Organisations have recently been incorporating sustainable finance into their overall funding plan.
This funding approach enables organisations to take advantage of opportunities within the sustainability space to facilitate their business growth, manage risk, build resilience and deliver impact for stakeholders while simultaneously providing remarkable returns for shareholders.
A framework for sustainable finance must cover some basic components to enable the organisation to fulfil its ambition.
This ensures compliance with global and local sustainable finance standards. Here are some of the considerations in developing a sustainable finance framework:
First, determine the use of proceeds from sustainable finance. This requires organisations to describe the purposes and utilisation of proceeds received clearly.
Articulate the benefits and impact of sustainable finance, such as the measured environmental and social benefits. It is also essential to link the utilisation of proceeds to the business case benefits that sustainability provides, which is the ‘why’ for sustainability.
Secondly, develop a process to evaluate and select projects. This process should provide information on the overarching objectives, strategy, policy and processes for sustainability.
The framework must specify the objectives tied to the projects being funded by lenders. Organisations should also provide clear eligibility and exclusion criteria for performing project evaluations.
The use of the eligibility criteria should result in project fit, whereby the various categories of sustainability funding are appropriately matched to the respective lender programmes. Organisations will also have to implement a process for monitoring projects to ensure they capture all required data and that projects continue to meet the agreed criteria set by the lenders.
Thirdly, organisations must have a well-defined internal governance process to manage the proceeds from sustainable finance lenders.
Plans should be made for continuous communication with the relevant stakeholders on balances allocated to projects and unallocated amounts.
Finally, reporting should be considered as part of the sustainable finance framework. There should be periodic reporting on the use of drawn proceeds.
Also disclose the nature of projects, the amounts allocated to each project and the related impact. In addition, have qualitative and quantitative measures, including the methodology disclosures.
The writer is a Partner at Deloitte East Africa. He is an author who writes and speaks widely on corporate reporting topics.
