The growth of a business depends greatly on the contextual empathy and acceptance to change.
An established business unit approached their existing lender for their new venture. Everything went smoothly, until they reached the due-diligence stage, where the company started finding questions that they earlier had not given heed to. Most of the questions circled around social & environmental impact of their proposition and changing legal framework in the current context.
Finding a no negotiation point, the company had to go back to the basics to reassess the impact of their business on the society and the environment and realign their plans to meet the changed requirements.
This is not an isolated incident. Increasingly lenders and investors are scrutinising project and business risk profile with minute detailing. The internal governance and compliance systems are rapidly taking turn towards sustainable financing, that reflects on the environmental, social and governance (ESG) mechanism related to a business or an economic activity.
From compliance to responsible financing:
From the concept of profit maximization, business goals have taken a radical turn towards making business sustainable and creating a positive impinge on environment and society. What started as compliance through adoption of corporate social responsibility is now transforming into a purpose driven approach leading to ‘responsible financing’ framework.
A holistic assessment of businesses contribution towards the 17 UN SDGs, though non-binding, is becoming the order of the day. In this drive towards sustainability, creation of a robust ESG framework through mapping of the SDGs at an apex level and burning social and environmental challenges at local / regional level is an interesting development.
More and more corporates are finding that a meticulously structured ESG approach is translating into timely project implementation, better control on capex and higher financial remunerations, and what can make a lender or an investor happier than these outcomes.
It is obvious that we need to walk an extra mile. In the current business scenario, there is no shortcut to making a dream business appealing. While the market acceptance and attractive financial return potential will continue to dominate decision making, these outcomes would largely depend on the ranking of business on an ESG scale. Employment generation, living wage, health and wellbeing, equal rights, impact on environment, sensitivity towards human values, judicious use of minerals and energy, adaptability with society and past history would form a precursor in the decision making.
Therefore, it is essential for business to be adaptive with the changed requirements to be future ready and safeguard itself from choked flow of finance.