Consumer demand for sustainable business grows, but for many small businesses the costs involved remain prohibitive. A new Kiwibank business loan aims to change that.
More than ever before, across all sectors of the economy – from energy generation to fashion, transport to fast food – customers and prospective customers are demanding that businesses do more for the environment. This demand is even extending to career decisions, as people choose and change paths based on professions and organisations that align with their morals or values. Conscious and ethical business looks increasingly like the way of the future, and the financial sector is not exempt from this shift.
Around the world, financial lenders are starting to offer preferential interest rates on loans to businesses that can clearly demonstrate an “ethical” return on investment. Whilst the concept of sustainable finance is not new, its implementation in mainstream banking is still in its relative infancy. Now Kiwibank is joining the growing global wave of financial institutions making it more appealing to be a sustainable business – in more ways than one.
“Sustainable finance or preferential interest rates for things like green loans and the like aren’t new. They’ve been around for a while, but they’ve usually been focused on big business,” says Tom Williams, head of sustainable finance at Kiwibank.
Small and medium-sized businesses have been missing out on the benefits of having access to sustainable finance, due largely to the burdensome requirement that they prove the feasibility and benefits of any proposal. Lenders usually require an independent assessment of any proposal to be carried out, which can quickly become a costly exercise for firms with lower profit margins.
Operating the harbour ferry service in Wellington since 1989, Kiwibank business customer East By West is a prime example of how difficult it can be to prove the worth of a proposal, especially when there is limited data to support it.
“We have an annual turnover of around $1-1.5 million a year and we just put a $12 million asset in the water, but it immediately had an impact. Our energy spend has reduced by 55% and we’ve had a reduction in carbon emissions, so it’s huge. But it is a large bank loan for a not-large business,” says Mat Jonsson, general manager of East By West.
The company is only the third in the world to build a fully electric boat and is aiming to transition from a diesel fleet to an entirely electric one. But despite the obvious benefits the changes would bring, the costs associated with finding a willing lender were huge.
“To build the boat, we effectively had to form an electric boatbuilding company. There are no prior learnings; we’re very much a start from scratch company,” Jonsson says.
“There’s a spectrum of sustainable investment and we’re at one extreme of that spectrum – being the first to bring anything into market is a double-edged sword, as you are the first to see the benefits but also the first to encounter the problems. Even as we look forward to the future of the boat building business, the feasibility studies and costs associated with that are more than six figures.”
After reviewing its business banking portfolios, Kiwibank investigated how they could best support small and medium-sized businesses on their journey to becoming a sustainable business. The most noticeable issue they found was ease of access to loans. Despite already doing business with a lot of these companies, the bank requirements for independent audits and assessments were preventing businesses from accessing the loans.
“There’s so many frameworks and rules. If you’re going to do something that we know is good for the environment, then you should be able to get a better interest rate just like a big business would. We should be able to trust our businesses and have that confidence in them. We want to show them that we do,” says Williams.
The news is good for both existing businesses wanting to begin the transition to being conscious, purpose-led business and sustainable start-ups looking to scale up in size. There are 13 criteria areas in total, including blanket preferential treatment of B Corp registered businesses. Other areas include commercial green buildings, residential buildings with at least a Homestar 8 standard, electric vehicles and more innovative projects such as reducing electricity consumption via improvements to a factory or production line.
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Founded in 2012, Nelson-based functional health beverage company – and recent Kiwibank business banking convert – Chia Sisters has been measuring its carbon impact for the past four years.
“We’re now in our fourth year of being zero carbon. We’ve lined our juicery with solar panels, became Nelson’s first certified living-wage employer, and we are also B Corp certified, ranking in the top 5% of businesses globally in terms of our environmental impact,” says co-founder Chloe Van Dyk.
While many companies may be confused about where to begin the journey, Van Dyk suggests the best place to begin is by figuring out where you currently stand.
“Measuring your business’ carbon footprint allows you to identify the problem you want to solve. Otherwise, you can go off in the wrong direction and start reducing somewhere that has less of an impact than another area.”
Having been described as a testing ground for what good business could be from the outset, Van Dyk says Chia Sisters is just another example of a business that is now well poised to take full advantage of the benefits moving forward.
“It costs more to do things the way they should be done and include environmental and social impact in the way you do business. If you can get a competitive edge through a lower interest rate, or be able to get access to capital sooner, of course that is helpful,” says Van Dyk.
Differing again from most banks, Kiwibank has chosen to treat each proposal on a case-by-case basis, as opposed to offering a single blanket rate. Williams says businesses can expect a discount of anywhere from 50 to 100 basis points. However, he points out that the main point of difference here is the easing of restrictions and regulations, making the loans far more accessible. The sentiment is shared by Jonsson.
“Things like buying an electric vehicle or putting solar panels on the roof are much easier to work out the cost-benefit ratio for, because the factors to work through are more predictable. I would be willing to pay the market rate for a loan if access was made easier. There’s a real benefit in having that certainty.”
This content was produced in paid partnership with Kiwibank. To learn more about Kiwibank’s sustainable business loans, or to speak to a specialist about how they could work for your business, visit Kiwibank today.