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Can ESG and Sustainability still Generate Competitive Advantage?

By: Zula Luvsandorj


There is an undeniable global shift toward all-sector social responsibility when it comes to ESG and green initiatives that is showing no signs of slowing down. But, now that this concept of sustainability and eco-consciousness is developing quickly away from the niche area it was even a decade ago, how can businesses remain competitive?

In five years’ time, the consumer’s behaviour will be the driving force for a business to change towards sustainability. Because of this, stakeholders’ first priority needs to be creating a positive culture of understanding around premiums and sustainability costs in product offerings. Consumers of every type – whether those who deliberately use their purchasing power to support sustainable companies or those who are not consciously choosing the greener choice – will want to know why they’re paying the green premium’. It will be on businesses to create a wider understanding about the need for them, and those that do this successfully will be ahead of the game.

In a market where the choice for consumers with ethical business appetites can increasingly be met by bigger players that can afford to enact widespread changes to their operations or who receive government incentive to do so, it can be intimidating to try to adopt the same standards. However, ESG and sustainability-first initiatives in business are not just the predominant position in the public sector, which has steadily grown more socially conscious over the past decades. Investor and institutional behaviours are changing rapidly, too, which businesses from any industry and of any size can benefit from.

Green isn’t just ‘in’ right now, so it befits businesses of all kinds to build adoption of these initiatives into their business plans. For example, major investors, such as pension funds and commercial banks are formalising their ESG standard lens filters for potential partners.

Small businesses and entrepreneurs need to start their businesses with green initiatives in mind from the very beginning if they’re hoping to make lucrative connections and build their profile. SMEs and startups may also receive better funding opportunities to develop their sustainability-related businesses from governmental bodies and organizations.

Further than a matter of public opinion and subsequent purchasing or investing behaviors, institutional standards are changing. Businesses hoping to remain competitive should adopt ESG initiatives as a way to enjoy the benefit of green premiums from governing institutions.

Governmental pledges and interest from investors are attracting huge amounts of capital to support sustainable businesses. With huge pressure from global participants over pledges to reach NetZero by 2050, governments of all sizes are looking to do business and award contracts to companies that already have systems in place to operate in the most sustainable and NetZero-aligned way possible. This pressure on the world’s economies to push for net zero commitments will surely only increase with the upcoming United Nations Climate Change Conference (COP26) in October 2021.

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This concept has been catalyzed by the Covid-19 pandemic. Global governments that are cobbling together recovery plans are making a point to add objectives that will widen investment in infrastructure and technology, particularly prioritising technology and contracts in the NetZero contest, including ESG and sustainability. Businesses looking to lend a hand in these recovery plans, and receive the subsequent tax and incentive support, will need to offer ESG and green tools.

The United Kingdom, for example, has the potential to implement green initiatives in its infrastructure planning by awarding contracts to private companies (around half of the country’s £600bn infrastructure pipeline is financed by the private sector) which operate using sustainable, renewable energy means. This widespread increase in NetZero commitments will undoubtedly see pension funds as major beneficiaries as well, encouraging incentives on green investments such as electric cars and hydrogen space.

Since pension fund investments are inherently risk averse, there is great potential in collaboration with government-driven incentives and guarantees to mobilise investments in this space. Pension funds, as with all businesses looking to get ahead in this space, would need to protect their value by investing in the green space and complying with all predominant ESG standards and policies.

Overall, the faster the world’s governmental, public, and private institutions move towards NetZero commitments, the better it will be for the planet as well as its economies and businesses. Yes, being sustainable can still provide a competitive advantage, but it is also no longer a choice – businesses that fail to account for this mandate will be left behind, it’s just a matter of time. Taking this position as soon as possible can not only keep businesses from being left behind, it can create huge opportunities for their future.

About the Author

Zula Luvsandorj is a project finance expert specialising in green energy. With an impressive background in infrastructure project financing, having worked for SMBC in London with a valuable expertise in structuring larger Infrastructure, Energy and Renewable projects in the emerging countries of Europe, Middle East and Africa. She has executed financing of larger Russian Oil & Gas projects such as Sakhalin Oil, Siberian Coal Company among others Turkmenistan Gas to Liquid projects, each worth $USD1-3bln. In December 2020, Zula has joined as Project Finance Advisor to the UK Government’s Infrastructure and Projects Authority (IPA) reporting to HM Treasury and Cabinet Office.

In total, Zula has more than 15 years of experience capital raising and project financing in emerging markets of Asia, Europe, Middle East and Africa.


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