Over the last few years, there’s been a massive increase in the number of funds and investors setting out to back only green or socially conscious businesses. According to a recent study, the private impact market grew to $1.2 trillion at the end of 2021 — up 63% since 2019.
However, accusations of greenwashing are multiplying, as claims to deliver positive social or environmental outcomes don’t always check out. Much of this is due to the difficulty of proving impact, which can come down to a lack of resources or expertise. But, transparent and reliable measurement, paired with financial incentives can provide a solution.
A crisis of accountability
A big issue is that while standards for ESG exist, businesses are still failing to hold themselves to account and deliver on their climate-friendly claims.
Increasingly, businesses have experienced something called “mission drift” — failing to stay true to their original vision of positive impact as they grow. By incorporating mission-based metrics into their operations, companies may be able to prevent this phenomenon and remain faithful to their vision.
The result of sustainable investment should be that more money is allocated to companies actually fighting climate change. But by failing to adequately monitor their progress, we’re hurting decarbonisation efforts in the UK and worldwide. It’s time to get more robust.
Aligning capital wealth with planetary health
We’ve got some views on how this can be done. Last summer, we secured £47 million of debt funding from Triple Point Energy Transition plc (TENT), a green investment firm. To show Field’s commitment to accelerating the transition to net zero, we included an "Interest Ratchet Clause for Carbon Saving" in our financing agreement.
This clause will allow us to pay less interest on our debt with TENT if we meet specific carbon savings targets through our battery storage sites. So there’s a direct financial incentive for us to make sure we’re advancing the climate mission.
We’ve also worked with a global legal initiative, The Chancery Lane Project, to make this clause open-source, meaning any company can replicate it. This will support the growth of genuinely green companies by allowing them to access lower costs of capital linked to the greenhouse gas emissions their operations save (or other climate targets agreed with their lender). All with less legwork than it would otherwise need.
Making good practice mutually beneficial
The important point here is that the clause allows a company’s environmental performance to be properly validated using independent, verifiable data, which is publicly available where possible. For Field, the carbon savings from our operations will be calculated using National Grid data on the grid’s carbon intensity before and after our batteries discharge renewable electricity.
The incentive for businesses is obvious - as well as being better practice, there’s a significant financial benefit.
For investors, it provides an opportunity to bring about change and support environmentally responsible companies. By using this clause, investors can tangibly prove they’re working with businesses committed to fighting climate change through decreased carbon emissions.
As the climate crisis becomes more urgent, there’s a growing appetite for companies and investors to do their bit, but the expertise and resources to realise it have perhaps been lacking. We expect to see more initiatives continue to emerge - and we hope that, by sharing what we’ve done already, we’ll make it easier, more accessible, and financially beneficial for anyone to take tangible net zero action.