GOOD financials may no longer be enough for Caribbean businesses seeking international capital as investors increasingly scrutinise how companies manage environmental and social risks, a sustainability consultant warns.

“They will not spend a dollar without understanding what your environmental and social risks are — and much more importantly than understanding what the risks are, understanding your capacity for if you can’t mitigate against them,” said Ali Matalon, founder and chief executive officer of CorpCare, a Caribbean-based sustainability consultancy, during Learn Grow Invest’s Virtual Investor Relations Summit on Thursday.

The International Monetary Fund (IMF) estimates that about US$100 billion will be needed for climate mitigation across the region. Development finance institutions (DFIs) are expected to play a major role in meeting that need but Matalon warned that businesses, governments, projects, and joint ventures unable to demonstrate their capacity to identify and manage environmental and social risks could struggle to access the funding. According to Matalon, there has been growing interest among businesses and fund managers in strengthening their ability to identify risks through environmental, social and governance (ESG) lenses, report on them, make improvements each year, and engage transparently with institutional and other investors.

Beyond financing, ESG practices are also becoming increasingly important for businesses seeking to participate in international supply chains. Major markets, including the United States, the United Kingdom and Europe, have sustainability-related regulatory requirements for large, publicly listed companies. Caribbean businesses supplying these companies can face similar scrutiny through their buyers’ supply chain requirements.

“If they are reporting on all their greenhouse gas emissions, for example, they are going to need to know the greenhouse gas emissions in the product that you have produced for them,” Matalon explained.

MATALON…if we’re not doing it to look good, and to encourage financial prudence, we are doing it to access markets and capital

She said large retailers increasingly require suppliers to meet specific sustainability standards, potentially limiting market access for businesses that fail to comply.

“If we’re not doing it to look good, and to encourage financial prudence, we are doing it to access markets and capital,” she said.

Matalon believes that larger, publicly traded companies across the Caribbean should lead efforts to strengthen sustainability reporting, warning that businesses risk underestimating the requirements they may face. As a starting point, Matalon highlighted the sustainability disclosure standards developed under the International Sustainability Standards Board (ISSB): IFRS S1 and IFRS S2.

IFRS S1 sets out general disclosure requirements for sustainability-related risks and opportunities, including governance, strategy, risk management, and metrics and targets. IFRS S2 focuses specifically on climate-related disclosures.

She also recommended that businesses consult the Sustainability Accounting Standards Board (SASB) standards, which provide industry-specific guidance across more than 70 industries, and identify the requirements relevant to their operations to better understand the sustainability information they may need to disclose.

“Awareness is the first step to action,” she added.