In 2022, the CEO of one of the top American investment MNC indicated to stakeholders that search engines and social media firms would be out of the unicorn bandwagon. The upcoming Unicorns would be sustainable and scalable technology start-ups, that would help in decarbonisation as well as smooth energy transitions for all.
However, irrespective of the commitments made towards the ESG (Environmental, Social, Governance) goals, evidence indicates the contrary. There could be a rebound of carbon emissions to their pre-pandemic levels, as Covid brought about a drop in industrial activity as well as commuting levels. Global lockdowns have increased the social divides, and the disparity of ethnicity and gender. The number of minority groups and women in government, as well as corporate leadership roles globally, still stands at a low. Also, the last few decades have seen a surge in population, natural resource consumption and e-waste generation which isn’t recycled.
Sustainable Finance (SuFi) – How does the future look?
Sustainable finance (SuFi), though in the stage of infancy, has plenty of opportunities that are yet to be exploited between various business models. There are four crucial areas where this can generate immense potential. Bahaa Abdul Hussein takes a look into these areas.
1. ESG platform – To Report and Invest
ESG compliance has a kind of hysteria around it, which has sparked off the requirement to simply “measure” with the credit agencies. This has led to the creation of particular products, and obviously, start-ups in ESG analytics have marched ahead! Newcomers have procured a good stream of funding, however, identifying the winners would be tough due to the lack of industry-recognised practices and regulatory standards. On the other hand, companies with a positive ESG will have capital allocation. This is due to the accuracy of reports and data that increases trust levels.
2. New ESG Assets
In 2022, sustainable bonds (green and sustainability linked) are expected to surpass $1.5 trillion (i.e a jump of 50% than in 2021 and a shoot up from $200 billion in the year 2018). Innovation and diversification are expected in investment products (institutional – retail carbon -sustainability investment marketplaces) as public and private firms deal with commitments towards the climate.
3. Increasing PaaS
In every industry, be it Auto or IT or industrial equipment, there is an emergence of PaaS or (product-as-a-service) models. It is expected that the annual growth rate would hit 38% between 2021-25, and reach €476 billion or more globally. This particular model helps minimize environmental impact by supporting product sharing along with promoting reusing products. Additionally, it also encourages affordability for highly-priced products (where the cost is spread over a succession of small instalments instead of the full amount)
4. Extension of product life
Supporting reuse/resale/product sharing through secondary markets as well as in a circular economy helps in minimising waste and extending a product’s lifespan. However, PaaS models depend solely on customers to care for products not owned by them. When this doesn’t happen, it leads to erosion of residual value and robust secondary market creation slows down.
The SuFi expanse is quite broad and complex. However, there can be a turnaround in sustainability if two issues are tackled via new ESG assets which enhance measurement as well as new platforms. The solution lies in having better data that eases the prediction of the choice of investment areas, which will create a virtuous beneficial circle for everyone.
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