Working with private businesses in Scotland on how they can respond to and benefit from sustainability, has really brought into focus the distinction between their world of making, buying and selling and the associated world of financial support.
What has struck me about all of these companies, working across many sectors, is their honesty, commitment, ingenuity and general all round positive approach to life. Despite the fact that they are all operating in a challenging economic environment and some have seen changes as a result, they retain a complete passion and commitment what they are doing and a desire to do it better. They are also characterised by a willingness to adopt new ideas and new approaches, particularly given the resource constraints under which they are working.
The small business sector in the UK has, through force of circumstance, had to consider alternative sources of funding such as traditional private equity investment, public markets or even crowd-sourced loans and investments. The traditional bank loan has become a rare thing because the application process involves endless spreadsheets, management accounts, assignation of all future life earnings and multiple internal examinations, after which the risk manager says ‘No’. Even if the risk matrix is successfully negotiated, the nature of the offer on the table, may make it deeply unattractive. Personal guarantees are sought for loans underwritten by the Government and even widely touted support packages for renewable energy and environmental projects may not be what they seem. In particular, funding for wind turbines may require a charge over the land on which the turbine is built – a very traditional funding model, driven by the pervading culture of balance sheet protection and risk aversion.
While the Greek tragedy unfolds, does this mean that the banks cannot start to unfurl their innovation wings again, to re-assess long term risk models, find new business and meet their own sustainability goals? Even given the macro-economic turmoil, the banks are placing sustainability towards the top of their corporate agendas. This encompasses support for worthy causes, efficient use of resources or control of carbon emissions from office buildings and transport. However, like the supermarkets or public services, the banks are also starting to look at the supply chain, in the form of that which they buy and the products and services that they sell to their varied customer base. The next step is to embrace financial innovation for sustainability, or sustainovation, through which they can enhance their levels of data capture and knowledge about company and sector performance. Further to this, they can develop and nurture demand for standard products and new transactional services that generate revenues while helping customers meet targets around carbon, climate change, water, waste and other environmental impacts.
While the current nervousness about innovation is understandable, surely sliced and diced risk products based on dodgy US mortgages is not the same as tackling the rise of carbon as a valuable and tradeable commodity. An agenda driven by climate change, or the ever rising cost of throwing valuable material into holes in the ground, or the growing costs of fuel and associated materials in the peak oil era, or the rising price of food as land pressures and demand increase, is more pertinent to long term prospects. Perhaps it is more to do with an ability to only deal with the narrow here and now, allied to the view that these are all problems for future generations.
Fortunately there are individuals that understand the potential risks and associated business opportunities – they are just not in the decision making seats at the moment. These individuals working within the banks can draw inspiration from the many honest, toiling private businesses out there in Scotland. They are holders of the innovation flame and need support to deal with rising energy, waste and resource costs – that is when financial engineering will once again benefit real engineering.
