Sustainability Through Innovation – Why Invest in Sustainable Projects?
Businesses face a sustainability choice; they continue to invest, evolve and adapt or they sit still and weather the current storm of cost pressures and challenging market conditions. Jamie Watts, Commercial Director at Amplifi Solutions, R&D tax credit specialists, outlines some of the potential benefits of making the choice to embrace sustainability.
Sustainability as part of an ESG (Environmental, Social & Governance) strategy is a headline topic for many businesses across the UK. Whilst there is no shortage of innovative businesses who have the capability to deliver sustainable products and services, it has moved further down the priority list for some thanks to the current economic climate.
However, given the available external funding options, market sentiment and investor expectations, there is much to be gained by continuing to move forward with sustainable innovation.
Funding Support
The Climate Change Act commits the UK government by law to reducing greenhouse gas emissions by at least 100% of 1990 levels (net zero) by 2050. This has forced the hand of the government to take action through the creation of sustainability specific grants and reliefs for businesses who are willing to invest in these types of projects.
Examples of this include the recent £70m Industrial Energy Transformation Fund, the £240m Net Zero Hydrogen Fund as well as Innovate UK’s Net Zero focus which has targeted an investment of £1.2bn between 2022-2025.
Building Value, Efficiency and Growth
Therefore, the financing is available to businesses who are ready to tackle this issue, but just what benefit to the bottom line is there in doing so?
Research by Deutsche Bank (Non-Financial Report, 2021) revealed that companies with high ESG ratings outperformed the market in the medium (5 years) and the long term (5-10 years) and that companies with the best ESG scores had a 33.3% higher return over one year, beating the broader market by more than 8%. Efficiency improvements, developed through sustainable practices, can in turn boost operational profits by as much as 60% according to McKinsey & Company.
A strong sustainability proposition will help businesses tap into new markets, while also expanding into existing ones. Creating innovative, sustainable solutions to solve global environmental and social problems pushes entrepreneurs and business leaders to rethink their operations, evolve, adapt, and develop new products and services.
Customer Demand
A 2022 Deloitte report (CXO Sustainability Report) indicates a major move by consumers towards sustainable products. Millennials are the largest generation of our population and a study by Nielson indicates that millennials are two times more likely, compared to baby boomers, to change their consumer habits with a view to reducing their environmental impact. Hence, creating a sustainable business meets the values and demands of a consumer majority.
Similarly, large corporate buyers will more often than not have an ESG procurement strategy, and these large contracts can be critical to continued growth for many businesses in the UK. The main barrier to change remains price, and businesses will need to find a way to deliver sustainable products that are affordable.
Investors Focus
The BVCA (British Private Equity and Venture Capital Association) released a report in March of 2023 on the creation of sustainable growth through private capital. It outlines the focus of the wider investment community to ensure that ESG plays a large part in any future investments undertaken.
There are now many examples of “impact funds” whose criteria cite the requirement for a sustainability play. A good example of this is the AIB Foresight SME Impact Fund; designed to support businesses across the Island of Ireland with their net zero plans and the transition towards a low carbon economy.
The picture is clear: sustainability creates business value for long-term profitability. Strategies which are implemented for longevity create buy-in from a wide range of stakeholders, no longer interested in short-termism.
We are fortunate to have many local businesses who are leaders in the production of innovative, sustainable products. Each project taken on is an investment into the future of business, the wider economy and ultimately the environment as a whole.
Sustainability as part of an ESG (Environmental, Social & Governance) strategy is a headline topic for many businesses across the UK. Whilst there is no shortage of innovative businesses who have the capability to deliver sustainable products and services, it has moved further down the priority list for some thanks to the current economic climate.
However, given the available external funding options, market sentiment and investor expectations, there is much to be gained by continuing to move forward with sustainable innovation.
Funding Support
The Climate Change Act commits the UK government by law to reducing greenhouse gas emissions by at least 100% of 1990 levels (net zero) by 2050. This has forced the hand of the government to take action through the creation of sustainability specific grants and reliefs for businesses who are willing to invest in these types of projects.
Examples of this include the recent £70m Industrial Energy Transformation Fund, the £240m Net Zero Hydrogen Fund as well as Innovate UK’s Net Zero focus which has targeted an investment of £1.2bn between 2022-2025.
Building Value, Efficiency and Growth
Therefore, the financing is available to businesses who are ready to tackle this issue, but just what benefit to the bottom line is there in doing so?
Research by Deutsche Bank (Non-Financial Report, 2021) revealed that companies with high ESG ratings outperformed the market in the medium (5 years) and the long term (5-10 years) and that companies with the best ESG scores had a 33.3% higher return over one year, beating the broader market by more than 8%. Efficiency improvements, developed through sustainable practices, can in turn boost operational profits by as much as 60% according to McKinsey & Company.
A strong sustainability proposition will help businesses tap into new markets, while also expanding into existing ones. Creating innovative, sustainable solutions to solve global environmental and social problems pushes entrepreneurs and business leaders to rethink their operations, evolve, adapt, and develop new products and services.
Customer Demand
A 2022 Deloitte report (CXO Sustainability Report) indicates a major move by consumers towards sustainable products. Millennials are the largest generation of our population and a study by Nielson indicates that millennials are two times more likely, compared to baby boomers, to change their consumer habits with a view to reducing their environmental impact. Hence, creating a sustainable business meets the values and demands of a consumer majority.
Similarly, large corporate buyers will more often than not have an ESG procurement strategy and these large contracts can be critical to continued growth for many businesses in the UK. The main barrier to change remains price and businesses will need to find a way to deliver sustainable products that are affordable.
Investors Focus
The BVCA (British Private Equity and Venture Capital Association) released a report in March of 2023 on the creation of sustainable growth through private capital. It outlines the focus of the wider investment community to ensure that ESG plays a large part in any future investments undertaken.
There are now many examples of “impact funds” whose criteria cites the requirement for a sustainability play. A good example of this is the AIB Foresight SME Impact Fund; designed to support businesses across the Island of Ireland with their net zero plans and the transition towards a low carbon economy.
The picture is clear: sustainability creates business value for long-term profitability. Strategies which are implemented for longevity create buy-in from a wide range of stakeholders no longer interested in short-termism.
We are fortunate to have many local businesses who are leaders in the production of innovative, sustainable products. Each project taken on is an investment into the future of business, the wider economy and ultimately the environment as a whole.
