As early as 30 years ago, businesses had to make a tough choice: make more profit or save the planet. Even back then, focusing on environmental initiatives was costly for business. The costs for going green were steep, and corporations saw little returns for their business in such a scenario. This has pushed them to question whether adopting environmentally friendly practices poses a win-win situation for business on one hand and saving the environment on the other.
Today, embarking on sustainability initiatives is not just a choice, but an imperative. Businesses must contribute to environmentally sound measures as part of their environmental, social, and governance (ESG) programs if the goal of saving our ailing planet is to succeed. The responsibility cannot just be borne by advocates and individuals alone; companies should also jump in the advocacy.
Cost of sustainability
Following the adoption of the United Nations 2030 Agenda on sustainable development goals (SDGs), several international agreements were inked to support the achievement of these objectives. However, the cost of achieving said objectives is not cheap.
The UN reported that an estimated USD 2.5 trillion per year needs to be raised by developing countries to fill in the growing SDG financial gap and achieve the 17 UN SDGs. This gap, according to an article by the Organisation for Economic Co-operation and Development (OECD), was projected to further widen by USD 1.7 trillion in 2020.
One of the offshoots of sustainability finds its roots in the financial sector. As defined by the European Commission, sustainable finance generally refers to the process of “taking due account of ESG considerations when making investment decisions in the financial sector, leading to increased longer-term investments into sustainable economic activities and projects”.
The ability of sustainable finance to help spur economic growth cannot be disregarded. The European Commission suggests that aligning financial flows to support more climate resilient programs is one of the ways SDGs can be met.
Of course, businesses’ respective efforts to achieving sustainability are not enough. Coordinated actions between the government and the public sector are vital, with the former needing to continuously adopt legislation and policies geared toward environment restoration and incentivizing corporate initiatives toward climate resiliency.
In the Philippines, the Department of Finance (DOF) announced in February that it is set to offer what it called “green bonds”, or debt securities described as ESG sovereign bonds. Funds raised from the USD 500 million bond offering shall go to the country’s climate change mitigation programs. The DOF also stated that it is already in talks with various banks to seek assistance in preparing for the bond offer.
In line with this program, the Bangko Sentral ng Pilipinas (BSP) highlighted, in a speech delivered by BSP Governor Benjamin Diokno, that the DOF has recently launched the country’s first Sustainable Finance Framework intended to facilitate and streamline effective strategies that can contribute to the “mainstreaming of sustainable finance”. Funds raised will be used to boost projects on sustainability and climate change initiatives of the country to meet the UN SDGs as well as the Philippine Development Plan and Public Investment Plan.
Banks and other financial institutions can use these “green instruments” to cater to their clients’ needs, while at the same time, contributing to sustainability. It was earlier cited by the BSP that financial institutions can help the country achieve its target of a 75 percent reduction in carbon emissions by 2030 by launching innovative sustainable finance instruments.
Keeping up with commitments to achieve sustainability objectives makes the future promising for the environment and climate change programs. It is also becoming apparent that going green presents growth opportunities for businesses.
Helping businesses recover
Not only big businesses stand to benefit from these sustainable financial initiatives. Financial institutions also have another good reason to contribute to sustainable finance –help small businesses thrive and recover from the disruptive effects of the pandemic. By extending these programs to micro, small and medium enterprises or MSMEs and businesses in industries greatly affected by the pandemic, financial institutions and lenders get to help the environment and assist these businesses too.
One of the major reasons that make businesses think twice about utilizing and selling eco-friendly products and materials is cost. In terms of products, eco-friendly items in the market are more expensive than conventional ones even when the demand is low. This is mainly due to more costly materials needed and more difficult process to make them. Nevertheless, as the demand goes up and the efficiencies in production are achieved, it may not take long before they become more affordable.
Ultimately, companies engaged in sustainable projects and activities can benefit from financial sustainability in more ways than one, including seeing a tick in profit. The BSP itself cited that companies could obtain funding at potentially reduced competitive costs” and take advantage of incentives that the government may provide once they embark on such green initiatives.
Making sound investment decisions means a careful balancing of corporate interests on one hand and the benefits of their undertakings to the environment on the other. The reason is simple – no one lives in a vacuum. If we tend to think our actions only affect our future, it’s time to rethink. While being environmentally friendly requires additional effort and, in some cases, can put a dent on profit, environmental degradation and threats to our global ecosystem always far outweigh extra business costs. Hence, going green and all in for a more sustainable future is the way to go.
As published in The Manila Times, dated 13 April 2022