The need of the hour is decarbonization since the objective is to protect the planet and the future of the human race. But the question is whether financing models matching with the growing demand. Numerous aspects have resulted in a good number of organizations struggling with funding large-scale decarbonization projects. The reasons are narrow investment criteria, limited internal capital, and stringent payback periods.
What Net Zero targets need?
Financial Advisory Services are of the opinion that net zero targets need to unlock speed as well as the scale of change. For this, CFOs are to revisit their capital allocation models, thereby bettering accounts to enable decarbonization’s true value. There will be desired long-term funding strategies to meet the set decarbonization goals. These strategies generally tend to fall outside the conventional investment criteria. Rather, organizations may focus on quick payback, low-cost projects.
Thinking big
Such projects might offer incremental progress. However, experts state that high impact sustainability projects will require sizeable expenses to be spent upfront. Leaders are required to put in more efforts to ensure meeting long-term decarbonisation objectives. Again CFOs should revisit capital allocation models, develop programmatic approaches towards project finance, restructure investment criteria. The goal here is to establish 3rd party partnership that will ensure reducing risks involved and faster capital deployment.
Sustainable Finance and its role to Zero
Sticker shock concerning climate mitigation investments might push behind such initiatives taken. This is even for those companies having corporate sustainability goals. The present corporate is found to pledge on accepting the challenges of achieving Net Zero. What are desired at the moment are innovative financial tools and flexible business models. This, in turn, can help organizations to achieve scientifically guided climate change targets. Fortunately, organisations have avail options to breakdown the different financial barriers while accelerating Net Zero roadmap.
Steps involved to bridge gap with Sustainable Finance to Net Zero
- All financial decision to be made with sustainability mindset: To deliver SBT (science-based target) and ensure Net Zero commitment through the organization, there is desired accountability and oversight. Frameworks should be in place to support proper and timely decision-making, thus ensuring long-term ambitions are met. Carbon reduction goals can be met only if organza tins breakdown their departmental silos.
- Faster Decarbonisation with EaaS (Energy-as-a-Service) and 3rd party financing models: To scale up decarbonisation efforts as required, often, internal capital is found to be insufficient. It results in underinvestment especially in high-impact strategies to favour smaller projects having fewer decarbonisation outcomes. Returns concerning financial management, operational risk mitigation and carbon reductions might need extra partnerships or financing.
- Sustainability investment to be considered a portfolio: A few projects might not be able to overcome internal hurdles even on following holistic investment criteria. Individual project evaluation with stringent payback threshold will mean higher payback period. However, greater decarbonisation potential is likely to be left unfunded.
Sustainable financial models reduce risk and promote accelerated progress
Organizations in large numbers have been trying to achieve Net Zero. But they require well-developed financial mechanisms to unlock decarbonisation in significant amounts while limiting risk exposure. Fortunately, the industry pioneers have managed to develop advanced technology that promises to convert carbon-heavy processes to green.
