Financing models for Sustainable Consumption and Production businesses

Transcription

1 Financing models for Sustainable Consumption and Production businesses Global Network Conference on Resource Efficient and Cleaner Production Thursday, 15 October 2015, 16:00-18:00, Davos, Switzerland Presentation by Angel Versetti, World Resources Forum (with thanks to Mukesh Gulati, Foundation of MSME Clusters, India, for contributions and comments)

2 Plan Existing and emerging financing mechanisms for SCP businesses RECP in investment decisions of financial institutions Challenges, barriers and limitations Economic benefits of investment in SCP: Case-Studies IBIS: Igniting Business Investments in Sustainable Lifestyles solution for SCP 2

3 Traditional Sources of Financing for SCP Businesses Retained earnings; sale of assets Personal savings, informal loans from immediate circles (family, friends, communities) Institutional financing from commercial banks Venture Capital Funds / Seed Funds Source: Foundation of MSME Clusters 3

4 Emerging Financing Mechanisms Impact / Mission-Driven Investments Foundations / Family Offices, Activist investors (UHNWIs) CSR departments of corporations larger companies, usually B2C, less so B2B (brand, reputation) Community development VC Funds many established by large firms and set a social mission Specialist lenders for sustainable business development Social/Ethical Banks; Credit Unions (local focus) Unlike charity these investments and loans expect a return, social/environmental and monetary Smaller profitability or debt restructuring tolerated, if measurable positive impact on community achieved 4

5 Missing Group? Institutional Investors Pension Funds Mutual Funds Sovereign Wealth Funds Private Equity Funds Hedge Funds Funds of Funds Endowment Funds Insurance Companies 5

6 Estimated total global institutional assets under management as of 2013: $70 trillion Source: World Economic Forum,

7 Institutional Investors: Considerations of Environment, Social and Governance factors when making investment decisions 100% 90% 80% 78% 70% 60% 50% 40% 30% 20% 10% 0% 21,10% 0,90% Institutional Investors' consideration of ESG factors when making investment decision ESG factors ignored entirely ESG factors considered only if no adverse effects on ROI identified ESG factors are primary factor for investment decision Source: Global Sustainable Investment Review,

8 Challenges and Barriers Opposition of senior management to uncertainty & risks Additional reviews needed; short-term profits preferred; RECP is still new Lack of metrics/indicators to measure resource-efficiency in general, and in business/financial sense in particular Impact on revenues and profits? Value earned for compant/portfolio? Fiduciary Duty for Financial Institutions Duty of loyalty / Duty to act prudently (assure highest returns for clients) 8

9 Challenges and Barriers Lack of appropriate infrastructure to mainstream investments into resource-efficiency Fragmentation of institutional infrastructure; lack of political underpinnings Higher costs of due diligence with lower returns on investment More time and effort to assess (business/society); techno-commercial and financial sectors do not communicate (NCPC); hence lower ROI and higher risk Running a resource-efficient or socially-just business is still often less profitable than doing business as usual : Costs of SCP higher; more knowledge/technology needed; 3-5% ROI (?) 9

10 Emerging Solutions for Financing in RECP context Cluster Financing Aggregation of knowledge and experience in similar areas / industries by financiers; development of common requirements and knowledge 1 industry, 10s/100s of smaller businesses Assessment costs go down; less uncertainty, lower fees and interest rates for consumers Value-Chain Financing Identifying large companies (buyers) with a large number of small suppliers : 1 large buyer; 10s/100s of smaller suppliers Banks have higher confidence in smaller SMEs who supply large buyers; lower risks, lower prices/interest rates Source: 10 Foundation of MSME Clusters

11 Economic benefits from investing in SCP positive impact on society achieved Source: McKinsey Global Survey,

12 Focal Points for SCP Investments Tendency of corporate and financial sector to invest into sector they operate / have expertise in capacity building, technology and best practices transfer: Evaluation systems for firms value chains to identify hotspots where investment in SCP will create largest impact (see chart next slide) Socio-environmental footprint comparison by brand / product Investing upstream (extracting raw materials) or downstream (packaging waste recycling) 12

13 Case Study: Henkel Sustainability Master Tool to identify investment hotspots in SCP 13

14 Focal Points for SCP Investments Tendency of corporate and financial sector to invest into sector they operate / have expertise in capacity building, technology and best practices transfer: Evaluation systems for firms value chains to identify hotspots where investment in SCP will create largest impact (see chart next slide) Socio-environmental footprint comparison by brand / product Investing upstream (extracting raw materials) or downstream (packaging waste recycling) 14

15 Survey of Companies who invested in SCP Source: Pure Strategies Inc

16 Benefits of Investment in SCP: Case-studies from Private Industry Hewlett-Packard (HP) Company connected customer interest in SCP to over $24 billion in revenues in 2014 alone General Electric reaped $25 billion in revenues in 2012 from investment of just 2$ billion into eco-and energy-efficiency programs (grew at twice the average speed) The Clorox Company reported average cost savings from improved resource-efficiency of $15 million per year, after integrating SCP in their supply chains 16

17 Institutional Investors: Considerations of Environment, Social and Governance factors when making investment decisions 100% 90% 80% 78% 70% 60% 50% 40% 30% 20% 10% 0% 21,10% 0,90% Institutional Investors' consideration of ESG factors when making investment decision ESG factors ignored entirely ESG factors considered only if no adverse effects on ROI identified ESG factors are primary factor for investment decision Source: Global Sustainable Investment Review,

18 Lack of finance major constraint to scaling up for SMEs 1) Preference of banks/intermediaries to work with large lenders (interest rates; fees) 2) Financial illiteracy of resource-efficient businesses (fear of taxation) 3) NCPCs have stronger technical/industrial skills/assessment, than financing know-how 4) Banks lack technical industrial insight and knowledge of ecosystems: averse to risk 5) Lack of awareness of financial schemes and governmental grants available Source: Foundation of MSME Clusters 18

19 Financing alone will not help 19

20 Large potential and foregone opportunities for SCP How can we help these businesses grow? 20

21 IBIS: Igniting Business Investments in Sustainable Lifestyles WRF-led 10-Year-Framework-Programme Flagship Project Proposal Candidate 21

22 IBIS: Online/Offline Financing/Learning for businesses I. Local centers and databases for financing of Sustainable Businesses Criteria for investments Communication channels and accessibility On the ground training on Drafting a Business Plan, Pitch, Investment Proposal, Loan application II. Direct Investment Platforms and Networks Regional Approach, Global Model Showcasing of Resource-Efficient SMEs Crowdinvesting and Crowdsourcing III. Knowledge Bank for SCP Consultancy for Scaling Up Mainstreaming Investments into SCP Adoption of SCP practices by larger corporations and replication in other industries SCP Businesses NCPC Networks Investors/Banks

23 IBIS Consortium International Organisations: Investors and Financial Experts: Research and Dissemination: Entrepreneurship Hubs and Chambers of Commerce: NGOs, governments and other local partners:

24 Thank you! To comment on this presentation or to request further information about participation in pilot phases of IBIS, contact Your feedback, critique and thoughts are welcome!