Access to Green Finance

Mon, 24 Apr 2023 11:46:00 +0100

Photo: Eddie Zhang

Cultural and creative enterprises often need help with access to finance. In the EU’s policy documents, this is often attributed to their higher perceived risk, lack of tangible assets to provide collateral, and difficulty of valuing the sector’s intangible assets. Eviota aims to support access to green finance, which can alleviate the problems of many businesses.

The Creative Europe’s guarantee facility for the cultural and creative sectors and industries was based on the assumption in 2016 that the financing gap of the CCSIs was up to 1 billion euros per year ¹. In our view, this gap increased in the 2020s because the earlier estimate assumed a “business as usual” and did not estimate the transition costs to zero carbon.

The sustainable finance package estimates that to make the EU climate-neutral by 2050, Europe needs between €175 to €290 billion in additional yearly investment in the following decades². Because according to the European Investment Fund, with varying sizes in European countries, on average, 5.5% of the EU value added is related to cultural and creative sectors. We assume that the industry should be able to absorb about €8-15 billion for its transition to a more sustainable development path³. While this “financing gap” is based on a different methodology and should be seen more as a “gross financing need”, which includes the replacement of infrastructure and amortisation of infrastructure, which is in corporate finance seen as business continuity by any of means, the financing gap is enormous.

The European Green Deal has the financing capacity to meet this demand⁴. Still, in our experience with music and audiovisual enterprises, the absorption capacity towards sustainable finance is lower than with traditional, non-sustainable finance. The Survey on access to finance for cultural and creative sectors: evaluate the financial gap of different cultural and creative sectors to support the impact assessment of the Creative Europe programme identified mainly business model problems and small enterprise size as the main culprit. Our Eviota for Music highlighted another critical problem: oversimplified management controlling/reporting systems that cannot support the creative enterprise’s and its stakeholders’ business decisions. The oversimplified accounting system must provide more information for a loan application and a green loan application.

Our Eviota system hits two birds with a stone: we improve the quality of the management information and connect it with reliable sustainability indicators. We are developing ways to adhere to the requirements of the Corporate Social Responsibility Directive⁵ (i.e., the modification of the EU Accounting Directive and auditing rules) within the scope of simplified accounting typical for microenterprises. We are working on an objective measurement tool that can be used both by creative enterprises to convince their public donors, corporate sponsors, banks, insurers, and investors that their economic activities are sustainable; or to work for financial intermediary organisations to assess the financial, environmental, social and governance sustainability of their potential lenders or investees.

Survey on access to finance for cultural and creative sectors—Evaluate the financial gap of different cultural and creative sectors to support the impact assessment of the creative Europe programme ↩︎
European Commission: Financing Sustainable Growth. This factsheet is the source of the diagrams. ↩︎
European Investment Fund: Market Analysis of the Cultural and Creative Sectors in Europe—A Sector to Invest In ↩︎
Access to finance facilitating support for the Green Deal By Ambroise Fayolle, Vice-President of the European Investment Bank ↩︎
Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (Text with EEA relevance) ↩︎

From Accounting to Environmental Accountability

Mon, 24 Apr 2023 11:46:00 +0100

Photo: Nick Morrison

Like all creative enterprises, music enterprises are often founded and led by creative people with artistic or technical backgrounds. In Europe and the U.S., most music technicians, artist, and their managers work in very small enterprises. These enterprises usually need qualified business or financial administrators and HR- or data specialists. They often see accounting as a necessary or even unnecessary evil that is only used to report taxes. The accounting system is often outsourced to a chartered accountant or an accounting firm, and accounts are only reviewed when it is absolutely necessary: on Tax Day.

Accounting is not a beloved activity. In the last 20 years, almost all European countries allowed further and further simplifications in financial accounting and reporting as well as tax reporting. Our experience is that, in many cases, this has led to oversimplification: the resulting financial accounting system needs to be revised to support a loan application, grant administration, or simply to identify perils to profitability or opportunities for economic growth. Such a revision is a great opportunity to take into consideration the needs of sustainability reporting.

What is simplified reporting?

If you look at the annual report of a listed company like Spotify, you see that their reports tend to be over 100 pages, and they publish mandatory reports every quarter. They employ an entire army of tax specialists to pay various dues. On the other hand, a typical music enterprise creates one mandatory report per year, which can be as thin as four pages depending on the country where the report is made.

Microenterprises often pay a simplified tax, i.e., they do not have to pay corporate profit tax, value-added tax, dividend tax, etc., separately. Simplified reporting usually applies to microenterprises (with less than 10 employees or 2 million euros of annual turnover.)

Less accounting and less granular information on the creative enterprise’s activity means less accountability for the economic or social impact of the enterprise. Creative enterprises are parts of complex value chains around film productions, music festivals, or advertising, to name a few, where tracing sources of water use, carbon footprints or strengthening injustices against women in pay or opportunity are not trivial. We believe that some level of accounting is necessary for accountability in terms of sustainability.

Eviota for Music and Eviota for Film aims to support micro- and small enterprises with better management, supported by connected financial and sustainability accounting that reflects the management novelties of 2023. We do not claim that sustainability management can be performed based on financial accounts. Still, we are confident that a financial accounting system must also register every economic activity with an environmental and social footprint. We want to help creative businesses adjust their accounting, controlling, and reporting practices because they can be more profitable. They can access the new, supported green loans and insurance. They can gain new grants and donors. And eventually, they can avoid greenwashing and pinkwashing.

Eviota is simple but not oversimplified. We connect your general ledger to reliable benchmarks and apply double materiality facts to focus your attention on financial performance and your environmental footprint. We aim to create a reliable, informative overview of your enterprise in less than an hour and start planning your transition to a more sustainable growth path.

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Access to Green Finance

From Accounting to Environmental Accountability