the continued and progressive innovation of new and sustainable technologies. This helps more companies gain access to climate change solutions and low-carbon innovations, especially in developing economies.
Higher cost savings
Governments and financial institutions can play a big role in creating low-cost financial solutions to encourage climate neutrality. A Deloitte report also found that being proactive in terms of the green transition can lead to estimated savings of US$50 trillion up to 2050, cutting over 25% of yearly investments.
How can green financing drive sustainability in manufacturing?
As the industry which contributes one of the highest percentages of greenhouse gas (GHG) emissions in the world, manufacturing must do more to combat climate change. Leveraging green financing and embracing emissions reduction will allow companies to balance their operational and financial goals with their sustainability objectives.
For instance, green loans are an ideal solution that can help the industry boost its environmental sustainability efforts. Green loans are a financing option that is provided to companies solely for environmental projects and initiatives that contribute towards better sustainability. This encourages more organisations to do more when it comes to hitting their environmental, social, and governance (ESG) targets, whether it’s upgrading existing systems to be more environmentally friendly or procuring new hardware to reduce pollution.
Manufacturers who also team up with the right green financing partner can accelerate their progress and cement their commitment in overcoming climate change. These partnerships can also lead to better benefits and incentives in the form of more competitive loan rates or extended repayment periods.
Challenges of green financing in manufacturing
While green financing provides clear advantages for manufacturers looking to advance their environmental sustainability aims, there are some obstacles that may make them think twice.
Identifying suitable green financing options
Navigating the landscape of green financing options can be complex, with manufacturers needing to identify the most suitable financial products for their specific sustainability needs. This requires a thorough understanding of the available options and their respective terms and conditions.
Overcoming internal resistance and change management
Even if the right financing was obtained, implementing sustainable initiatives often requires a shift in organisational mindset and culture. Manufacturers may encounter internal resistance to change, necessitating effective change management strategies to garner buy-in from stakeholders at all levels.
Navigating complex regulations and standards
The regulatory landscape surrounding green financing and sustainability can be intricate and constantly evolving. Manufacturers must stay abreast of the latest regulations and standards to ensure compliance and avoid potential legal and financial repercussions.
Regulatory disclosures in certain geographies can also make things tricky. In Vietnam, it was found that regulators have certain expectations regarding bank and financial disclosures, but the guidelines are either unclear, too broad, or confusing. This makes adhering to these regulations difficult.
Embracing sustainability through responsible financing
As manufacturers, it is crucial to recognise the pivotal role of green financing in driving environmental sustainability. Green financing is revolutionising environmental sustainability in manufacturing by providing the necessary resources to drive the transition towards eco-friendly and sustainable practices. Manufacturers stand to benefit from cost savings, enhanced brand reputation, and compliance with environmental regulations through the adoption of green financing.
Nevertheless, identifying operational and sustainability gaps is just as important if companies wish to make true progress in their journey towards reduced GHG emissions and Net Zero. The use of objective sustainability maturity assessments and frameworks like the Consumer Sustainability Industry Readiness Index (COSIRI) are therefore vital for elevating a manufacturer’s environmental sustainability progress.
By utilising the right benchmarking tools, exploring green financing options, and embracing sustainable practices for a greener future, manufacturers can play a pivotal role in mitigating climate change and creating a more sustainable world for future generations.
