Leading finance lawyer Louise Duffy considers the relevance of green lending initiatives as we come out of the coronavirus crisis.
With the COVID-19 pandemic still raging across the globe, the emphasis is of course on business and economic survival. However, sustainability remains a strategic priority for lenders, investors and insurers. So what are funders looking for now?
Before the pandemic there was a significant trend for investors and lenders to place a strong environmental, social and governance influence at the heart of decisions.
Naturally, the spotlight shifted to emergency measures taken to support businesses through unprecedented times, but the green agenda is still very much top of mind.
Green shoots of recovery?
Boris Johnson has proclaimed that the UK should seek a green economic recovery while Mark Carney, former Bank of England Governor and UN Special Envoy for Climate Action and Finance, expects that companies with a sustainability strategy will be rewarded.
Industry bodies are developing green loans – funding for a green purpose – and sustainability linked loans – where borrower costs reduce if certain sustainability performance objectives are met. Both are at any early stage and limited for now to larger loans but that market is evolving.
Government support for low carbon technology, most recently demonstrated in grants made for research and development in the automotive sector, are already producing real success stories.
Larger businesses may be more accustomed to ensuring that business planning includes environmental, social and governance aspects. This is becoming a requirement for smaller businesses as it will also affect their credit assessment.
Is sustainability the key to funding?
Lenders will assess businesses against a number of criteria, including susceptibility to fraud and cyber-attack, sectoral issues, Brexit, supply chain, but also their approach to carbon emissions, employee health and wellbeing and other environmental, social and governance matters.
How an organisation is perceived as a lending proposition is key as businesses emerge from the post COVID-19 world.
Business survival and doing what is absolutely necessary to get through the next few months is crucial. But looking further ahead, it is important to realise the appetite for better technological and more sustainable development when putting business cases forward for investment.
For organisations with more traditional backgrounds, no one is suggesting that those businesses will have green credentials overnight, but demonstrating that they are on a journey of sustainable improvement will aid any funding application.
‘An opportunity for a green future’
Our own relationship director, Hannah Douglass at Lloyds Bank Commercial Banking, echoed this in a recent catch-up. Hannah said: “We’re committed to supporting a transition to a low-carbon economy and are working alongside businesses to help them make investments that benefit the planet as well as their bottom line.
“Our Clean Growth Financing Initiative, for example, offers discounted lending to help firms take steps such as purchasing low carbon vehicles or reducing carbon emissions from their properties.”
“Helping businesses become more sustainable will ultimately help Britain prosper and, as the UK recovers from COVID-19, there’s a real opportunity for a green future to be at the heart of that bounce back.”