3 Sustainable Finance Steps For Midsize Businesses...
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Getting access to capital to grow a midsize business isn’t always easy and doesn’t come cheap. The good news is that measuring your sustainability efforts can make borrowing more affordable. Banks and other financial institutions reward businesses with environmental, social and governance (ESG) strategies by giving them lower interest rates and other advantages, a practice called sustainable finance.
As the heart of business processes and information, having the right ERP software is essential to collecting, measuring, and sharing sustainability data and KPIs.
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For example, when a business seeks a bank loan, there may be a sustainability KPI associated with that loan, such as a diversity or greenhouse gas emission target. And when the business hits that sustainability target, it’s rewarded in the form of lower cost of borrowing. In other words, there is a direct link between cost-effective capital and being able to demonstrate sustainability practices.
Even better, sustainable finance is no longer reserved for large businesses. Banks are increasingly committed to net-zero lending practices and, as a result, they are factoring sustainability into credit risk assessments for all their lending.
As sustainability KPIs become increasingly important for investment dollars, the question is what to do. Banks and other financial institutions will need evidence that sustainability goals are tracked and achieved. The answer is to start collecting and measuring as painlessly as possible.
As the heart of business processes and information, having the right ERP softwareis essential to collecting, measuring, and sharing sustainability data and KPIs. However, the starting point for each business is different based on current practices, what it wants to achieve, and how quickly it wants to get there. This requires an ERP to be flexible enough to support any starting point with room to advance as a business grows.
Here are 3 steps to ensuring you have your sustainability “ducks in a row”:
1. Nail the Fundamentals
If a business isn’t already paperless, then automating processes is key. This can go far beyond basic financial functions and expand to include all the steps between the creation of a sales order to financial reporting, regardless of whether goods or services are sold.
As the business automates, it’s important to collect and consolidate ESG data (e.g., energy consumption, gas emissions, personnel information, development projects). The easiest way to do this is using pre-built forms and distribution tools that are ready-made in an ERP.
Metrics are captured based on ESG reporting frameworks, standards, and protocols, and there are many of them, such as Global Reporting Initiative (GRI), Task Force on Climate Related Financial Disclosures (TCFD), and EU Taxonomy. An ERP system captures what’s needed based on the industry or geography of the business. Equipped with this information, a business can communicate sustainability progress to investors.
2. Connect the Dots
Not everything happens inside ERP, but everything can be connected. That’s why it’s important for your ERP system to seamlessly connect with all its modules and line of business software. For example, if a business uses Supply Chain Management software, native integration and harmonized data make it seamless to collect data.
Eliminating the need for extensive customization and IT resources is ideal. And when third-party providers are involved, pre-built APIs make collection even more painless.
3. Get More Precise
As a business gets more advanced, a ‘Green Ledger’ takes sustainability to a granular level. When using Green Ledger functionality in your ERP system, the actual energy consumption for each product or service is calculated rather than using estimates or averages. Actuals are used in each transaction, making it possible for true carbon accounting at the product level.
This data is used to make detailed, fact-based decisions on where to best focus sustainability KPIs.
Stay current with standards
ESG standards continue to evolve globally, and banks and other financial institutions will follow suit. This requires midsize businesses that want to tap into sustainability investment dollars to evolve as well.
Even if a business doesn’t have extensive resources dedicated to sustainability, they can keep pace with the latest requirements using a cloud-native ERP. A cloud-native (SaaS) ERP, such asSAP S/4HANA Cloud, public edition, is continuously updated without the need for heavy lifting. Updates happen in the cloud, so collecting and measuring practices don’t fall behind.
