80
FUNDING
IN ASSOCIATION WITH:
THE CHANGING CLIMATE
Lancashire businesses are being urged to meet the challenge of Environmental, Social, and Governance (ESG) head on or risk losing their funding line.
Experts are warning that 2022 will see the focus on climate change and sustainability become increasingly crucial when it comes to decision making by lenders and funders.
Graham Rigby, SME accounting expert with Azets in the North West, says the issue is already having a “significant impact” on those decisions and those too focused on the short-term may be putting the future of their businesses at risk.
He also predicts that lenders, suppliers, customers, and employees will all demand a “roadmap to a net zero strategy” going forward, while failure to address ESG could be catastrophic.
A recent survey of SME company leaders revealed that just one in ten believe ESG will impact on their long-term plans and almost a quarter have not reviewed their business model in the past 12 months.
However, Graham says business in Lancashire must take a more proactive approach to ESG as part of regular business model reviews.
He says: “A sharper focus on the short-term is perhaps to be expected as SMEs focus on immediate recovery and growth, with on- going concerns over staffing levels, economic instability and digitisation an ever-present issue.
“However, with funding likely to be harder to come by and banks increasingly looking at sustainability
Jamie Grimshaw
He says: “Lenders are looking at the positive effect on the environment and that is going to have more of a bearing on the decisions they make.
“If you’re putting forward an application you are going to have to show you are making strides in that direction.
and ESG policies as a condition of lending, businesses should also be thinking ahead.
“ESG will keep growing in significance and will impact decision making by lenders, suppliers, customers, and employees.”
Jamie Grimshaw, Preston based investment executive at FW Capital, agrees that the green agenda is becoming more important in lenders’ decision making and that will continue to be the case.
“If you are asking to borrow money and you can show that it will be spent making a positive impact on the environment that will help your application.”
Looking ahead to the next 12 months, Jamie believes businesses will continue to face challenges around supply chains and working capital, which will impact their funding needs and decisions.
Paul Leyland, investment manager at private equity (PE) house Maven Capital Partners, agrees. He says: “The past 18 months have seen businesses across the region increase their levels of indebtedness, often by taking advantage of the government’s generous Coronavirus initiatives.
“As these facilities are starting to be repaid, many business owners are now facing the reality of debt in their business, combined with rising costs and widely publicised logistical challenges”.
He adds: “This perfect storm has meant an increase in demand from businesses who are now seeking equity funding to re-capitalise their balance sheets or looking to take advantage of the market opportunities created by overleveraged competition.”
The rise of ESG in corporate thinking will also have an impact in the private equity sector. Last year saw UK PE transactions at their highest levels since 2017, with tech businesses leading the way.
It is a trend Paul sees continuing this year. He says: “Following the COP26 summit, we expect those technologies that drive sustainability, counter climate change and contribute towards
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