Finance glossary

What are sustainable finance best practices?

Bristol James
6 Min

Sustainable finance is an investment method that prioritizes companies that have environmental and ethical business standards. Sustainable finance evaluates the environmental, social, and governance factors of a company, also known as ESG.

The concept of sustainable finance requires business owners to adapt to changing customer demands to remain relevant. For example, if an investor is concerned with carbon emissions, they may choose to invest their money in a company with a low score.

Sustainable finance isn’t only about the environmental impact of your company. In fact, one of the main factors of sustainable finance is compliance with regulatory agencies, also known as governance.

When sustainability is prioritized, your business can plan for legislative changes without incurring serious financial repercussions. For example, how would your business adapt if one of your main raw materials was suddenly banned? Would your business be able to continue?

Sustainable finance looks to minimize risks associated with ESG concerns, while preserving brand image, appealing to customer demand, and protecting the environment.

The Benefits of Sustainable Finance

Sustainable finance benefits all involved parties. The environment benefits from less impactful operations, consumers see advantages when they align their investment decisions with their beliefs, and businesses benefit from risk reduction. Let’s explore some additional benefits of sustainable finance practices in more detail.

Leads to New Business Opportunities

Sustainable practices lead to new business opportunities. For one, sustainable investing requires your team to carefully consider how resources are deployed. Reducing consumption often translates to lower costs, making the relationship between sustainability goals and profit co-dependent.

Creating a sustainable future can also attract new investors, lenders, and partners. Access to new capital and resources gives your business the money needed to expand into new markets. Not to mention that steady customer demand and a positive brand image can also open the door to new business opportunities.

Creates a Stronger Brand Image

Sustainability goals can attract new customers to your business, creating a stronger brand image. According to a 2024 McKinsey & Co. survey, 66%* of respondents reported that they consider sustainability before purchasing a product. A similar study by Nielson found that 66%* of consumers would pay more for a product that has a positive environmental impact.

Reducing your packaging, making a commitment to recycle, or using less harmful materials are a few ways that your business can bolster its brand image and appeal to new customer demands. When you utilize sustainable finance practices, you are building trust and loyalty with your customer base, which translates to improved sales and a higher percentage of repeat customers.

Improves Shareholder Confidence

The finance sustainability goals you implement can have a direct impact on shareholder confidence. Without a focus on sustainability in each financial decision, shareholders may perceive greater risks. For example, what happens if the government places a restriction on the amount of a product you can purchase? Shareholders want to see a proactive approach to potential risks to avoid major business disruptions.

Furthermore, the current financial performance of your company is just as important as the long-term risk reduction approaches your team takes. With sustainability at the forefront of considerations, you are proving to shareholders that your business understands different ESG risks and has taken the necessary steps to minimize risks.

Fosters an Inclusive Culture

Sustainability doesn’t only focus on finance returns. In fact, sustainable finance best practices often foster an inclusive culture. Employees who feel like they are making a difference in their environmental impact may be more motivated to positively contribute to your company. Not to mention that ESG initiatives can lead to great team-building activities and opportunities.

Additionally, sustainability goals often include reducing the risk of high employee turnover. When management is paying close attention to employee needs, you are able to foster an inclusive culture, while simultaneously reducing turnover.

Prioritizes Compliance

Noncompliance with regulatory agencies can come with severe financial penalties and operational issues. One of the benefits of sustainable practices is that it maximizes compliance with all agencies, such as taxation authorities and local governments.

Many countries have also taken a practice approach to work toward a sustainable economy, requiring companies to issue ESG practice disclosures and report on other green finance initiatives. ESG parameters take current compliance a step further, forecasting future changes to help your business properly prepare.

Benefits the Environment

Sustainable finance has a direct benefit on the environment. By addressing environmental challenges, like climate change and pollution, you can promote renewable energy, support sustainable water use, and reduce gas emissions. The shift away from predatory operational practices is crucial to increase the longevity of natural resources.

Sustainable Finance Best Practices

There’s no one-size-fits-all when it comes to sustainable finance best practices. This makes it important to evaluate the needs of your organization and create a custom game plan. Here are some sustainable best practices to consider implementing in your business.

Create In-House Environmental Programs

The first sustainable finance best practice is to develop in-house environmental programs. How can you challenge employees to work toward your sustainability goals? Can you offer incentives to support progress toward your goals? How about making environmental programs fun and inclusive?

For example, if your business is trying to reduce waste, can you incentivize this goal by offering a reward for the employee or team with the lowest waste? Education is also an important factor. How can you educate your employees on the benefits and importance of sustainable finance? Can you hold regular training sessions? Fostering sustainable finance relies on getting everyone involved, from the CEO to the part-time bookkeeper.

Engage in Ethical and Sustainable Purchasing

The way you deploy your resources should be aligned with sustainable finance practices. For example, each company you purchase from should be vetted based on their ESG standards. If you find that a company you purchase supplies from dismisses the concept of ESG, look for another supplier that aligns with your values.

Directing your purchasing toward companies with sustainable practices supports your own sustainability goals and can improve your brand image. A good starting point is to inquire about past sustainability claims of the company. Are there any outstanding accusations or lawsuits? Remember, this information will be readily available for large corporations, but might not be applicable to a small, local supplier.

Having the right vendor management practices can also help you reach your ESG investment goals. Platforms like Eftsure allow you to seamlessly manage all vendor payments and relationships securely, improving trust in your organization and reducing the need to expend additional time and resources checking payment details.

Integrate ESG

It can be very difficult to create a sustainable business without fully integrating the concepts of ESG into your company. The adoption of ESG principles can alter your financial performance and risk profile. For example, companies with strong ties to environmental principles may be better suited to handle regulatory changes.

When it comes to integrating ESG, your company needs to give each section equal consideration. Governance retains equal weight as environmental and social factors. Start with defining your ESG strategy. Then, be sure all of your team members are on the same page, including shareholders, employees, and members of management. Finally, integrate ESG into your decision-making process and continually monitor performance.

Use Green Financing

Green financing involves making investments with positive environmental impacts. Let’s say that you are considering expanding your warehouse. A green investment might look like using energy efficient windows or lighting to reduce energy consumption.

Additionally, green financing also refers to investment strategies that use specific financial services. For example, using green bonds to raise capital for environmentally friendly projects. Green bonds are commonly issued by the government, large corporations, and financial institutions.

Consider Impact Investing

Impact investing is the process of choosing specific investments that will generate a positive environmental impact in addition to finance returns. Impact investing is commonly conducted by shareholders, individuals, and other asset managers. However, if your company is interested in acquiring another business, impact investing might be applicable.

Plan Frequently

Planning is at the core of sustainable finance. Projecting the financial stability of your organization even if ESG conditions change is crucial to future-proof your operations. Finance professionals will play a major role in the planning of your business.

Planning can take on many different forms, from identifying financial risks to predicting upcoming environmental changes. Your organization’s plans should be aligned with your goals, updated on a regular basis, and track both financial and non-financial factors.

Summary

  • Sustainable finance is an ethical investment approach that focuses on protecting the environment.
  • ESG stands for environmental, social, and governance and is a common component included in sustainable finance.
  • Sustainable finance leads to a variety of benefits, including new business opportunities, a stronger brand image, improved shareholder confidence, inclusivity, and compliance.
  • Sustainable finance best practices include developing in-house environmental programs, using sustainable purchasing processes, integrating ESG, utilizing green financing, and planning frequently.

Related articles

Finance glossary

How to read a check

Reading a check may appear straightforward at first glance, but the various elements that comprise a check play a crucial role in …

Read more
Finance glossary

What is a hedging strategy?

A hedging strategy is a risk management strategy to avoid large financial statement losses due to investment fluctuations. Hedges work like an …

Read more
Finance glossary

What is an external audit?

An external audit is an assessment of the accuracy of your financial statements by an independent third party. Independent examination gives lenders, …

Read more

The new security standard for business payments

Eftsure provides continuous control monitoring to protect your eft payments. Our multi-factor verification approach protects your organisation from financial loss due to cybercrime, fraud and error.