How Can Companies Financially Sustain their Transition?

Chapter 2 examines how businesses can financially support their shift towards sustainability by analyzing their financial structures and the role of both internal and external funding. External sources, such as bonds, bank loans, and alternative lending platforms, and internal sources like equity and self-financing are essential for advancing green finance. The chapter assesses Modigliani and Miller’s theorem, which suggests that a company’s value is driven by its initiatives rather than its capital structure, though businesses often struggle with insufficient funding for green projects. Banks are crucial in financing sustainable transitions, aiding both startups with new green technologies and established firms shifting from fossil fuels. Venture capital and business angels provide vital support for startups. The chapter also explores the effects of asymmetric information on funding costs and emphasizes the need for strong governance and transparency to manage risks. It concludes by discussing the balance banks must strike between supporting green initiatives and avoiding reputational risks.