Overcoming Barriers to Scalability in Sustainable Finance (Part 1 of 3)

Today, the sustainable infrastructure industry is at a pivotal turning point. More capital is available than ever before, but there exist barriers to efficiently connecting that capital to new opportunities.

This post is the first installation of our latest blog series that breaks down the three key operational barriers in sustainable infrastructure finance and how today’s technology can alleviate those barriers to scale the industry and mobilize more capital to achieve global emissions reduction targets.

Barrier #1: Manual and Time-Consuming Processes

The landmark Inflation Reduction Act, passed in August 2022, opened up hundreds of billions of dollars in investment capital for sustainable infrastructure and is projected by some analysts to help reduce economy-wide emissions by 40% below 2005 levels. However, unlocking this capital for sustainable infrastructure will require the industry to automate critical processes and evolve from manual, time-consuming investment practices that hinder deal velocity and profitability in small- to medium-sized projects.

Current processes are stifling scalability

To bring sufficient capital to meet the growing pipeline of projects, we first must ensure a scalable supply of finance by replacing manual tools and processes with digitized and automated systems. 

We know this does not sound easy. Sustainable infrastructure encompasses a wide range of technologies and applications, which means each project is a unique opportunity, with little standardization across the board – and little insight into how, where, and what to standardize. 

Moreover, manual data gathering and reporting create opacity when getting deals done. Deals are also complex, involving multiple counterparties, siloed systems, and spreadsheets, and require tedious manual workflows to share and verify information in every stage of the loan cycle. This process drives up costs and increases complexity, losing up to 70 bps and wasting about 150 hours on a single loan. 

Lenders using yesterday’s tools and legacy systems will be underprepared to scale efficiently for tomorrow’s challenges and capitalize on the climate tech industry’s imminent explosive growth. 

To address increased capacity, traditional lenders and investors often default to hiring more analysts to work through the same manual processes. This strategy is slow and expensive: It doesn’t improve efficiency or address systemic issues but wastes valuable time and talent. Moreover, specialized talent isn’t readily available, causing bottlenecks for those looking to grow but unable to find the internal capacity to process transactions.

A 2022 study by Deloitte emphasizes this issue: When asked about the top drivers for hiring accounting and finance talent, the top answer from hiring managers was resounding “the need for more headcount in existing areas where workloads are increasing.” At the same time, 82% of big employers stated that hiring and retaining much-needed accounting and finance capacity is challenging.

Instead of injecting more human capital into a flawed system, lenders need to leverage today’s technology to streamline processes and implement automation. A digital solution to address increased capacity and advance meaningful market growth efficiently will allow companies to stay competitive. The good news is that this solution is available and accessible today. 

Stay competitive with a software solution

The path to rapid scalability starts with simple data digitization, which eliminates the risk of errors, inconsistencies, and redundancies due to manual copying and pasting. Data should be stored in a unified cloud-based location so stakeholders can access the same up-to-date information instead of juggling multiple static documents. 

Lenders get real-time analysis and in-depth insights by optimizing loan and portfolio performance with a single source of truth.

Digitized data stored in a single source of truth paves the way to process automation, which creates faster, more flexible processes and allows skilled workers to spend less time in the back office. Upgrades like form auto-population, compliance automation, and automatic report creation can save a typical lender hours a week on a single deal.

Let’s take commercial lending as an example: By adopting automation advancements, commercial lenders have achieved low cost of capital and high velocity while simplifying and speeding up the loan process. For example, a $150k Small Business Administration (SBA) loan used to take a traditional bank 10 to 14 business days to review and approve a line of credit. Now, this takes just minutes, thanks to automated processes that pull and verify essential digitized information. Similarly, sustainable infrastructure lenders can leverage fintech advancements to enhance visibility, streamline processes, and establish a solid foundation for future growth. Banyan’s platform provides just that - process automation and full data visibility to keep projects competitive and profitable. With today’s technology, the sustainable infrastructure industry can take full advantage of the Inflation Reduction Act and scale at the pace necessary to avert climate disaster. 

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“The Key to Unlocking the Full Potential of the Inflation Reduction Act, Bridging the Sustainable Investment Gap with Automation, Digitization, and Optimization” is the latest white paper from Banyan Infrastructure. It further discusses how technology can alleviate the problems faced by the sustainable infrastructure finance industry so it can take full advantage of the capital unlocked by the IRA. Download it here.