Transforming the financing of sustainable assets
Technology-enabled and environmental-focused innovations are gathering momentum, streamlining asset and equipment financing, and making processes more sustainable across the public and private sectors. The scope is far-reaching, spanning a cross-section of industries, including agricultural, medical, renewable energy, and manufacturing.
However, innovative initiatives are set against a “poly-crisis” backdrop: The simultaneous occurrence of catastrophic events. Indeed, according to the World Economic Forum and Ipsos, cascading and connected emergencies like the cost-of-living situation and the war in Ukraine have led to “a cluster of related global risks with compounding effects, where the overall impact exceeds the sum of each part”.
Energy and food prices are skyrocketing, resulting in rampant inflation wreaking havoc across economies. And so, ambitious “green deals” put forward by governments are under pressure, with tax revenues diverted to ease the burden on struggling households. In the business arena, bold investments in large-scale sustainability efforts when money was “cheap” are scaling down as the focus centers on the bottom line.
Meanwhile, startups in the energy, sustainability, and mobility sectors are facing challenges due to rising innovation costs and depleting venture capital funding. For example, a Munich-based solar electric vehicle maker ended its electric car program in February 2023, citing “a consistent drag on budget”. Instead, they’re pivoting to solar technology.
At the same time, a Netherlands-based company that was set to introduce the first production-ready solar car – filed for bankruptcy in January 2023 due to the “cost of materials soaring and capital streams drying up”.
With that in mind, how can asset and equipment financing become more circular and sustainable from a public and private sector perspective? We explore that below.
Transition to clean energy
In its annual Tracking Clean Energy Progress (TCEP), the International Energy Agency (IEA) assessed 55 energy system elements, including sectors, technologies, infrastructures, and emission mitigation strategies. The report highlights progress toward reaching milestones outlined in the IEA’s pathway to Net Zero Emissions by 2050.
Technological developments and government policies have led to meaningful “on track” progress across electric vehicles and lighting. However, the remaining 53 components were rated as “more efforts needed” or “not on track”, despite momentum accelerating across areas like renewable electricity, hydrogen projects, heat pumps, and carbon capture and storage facilities.
Multiple parties working together
To ensure those components and other sustainable energy assets are assigned “on track” status in the future, action is required on two fronts:
- Funding to implement the necessary innovations.
- Bold and long-lasting collaboration between the public and private sectors.
Mariana Mazzucato echoes that sentiment in her book Mission Economy. She believes mission-oriented thinking, taking risks together, and sharing the rewards are the way forward. Mazzucato calls for a restructuring of capitalism, ensuring “corporations, society, and the government coalesce to share a common goal”. That means bodies like the World Bank and the European Bank for Reconstruction and Development (EBRD) must increase collaboration with financial institutions (FIs) to facilitate change.
According to IEA Executive Director Fatih Birol, “There are more signs than ever that the new global energy economy is advancing strongly.” For instance, the USA’s Inflation Reduction Act and Bipartisan Infrastructure Law provide $370 billion in federal funding to support the clean energy transition.
Meanwhile, the European Commission’s REPowerEU Plan outlines measures to produce clean energy and diversify supplies. Additionally, governments are supporting major research and development projects via the EU Innovation Fund, China’s 14th Five-Year Plan, and Japan’s Green Innovation Fund.
Role of financial institutions and fintech
In the private sector, businesses are increasingly leveraging eco-conscious technology to replace legacy asset and equipment financing systems. By doing that, they improve agility and become more streamlined, meaning capital can flow swifter and more efficiently.
For example, Sopra Banking Software’s cloud-native and fully scalable asset financing platform enables clients to build an entire lending ecosystem or assimilate components into existing infrastructure.
Our highly available and secure Service-as-a-Software (SaaS) solutions ensure regulatory compliance while enabling a modern, multi-channel customer experience. We also offer integration with trusted partners via application programming interfaces (APIs), facilitating a collaborative and digital-first ecosystem approach that transforms asset and equipment lending.
Financing a green wave of innovation
Despite being amid a poly-crisis, the private and public sectors must work together to fund widespread innovation. That requires comprehensive and ambitious measures, revolutionizing asset and equipment financing while laying the foundations for long-term sustainability-focused change.