Closing the “rhetoric gap” in 2021: Honoring green commitments in finance and business
By Christy Owen, Chief of Party, USAID Green Invest Asia
“How do we future-proof our operations?”
As I pen this 2021 year-opener greeting, I am reminded how this fundamental business planning question has taken on more urgency and relevance during a global pandemic that has left few supply chains untouched, and forced business and banks alike to accelerate sustainability programming.
Future-proofing supply chains requires preserving social and ecological capital.
In the last decade, sustainability products earned a premium; going into this new decade, sustainable production is increasingly necessary for business survival, while green banking is a growing imperative for financial institutions.
Since late 2017, USAID Green Invest Asia has worked with agriculture and forestry companies in Southeast Asia to attract capital that can scale their profitable, environmentally and socially sound business models. Commercial agriculture and forestry are responsible for more than half of all greenhouse gas emissions in Southeast Asia, higher than the global average. We are working with businesses that are bucking this trend, and devising ways around the climactic fallout from deforestation, monoculture cropping, and poor soil management.
But there’s a challenge.
In a recent study conducted by the global leadership advisory and search firm, Russell Reynolds Associates, 92 per cent of surveyed CEOs said integration of sustainability was critical to the success – and survival – of their businesses. But only 48 per cent of them had taken steps to integrate sustainability into their business, and 21 per cent said their business was doing enough in this area, creating what the firm calls a “rhetoric gap” between intent and action. Here at USAID Green Invest Asia, we know the gap well. The bulk of our advisory services take place in this space. When prospective clients approach us, most have committed to a range of goals ranging from the broad – i.e. producing net-zero/deforestation-free/carbon and forest-positive sustainable goods, to more specific targets like reducing greenhouse gas emissions by a certain percentage with a mitigation strategy like biofuels, afforestation or increasing intercropping, which is planting more than one crop alongside each other to rejuvenate soil health and increase carbon capture. And it is figuring out the “how” that drives companies to partner with us.
We cannot manage what we don’t measure.
Inquiries for our impact measurement – specifically carbon accounting – services grow with each year of operation. And far from slowing down, this workstream actually accelerated in 2020. We are working with companies to analyze and collect agricultural data to measure the impact of their sustainability programs and design low-carbon pathways. In other areas of work, we look forward to completing work using satellite imagery to help determine ways to optimize yield and profit while minimizing environmental impact. Data and technology will continue to dominate for us in 2021, and beyond.
But even if with USAID Green Invest Asia support businesses know their accurate carbon footprints and targets, without capital infusion, even standout business models cannot scale. And that is where engagement with financial institutions is critical to scale winning agriculture and forestry business models. The bulk of financing for business worldwide comes from commercial banking. Green (or ethical/sustainable) banking is a category of banking practices that considers social and ecological factors with an aim to preserve natural resources but it has been largely a sidebar in the banking sector. In 2020, pressure on financial institutions to prioritize environmentally friendly initiatives increased as we saw record numbers of natural hazards and global growth in demand for “green” finance products and services. To protect brand reputation and increase customer trust, financial institutions will need to look to meaningfully implement green initiatives in 2021.
This is an imperative shift in culture for finance.
In support of elevating sustainable finance as a priority in 2021, we continue helping investors strengthen investment processes to evaluate environmental, social and governance risks and rewards. We are helping to design what would become the region’s first rubber replanting fund that provides smallholder producers access to capital and technical services; a 2020 study we co-published showed what it takes to capture more carbon and preserve more biodiversity in the natural rubber market. Unsustainable and illegal production of rubber is one of the world’s leading causes of tropical deforestation.
With support from USAID Cambodia, we are helping banks throughout Cambodia implement national sustainable finance guidelines, from evaluating climate risks to boosting gender inclusivity. The toolkits and banking models we are developing in Cambodia can be adapted to other emerging markets.
Beyond the “I do’s” lay the “how to’s” of business and financial green commitments. Whether it is agroforestry or financial product planning, we are excited to continue supporting business and banks alike to honor their sustainability commitments in this new year.