Sustainable finance are investment decisions taken under ethical criteria and include social and environmental factors. It is a new approach to finance that has brought about a change in the culture of the financial world, which is adapting to meet the demands of an increasingly aware public.
Companies are increasingly aware of the opportunities to promote sustainable finance within their strategies: new innovative financial products, in addition to achieving a satisfactory financial result, contribute to generate a tangible environmental and/or social result. According to the United Nations, ESG (environmental, social and governance) investment has grown considerably worldwide, reaching US$35 trillion.
It seems clear that sustainable finance is here to stay and companies in the factoring sector are aware of this. In recent years, the concept of “green factoring” or “sustainable factoring” has begun to be used, a product for which the different entities have begun to bet strongly. In fact, in 2023, the Spanish Factoring Association launched an ESG Commission, showing the great interest of the sector in addressing issues related to sustainable finance. We must remember that in Spain, Factoring and Confirming are the most widely used working capital products as financing tools for companies, and therefore, as indicated by Alma María Abad, president of the ESG Commission of the AEF, “they can be a fundamental lever in facilitating the transition of customers and suppliers towards a sustainable business model”.
Advantages of sustainable factoring
Sustainable factoring goes beyond simply offering financing. As we mentioned, it involves considering not only the financial return, but also the social and environmental impact of investments at all stages of the process. It represents an evolution in the world of commercial finance: it means that companies, in addition to ensuring their long-term viability, also make a significant contribution to building a greener and more sustainable future for all.
One of the lines of action of sustainable factoring is the alignment of financing criteria with sustainable practices. For example, companies seeking financing through sustainable factoring can be evaluated not only on the basis of their financial solvency, but also on the basis of their environmental performance. This would include aspects such as natural resource consumption, waste management, carbon emissions or commitment to ethical and responsible business practices.
On the other hand, sustainable factoring can generate financial incentives for companies that demonstrate a real commitment to sustainability: from favorable discount rates or flexible payment terms, to specific support programs for environmental projects within the company.
Undoubtedly, one of the greatest benefits of sustainable factoring is its ability to drive a culture change within companies: when we integrate environmental considerations into financial decisions, we foster a more conscious and long-term oriented business concept. This can not only lead to tangible improvements in operational efficiency, but also in corporate reputation, which, in turn, can attract investors and clients committed to sustainability.
Main challenges of sustainable finance
According to the United Nations Global Compact, these are the main challenges ahead that we must overcome if we really want to achieve the financing needed to meet the SDGs:
-Establish a common language for sustainable finance at the global or regional level through unified classification systems or taxonomies. At the European level, thousands of large European companies are already obliged to report on a first phase of the environmental taxonomy, while in parallel the European Commission continues its development process.
-Promote transparency and accountability for sustainability in financial markets.
-Integrate small and medium-sized enterprises in the field of sustainable finance to bridge the gap between large and small and medium-sized enterprises.
In any case, the data corroborate that there is still much work to be done: if before 2020 the financing allocated to the achievement of the 2030 Agenda was already insufficient, with a deficit of 2.5 trillion dollars, it is estimated that today this gap has increased by 70%. According to OECD, the gap between the financial flows earmarked for the SDGs and the financing needs to meet these goals is already $4.2 trillion per year in developing countries.
In this sense, education plays a fundamental role: it is vital that future professionals in the sector are properly trained in sustainability and that they know and understand the multiple benefits of sustainable finance. Universities, aware of this great challenge, have started to organize different specialized training courses. A recent example is the II International Seminar on Finance and Sustainability: Education and Sustainable Finance, organized by the Consolidated Research Group for the Study and Evaluation of Economic Policies (GIEEPE-URJC) and the Teaching Innovation Group in Economics and Finance (GIDEF) of the Rey Juan Carlos University, which Alvantia has had the honor of sponsoring.
In addition, Alvantia is firmly committed to building a fairer, more sustainable and balanced world. Since 2014, it has been part of the United Nations Global Compact, an initiative that leads corporate sustainability in the world and helps companies align their strategies and operations with the Ten Principles, promoting the Sustainable Development Goals (SDGs) in the business sector.
