The global food production industry is increasingly turning to green financing, as a way of mitigating its impact on the planet
Jeffrey Beyer, who is the managing director of UAE-based sustainability consultancy Zest Associates and one of the experts speaking at Gulfood Manufacturing — being held from November 8-12 — shared his recommendations on how to make sustainability-linked finance more robust in the face of the above-mentioned challenges.
Beyer recommends three improvements:
ESG criteria should be disaggregated. It’s illogical to compare, e.g., a workplace health and safety goal with a greenhouse gas reduction goal. Disaggregation would create climate-linked, environment-linked, governance-linked and social-linked bonds and loans. This way, lenders know exactly what kinds of targets they’re supporting, and targets can be more easily compared between borrowers.
The word “meaningful” should be better defined. In the case of greenhouse gas emissions, meaningful targets are helpfully defined by the Science-Based Targets Initiative, which offers sector-by-sector guidance and advises on the size and speed of targets that will prevent the worst effects of climate change. Similar approaches could be adopted for other metrics, for example, by aligning to the UN Sustainable Development Goals for social targets or the OECD for best-practice governance arrangements.
Penalties for failing to meet targets should be strict and consistent. Tiny penalties are not motivating, and some sustainability-linked penalties have been as small as 1 basis point (0.01 per cent). This risks allowing borrowers to secure cheaper finance, then fail to hit their targets and get away with a financial ‘slap on the wrist’. Stronger, motivating penalties should be introduced to give firms incentives to hit their clearly-defined targets.
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