Beyond Compliance 2024

Beyond Compliance: Embedding Impact through Innovative Finance101.3 Corporate and supply chain financing solutions Today, regulatory frameworks on climate mitigation have established more of a level playing field for environmental sustainability performance. Before the adoption of regulations and standards, such as the Corporate Sustainability Reporting Directive (CSRD) or the International Financial Reporting Standards (IFRS) S1 and S2 standards, early adopters of sustainability strategies were able to capture some of the economic benefits, including higher stock performance and lower financing costs.17 Lowering the cost of capital is essential for corporations as it optimizes growth, strengthens competitive position and mitigates risks. Companies that exhibit strong sustainability and social performance and align with established standards often enjoy reduced borrowing costs. A 2024 report by MSCI ESG Research found that there is a strong historical correlation between a company’s MSCI ESG rating and its cost of capital, where companies with higher ESG ratings tend to have lower financing costs in both equity and debt markets.18 There are other challenges and opportunities relating to financial performance. Global supply chain finance volumes have risen by 26.9% compound annual growth rate (CAGR) in 2017- 2023 to $2,347 billion, and funds in use are up by 27.8% CAGR to $916 billion in 2017-2023;19 yet corporate buyers face challenges working with SME suppliers in supply chains as they often face liquidity issues. Therefore, novel financing approaches that can directly link sustainable and social impact metrics are required to strengthen and expand the participation of small- and medium-sized enterprises (SMEs) in global value chains.