Sustainable Finance for SMEs

Inhaltsverzeichnis

1. Frontmatter

2. Mechanisms and Institutions

   1. Frontmatter

   2. Chapter 1. Sustainable Supply Chain Finance: Bridging Theory and Practice

      Mauro Aliano, Greta Cestari, Salvatore Madonna

      Abstract

      In our book, we analyze sustainable finance in the short run, focusing on SMEs within a supply chain context. Chapter 1 evaluates sustainability and the transformative potential of technology in reshaping company operations, emphasizing interconnected businesses. Adopting sustainable practices can lead to cost savings, improved risk management, and enhanced reputation. For example, investing in energy-efficient machinery reduces operating costs and attracts environmentally conscious customers. Technological advancements, like blockchain and IoT, facilitate these practices by enhancing supply chain transparency and optimizing energy usage, respectively. Anecdotal evidence highlights practical benefits. By leveraging technology, SMEs can integrate sustainability into financial strategies, achieving significant performance improvements and addressing environmental challenges. This chapter demonstrates that sustainable finance represents a fundamental shift in business operations, not merely a trend.

   3. Chapter 2. How Can Companies Financially Sustain their Transition?

      Mauro Aliano, Greta Cestari, Salvatore Madonna

      Abstract

      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.

   4. Chapter 3. Integrating ESG Risk into the Banking Prudential Framework in EU: The Impact on SMEs

      Mauro Aliano, Greta Cestari, Salvatore Madonna

      Abstract

      Chapter 3 examines the integration of Environmental, Social, and Governance (ESG) risks into the EU banking prudential framework, focusing on its impact on SMEs. Banks are crucial for SME financing, influencing their growth and sustainability. The chapter highlights how bank market power and firm characteristics can affect credit constraints for SMEs, depending on regulatory environments and strategic goals. Private and Islamic banks, along with fintech innovations, offer flexible financial solutions tailored to SMEs, as seen in Indonesia. However, extensive regulations, including capital reserve requirements and compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) laws, complicate lending processes and increase costs. Macroeconomic conditions and market demand shifts also impact lending. The chapter concludes by proposing solutions to improve SME access to funding, enhance credit risk assessment, and streamline compliance, aiming to support SME growth and economic stability.

   5. Chapter 4. Sustainability and Market Efficiency for SMEs: Bubble or Opportunity?

      Mauro Aliano, Greta Cestari, Salvatore Madonna

      Abstract

      Chapter 4 explores the impact of financial markets on companies, especially SMEs, with a focus on the implications of going public through an Initial Public Offering (IPO). An IPO offers significant capital, liquidity, and strategic benefits, including the use of shares for mergers and acquisitions and flexible employee compensation. However, it also presents challenges such as loss of control, high compliance costs, and increased investor scrutiny. Effective signaling, through a strong earnings history and robust ESG performance, can attract investors and mitigate issues like underpricing, thus facilitating a smoother IPO process. The chapter discusses how financial markets enable companies to address sustainability issues and fund projects that enhance ESG performance, attracting responsible investors. Market efficiency is emphasized as crucial for SMEs, influencing their competitive positioning. The chapter also examines how technological advancements and digital tools can improve SME efficiency. Additionally, it considers financial bubbles and their impact on SMEs’ public offerings, supported by empirical analysis of Italian companies to assess market valuation. This comprehensive approach provides insights into market dynamics and strategic considerations for SMEs.

3. Instruments and Methods

   1. Frontmatter

   2. Chapter 5. Financial Instruments for Green Finance Tailored to SMEs

      Mauro Aliano, Greta Cestari, Salvatore Madonna

      Abstract

      In the face of an urgent need to transition to a sustainable economy, SMEs—vital to many global economies—find themselves at a crossroads. Although crucial to economic development, SMEs often struggle with the financial challenges of adopting green practices. Chapter 5 examines innovative financial instruments designed to support SMEs in their sustainability efforts. SMEs, significant contributors to global greenhouse gas emissions, frequently encounter financial barriers to implementing climate-friendly practices. Their challenges include inadequate credit histories, insufficient collateral, and a general perception of being high-risk borrowers due to their smaller scale and higher failure rates compared to larger firms. This chapter identifies these barriers and explores how traditional financial institutions’ stringent requirements, complex loan applications, and a lack of understanding of SMEs’ needs exacerbate the issue. The chapter provides a comprehensive view of the landscape, starting with the obstacles to sustainable finance, public interventions, and the structure of potential sustainable finance operations. It highlights gaps in current approaches and details financial instruments that address these gaps. The chapter concludes with an examination of global best practices in sustainable finance, offering strategies to guide SMEs toward a greener future.

   3. Chapter 6. Initial Coin Offering as a Possible Way to Obtain Financial Resources

      Mauro Aliano, Greta Cestari, Salvatore Madonna

      Abstract

      Chapter 6 explores the transformative impact of Initial Coin Offerings (ICOs) on capital-raising for companies and SMEs, especially those tackling sustainability challenges. ICOs, a novel fundraising method utilizing blockchain technology, involve selling digital tokens to investors, unlike traditional financial instruments such as shares. These tokens can be bought with fiat money or cryptocurrencies like Bitcoin and Ether. Emerging in the aftermath of the 2008 financial crisis, ICOs addressed the severe credit crunch that limited traditional bank loans and venture capital. Financial institutions’ increased caution led to reduced credit flow to startups and growing companies, creating a need for alternative funding sources. ICOs provided a solution by enabling direct interaction between businesses and investors, bypassing traditional financial intermediaries and their complexities. This innovation offers a faster, more accessible, and often lower-cost fundraising process. The chapter examines the mechanics and advantages of ICOs, their evolution, and their role in supporting sustainability-focused projects, highlighting their potential as a critical tool in modern finance.

   4. Chapter 7. Greenwashing

      Mauro Aliano, Greta Cestari, Salvatore Madonna

      Abstract

      Chapter 7 addresses the growing issue of greenwashing amidst heightened global awareness of environmental sustainability. As pollution and environmental degradation intensify, stakeholders—consumers, investors, and governments—are increasingly demanding genuine eco-friendly practices from companies. Sustainable development, which balances economic growth, social inclusion, and environmental protection, has become a central focus, emphasizing the need to meet current needs without compromising future generations’ ability to meet their own. Transitioning to sustainable production is complex and slow, requiring systemic changes in operations and a deep integration of sustainability values throughout an organization. This shift affects the entire supply chain and involves significant financial commitments. However, some companies, tempted by the desire to satisfy market demands, resort to greenwashing—creating misleadingly positive impressions of their environmental efforts through false or exaggerated claims. This chapter explores various forms and methods of greenwashing, analysing its impact at the product level, firm level, and within financial markets. By examining the forces driving greenwashing and its effects on sustainability, the chapter aims to reveal how this deceptive practice undermines true progress toward environmental responsibility.

   5. Chapter 8. Italian SMEs’ Sustainability Scores

      Mauro Aliano, Greta Cestari, Salvatore Madonna

      Abstract

      Chapter 8 explores the growing emphasis on sustainability and corporate responsibility within SMEs, focusing on Italian firms. The analysis is based on a detailed survey conducted by the University of Ferrara in 2019 and 2021, assessing sustainability practices across several dimensions, including Circular Economy, patent innovations, product and process improvements, waste reduction, and labor conditions. This survey data is integrated with financial information from AIDA Bureau Van Dijk balance sheets for a nuanced analysis that extends beyond qualitative assessments. The chapter also examines the role of strategic leadership and innovation, advocating for supportive policies that foster SME growth. A mixed-method approach, using Correspondence Analysis (CA) and Principal Component Analysis (PCA), along with panel and quantile regression techniques, provides a comprehensive view of sustainability practices and innovation impacts among Italian SMEs.

4. Companies Crisis

   1. Frontmatter

   2. Chapter 9. Business Crisis and Bankruptcy Prediction Models: The Other Side of Sustainability

      Mauro Aliano, Greta Cestari, Salvatore Madonna

      Abstract

      Chapter 9 addresses the significant challenge of corporate crises, with a particular focus on SMEs, from both national and international perspectives. It highlights the dynamic nature of corporate crises, which involve a gradual or rapid deterioration in a company’s economic and financial conditions. Without effective recovery interventions, this deterioration can lead to bankruptcy. The chapter emphasizes the need for a dynamic perspective that includes both a current diagnosis of the company’s situation and a forward-looking analysis to predict potential insolvencies. Since the introduction of Altman’s model, there have been notable advancements in the scientific literature, including the development of sophisticated tools like neural networks and artificial intelligence. Despite these advancements, Altman’s model is still favoured for its simplicity and practical application. This approach facilitates the early identification of insolvency risks at both the company and macroeconomic levels, helping banks and policymakers implement effective interventions. The insights gained are crucial for governance, supporting sustainable resource management and preventing systemic crises that could adversely affect the broader economy.

   3. Chapter 10. Bankruptcy Prediction Models: From Predictive Performance to Economic and Organizational Sustainability

      Mauro Aliano, Greta Cestari, Salvatore Madonna

      Abstract

      Chapter 10 examines the economic and organizational sustainability of the insolvency prediction tools discussed in Chap. 9. It is crucial to determine which parameters assess the viability of these tools in real-world scenarios. This chapter includes a comparative analysis of existing models to bridge the gap between theoretical studies and practical applications, ensuring these tools are both academically sound and practically effective. Economic sustainability is evaluated based on cost-effectiveness, ensuring that the benefits of using these tools outweigh their costs. Organizational sustainability pertains to the ability of business structures to integrate and utilize these tools efficiently, without necessitating excessive resources or specialized expertise that could hinder practical implementation. Advanced technologies, such as artificial intelligence and machine learning, are considered for their accuracy and predictive capabilities, but their adoption must be balanced against organizational and economic challenges. The chapter underscores the importance of sustainable insolvency prediction tools for enhancing the resilience of companies and economic sectors. Accurate and sustainable tools contribute to preventing financial crises and fostering stable, long-term economic growth.