Going green is no longer just a buzzword for businesses seeking to capitalize from social cred. It’s a stand-alone concept and one in which more and more companies are taking an interest. In 2021, green finance hit a market value of $540.6 billion, up from just $5.2 billion in 2012, showing exponential market growth.
With such results, 2023 could be the year that green finance blossoms from a green shoot into an even more fruitful avenue for companies worldwide seeking not only to be profitable but also to make an impact.
However, before diving into the world of green sustainability, it’s important companies take a step back and think about how to effectively integrate green finance into their business.
What Is Green Finance?
Green finance is the two-way interaction between the environment and financial activities/organizations. It is based on the concept that for a healthy, sustainable economy to continue growing, finance activities must consider the environment. This type of finance involves minimizing the environmental impact of activities and supporting environmentally orientated businesses, while seeking greater financial prosperity. For example, it can include activities such as:
- Green bonds and loans.
- Initial public offerings.
- Equity funding.
However, as the field continues to grow, it has evolved to include many more potential paths for businesses to take.
Ways To Include Green Finance In Your Business
Green finance has always been closely tied with other areas of sustainability within business. It often comes up alongside terms such as responsible investment; environmental, social and governance; sustainable finance; and climate finance.
However, this year, green finance is stepping out on its own, and there are several ways financial companies can seek to capitalize and turn one type of green into another. Below, we’ll take a look at some of the most enterprising ones:
Green Loans And Financing For Businesses
This is perhaps one of the simplest strategies for financial companies to implement. Generally, green loans operate something like this:
- A recycling business receives financing (loans) to support its growth.
- This fuels demand for these services.
- More jobs are created in the process as the business continues to grow.
- This business is good for the environment and spurs additional interest in the sector.
- In turn, this results in more environmental businesses opening, which restarts the cycle.
For it to be most effective, however, financial organizations must consider not only the environmental and feel-good factors but also the project’s sustainable impact and the business’s creditworthiness. This may require using specialized risk software to calculate the inherent risk more accurately. Meanwhile, it’s still essential to consider the overall impact of such project implementations. Only by doing both can a company arrive at whether such a project is sustainable.
