Funding ESG ambitions while navigating cashflow challenges

12 March 2024 3 min. read
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While ESG is high on the priority list for most businesses, many struggle with funding their goals, with ESG implementation putting significant stress on financials and cashflows. Elie Fakhoury and Payal Pachory from Teneo outline some of the common financial implementation bottlenecks, and how a specialised Cash Management Office can smoothen the process.

The buzz around COP28 may have faded, but the need for businesses to take concrete action for climate change remains. Businesses have the power to be the agents of positive climate action – by investing into green technologies and fostering a culture of environmental responsibility within the business.

Yet in delivering their commitments, several challenges remain for businesses wanting to achieve net zero emissions.

Funding ESG ambitions while navigating cashflow challenges

Heavy initial investment to adopt climate change strategies

While transitioning to sustainable practices promises long-term benefits, the hefty initial investment remains a critical barrier for upgrading infrastructure, adopting new technologies, and implementing resource-efficient measures, which require significant upfront costs and may put a strain on budgets and cashflow for companies that want to start adopting new or updated practices.

Quantifying the long-term financial benefits of sustainability initiatives can be challenging, making it difficult for businesses to justify initial investment, especially when faced with immediate financial pressures.

Setting realistic sustainability targets

Realistic targets (such as carbon emissions or water and natural resources use) should align with national goals and programs. Without adequate experience and expertise, businesses may struggle to effectively use industry benchmarks, relevant technology or tools, or develop measurable and time bound targets.

Collaborating with environmental experts and leveraging data analytics can help businesses in setting achievable targets that meaningfully contribute to their own corporate objectives, and by extension, the country’s overarching goal.

Appropriate utilisation of funds

Even though green finance fundraising is on the rise, there are still significant challenges in channeling these funds to the companies and projects that need them the most. These challenges can include a lack of awareness and technical expertise, high transaction costs, reluctance in investing in green projects due to longer payback periods and uncertainties, and difficulties in assessing the risk and return of potential investments.

Short versus long-term outlook

While businesses need to manage both short- and long-term priorities in managing their operations, output and investment, prioritising short-term gains over longer-term sustainability goals can limit the potential to achieve broader sustainability goals, including carbon emissions, water and other natural resources use.

A clear direction from the company’s management or board can help to create a clear plan of action which delivers both on the business’ financial performance and its sustainability targets.

Cash Management Office

In order to prioritise sustainability in a financially viable manner, a specialised cash management office (CMO) is important. The office builds, monitors and maintains a rolling cash flow for businesses. This system is meticulously designed to monitor and manage cash flows effectively, establishing essential checks and balances that align with the company's funding objectives.

This rigorous approach is particularly vital during periods of strategic transition, where financial prudence is key. By ensuring a robust and transparent management of cash flows, businesses can maintain financial stability and prevent any potential financial leakages during these crucial transitions.