Altiorem is an online library and resource centre dedicated to facilitating, promoting and influencing the investment and broader finance industry towards long-term, sustainable and purposeful allocation of capital.
Last week we outlined the ethical case for sustainable finance. Based on principles of responsibility and stewardship it is the ballast which ensures that regardless of the external environment finance leaders can ensure that a long-term, purpose-led approach to finance endures.
Your CFO may well support the ethical case, but will also want to see a business case, particularly where investment is required.
The business case for sustainability relates to commercial considerations for the finance organisation itself, for example, consumer demand for more sustainable finance options, competitor activity, regulatory pressure, attracting and retaining talent, and cost savings.
The business case for sustainability is also connected to improved reputation, brand value and customer loyalty. It’s about creating and sustaining long-term business value.
For many industries, initiatives under the banner of “sustainability” have had a business case centred on saving money — for example, projects that improve energy efficiency or reduce waste. Energy and water are measurable and costs along with any pay back periods for investment are easy to calculate.
Other investments such as sourcing sustainably or improving the lives and wages of workers in the supply chain, are less immediately tangible but can offer greater resilience and predictability, thus reducing business risks.
These aspects of the business case are relevant for finance companies but are often perceived as less relevant due to finance companies generally having fewer direct environmental impacts and shorter supply chains. For finance, as a highly regulated industry where people and businesses deliver services based on trust, the business case for sustainable finance revolves around factors including:
Client demand and engagement: There is an increasing expectation that corporations behave more sustainably. Customers of financial institutions are also demanding sustainable products. In as much as client demand can be seen through the prism of products and behaviours, it is also about relevance given issues like climate change are front of mind for an increasing number of people.
Competitor activity: Leading sustainability practices improve competitive advantage and acts as a differentiator. As more finance organisations have adopted sustainable finance practices, standards have emerged which can be the difference between winning and losing business.
Employee engagement: People want to work for companies they are proud of and employee satisfaction leads to more productivity, less turnover and allows companies to attract and retain the best talent.
Reputation and social licence to operate: Enhanced brand reputation strengthens customer loyalty and social acceptance. Growing social capital and trust in an organisation lowers transactions costs and increases resilience in times of trouble.
Regulatory change: Governments, prudential, corporate and market regulators are increasingly changing rules and enforcement regimes to encourage sustainable finance and ethical conduct. There is a strong case for not just getting in front of these changes but to lead them. It is how organisations create sustainability tailwinds.
All these elements of the business case have strong supporting evidence which is spread across the internet, often only loosely connected, if at all. Altiorem will collect these disparate sources and summarise them so users of the library can make the most compelling argument for change.
As a collection of evidence, it will allow the Altiorem community to make a strong case that genuine approaches to sustainable finance will benefit their organisations. The community will also be able to draw on the experience of others in building it. That is changing finance for good.
Come back next week when we discuss the Investment Case for sustainable finance.
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