Increasing numbers of companies are pledging to make their sustainability efforts transparent and forward-facing, but sustaining and advancing this level of commitment is just as crucial.
Private-sector ambition to tackle climate change continues to swell. Evidence of this comes in the ever-growing number of organisations supporting the Task Force on Climate-Related Financial Disclosures, which is a framework for tracking emissions and promoting transparency. More than 2,600 companies had committed to the framework by the end of 2021, up from 500 in 2018.
However, there is scepticism about the actions those firms will take to address climate challenges, with many committed to the framework failing to report on their progress. An ING research surveying 450 global corporations reveals that 35 per cent of businesses see their sustainability targets being too far in the future to ensure any meaningful accountability today.
The common good needs motivated businesses
Marieke Blom, chief economist and global head of research at ING, sees the need for coordination to support businesses in reaching their sustainability goals.
As the economy involves complex relationships between businesses, banks, governments and regulators, greater coordination between them all can make sustainability goals feel more achievable – whether that’s through frameworks that make reporting on climate progress more robust, or financial solutions that offer targeted means for green transformation.
“You need a lot of coordination to counter those market forces, which, in themselves, are not sustainable,” says Blom. “You have to think about not just your own needs, but also the common good.”
And that kind of thinking has to last. As the energy crisis worsens and short-term demand for fossil fuel continues unabated, there is no guarantee that organisations will stay focused on green matters. What is needed is motivation driven by values.
“In order to change society and the world, you need people who are intrinsically motivated,” says Roland Mees, director of sustainable finance at ING. “They have to stay true to their mission, whatever happens.”
How sustainable finance is doing its bit for the green economy
With the right motivation in place, companies can start to take steps to finance climate-linked projects, and this is where sustainable finance comes in.
Two instruments in particular offer significant benefits: green loans and green bonds. Green loans are typically provided at lower interest rates, with borrowers obliged to communicate their environmental objectives to lenders. Green bonds, meanwhile, offer companies a debt financing option that strongly encourages them to report on the use of proceeds.
These products are becoming increasingly popular. An Institute of International Finance report found that sustainable debt sales reached $1.4 trillion in 2021, with green bonds making up 35 per cent of new issuance. The expectation is that this figure is set to rise to $3.8 trillion in by 2025. For its part, ING closed 317 sustainable finance transactions in 2021, of which 95 were green, social, sustainability(-linked) and transition bonds.
If companies are serious about tackling climate change, an uptake of green finance will be just as crucial as being properly motivated and coordinating with everyone involved.
This article has been updated and adapted from ING-FT custom content
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