This comes with a considerable amount of pressure to put ESG at the forefront of decision-making. We have recently published content explaining what ESG is and why it is important for small and medium enterprises (SMEs) especially from a legal and/or regulatory aspect, however it is important to delve a little deeper into the financial aspect as well.

Sustainability and financing

Access to finance is vital for many SMEs. In 2020 gross lending to UK SMEs was £104bn across a diverse range of products provided by banks, specialist lenders and fintechs. Lenders are increasingly including ESG topics into their assessment processes.

Alex Beardsley, MD of ABL Business, a leading commercial finance consultancy to SMEs across the UK, has seen a big increase in the number of lenders expecting SMEs to be able to demonstrate their ESG credentials.

“When it comes to delivering on ESG initiatives, small and medium-size businesses often feel constrained by a lack of resources, particularly where finance is concerned.“

This is understandable, not least because the main priority for most small businesses over the last couple of years has simply been to survive the pandemic! Also, SMEs don't tend to face the same ESG pressures from shareholders or institutional investors as listed companies do.

“However, with global warming becoming an increasing concern, there’s much more of an onus on businesses to play their part in tackling climate issues by making changes to operate in a more planet-friendly way."

ESG is becoming more of a priority for lenders, with many placing increasing emphasis on a company’s ESG credentials when making a decision on finance. A recent survey by accountants Grant Thornton found 85% of UK based lenders said a company’s ESG status or ability to transition to net zero influenced the credit risk assessment.

What does this mean for businesses looking to borrow money?

‍For businesses that are already managing their ESG performance, communicating this in a way that is understood by lenders is key. Reference to international frameworks such as the UN Sustainable Development Goals helps ensure you are “speaking the same language”."

Businesses that have made good headway with ESG performance need to ensure they communicate this to lenders when applying for green or sustainable finance. Platforms like eevery are useful here, as they allow the business to benchmark and report on their ESG performance, providing useful information that can be communicated with the lender during the decision-making process.

“However, if a business is only just starting out on its ESG journey or looking to finance a green initiative like electric cars or solar panels, it’s important to work with a commercial finance consultancy who know the nuances of the different green lenders and their criteria and can help communicate the objective behind the green finance to ensure the most suitable and cost-effective loan is secured.”

For businesses that have not begun to manage their ESG performance the first steps are often to assess the impact that your company and its operations has on the Environment and Society and measure your current performance.

Green loans

Some lenders have gone further and introduced Green Loans where the use of proceeds are used directly for sustainable investment such as energy efficiency or investment in low carbon vehicles or transport.

"Green and sustainability linked loans are now recognised finance types globally and increasing numbers of lenders are offering them to help businesses start to make changes that address the ‘Environmental’ element of ESG.“

‍Green loans are designed to help businesses specifically fund the introduction of more eco-friendly products, services, machinery or ways of operating, and might cover things like green mortgages, electric vehicle finance, paying for the installation of hydrogen boilers, or financing renewable energy projects such as installing solar panels.

It can feel overwhelming if you’re a small business trying to become greener, but the funding is available and - with the help and advice of an independent commercial finance consultancy - SMEs can secure the correct green finance facility to help them take the first steps on the ESG ladder.

Eevery’s platform provides everything a company needs to manage its ESG performance enabling SMEs to Measure, Improve and Communicate its credentials to lenders. You can book a free demo and experience how it works first hand.Subscribe now and read the latest news around ESG and sustainability for small and medium size businesses.

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