How green finance became essential to business strategy

Defined by the World Economic Forum as any structured financial activity created to ensure a better environmental outcome, green finance – also known as sustainable finance or climate finance – is firmly in the spotlight as countries across the globe attempt to play their part in the fight against global warming.  

Clearly, conversation was amplified by the Paris Agreement of 2015, which reaffirms that developed nations should take the lead in providing financial assistance to those “less endowed and more vulnerable”.

From a business perspective, the pressure is on companies big and small to align financial activities with responsible practice and prioritise investments in environmentally-friendly initiatives. 

As CFO of IFS, a global leader in enterprise software development, Matthias Heiden is – needless to say – in tune with the green finance responsibilities of today. 

“Green finance promotes environmentally sustainable practices and investments,” he says, offering up his own explanation. 

“In essence, it’s about integrating environmental considerations into financial decision-making processes, which aligns with our commitment to delivering value while contributing positively to the environment through innovative software solutions and responsible investments.”

Describing his ongoing work in the space, he adds: “As a CFO, I support transformations like ESG reporting and the move toward green financing. I manage financial portfolios or investments in a manner that favours environmentally responsible projects and aligns with our own sustainability goals.

“I also allocate resources to develop solutions that help both our organisation and our customers monitor and reduce environmental impacts. This includes tools for energy efficiency, carbon emissions tracking, or sustainable supply chain management practices.”

Green finance: Essential to modern business strategy

As ESG goals continue to gain prominence, Heiden is unequivocal when discussing the importance of green finance in the context of the modern-day business landscape. 

He references a recent IDC report sponsored by IFS, which revealed sustainability targets are top of mind for many manufacturers. Almost two in five (39%) of respondents ranked ‘embedding sustainability goals in operations’ as a top priority, while 30% selected ‘developing a sustainability strategy’.

“Green finance serves as a critical tool for companies to demonstrate their commitment to environmental sustainability,” continues Heiden. 

“As environmental concerns like climate change intensify, regulatory bodies tighten their grip on eco-friendly standards and various stakeholders – from consumers to investors – increasingly prioritise sustainability, businesses must adapt or risk falling behind. 

“Green finance not only helps companies meet these evolving expectations, but also fosters cost savings, grants access to capital and enhances long-term resilience and competitiveness. 

“In this era of heightened environmental awareness, green finance has transcended being a mere trend to become an essential component of the modern business strategy.”

The evolving role of the CFO

Green finance has fast become a key consideration for the CFO of today – and not just at IFS or within the tech sector, but across all industries. 

In the service sector, for example, sustainability is prioritised as the key area of focus, according to IFS’ Global State of Service 2023 report, demonstrating these firms are realising that sustainability can be a powerful competitive differentiator and something for which customers are willing to pay a premium.

Heiden goes into greater depth about the impact of green finance on his own role, his department and the wider business. 

“As a business partner and steward, CFOs need to ensure the organisation’s financial strategies align with its commitment to sustainability,” he says. “We must assess and manage environmental risks, allocate capital to eco-friendly initiatives and optimise costs through green finance practices. 

“Green finance isn’t just about complying with regulations and reporting standards but also about embracing sustainability as a core part of our financial strategy. Furthermore, it involves engaging with stakeholders and effectively communicating our environmental efforts, as this is increasingly important for building trust and resilience in today's business landscape. 

“Ultimately, green finance is not just a financial matter; it's a strategic imperative that influences our financial decisions and contributes to our long-term success as a responsible and competitive organisation.”

How IFS is prioritising green finance

IFS’ sustainability strategy is based around three key pillars:

• Excellence in our business
• Supporting our customers
• Making a broader impact

Factoring into this is the company’s 2025 carbon neutrality commitment, which involves a decarbonisation strategy focusing on the reduction of carbon emissions, as well as investment in reputable carbon credits and green energy alternatives to neutralise any remaining emissions. 

Progress thus far has been impressive. In 2022, all of IFS’ electricity usage was covered by green tariffs and energy attribute certificates (EACs). 

Moreover, by partnering with a carbon offset provider, the organisation has been able to invest in a selection of vetted carbon removal projects, enabling the offset of a portion of emissions with a view to achieving the broader goal. 

Heiden points out that the projects generating these credits are “additional, quantifiable, permanent, socially beneficial and externally verified”.

He continues: “To make ourselves accountable, since 2021 we’ve had a sustainability-linked loan in place. Financing is directly linked to our annual performance against agreed ESG objectives. 

“We report and externally assure our performance against these targets, helping us drive accountability across the business and quantify the bottom-line impact of sustainability.”

Challenges aplenty for the finance department

Heiden admits aligning capital allocation with green finance objectives can be challenging for businesses and their finance teams. 

Complexities, he says, arise from the need to balance immediate financial priorities with long-term sustainability goals, often in the face of limited standardised metrics and resource constraints. 

“CFOs must carefully assess the financial risks and returns associated with green investments, all while navigating shifting stakeholder expectations and the evolving landscape of green technologies and innovation,” explains Heiden.

“Investing in the technologies and infrastructure required to obtain and analyse data around your company’s green finance objectives is key.”

Despite facing obvious difficulties, the finance chief cannot overstate the importance of getting this aforementioned alignment right. 

“In an era where environmental concerns are at the forefront of global agendas, businesses that effectively integrate green finance into their capital allocation strategies stand to gain – not only in terms of sustainability, but also in terms of resilience and competitiveness,” concludes Heiden. 

“The challenge lies in finding the optimal balance between financial performance and environmental responsibility, a task that modern CFOs must undertake with a strategic and forward-thinking approach.”