How to create a winning financing strategy for your investment?

Despite the current focus on defence industry projects and AI-driven solutions, green investments are still urgently needed and seen as one of the most important growth and development areas. Investors and the EU are actively searching for bankable and sustainable projects which drive the energy transition, climate change mitigation and biodiversity. At the same time there are multiple investment projects competing for the same investments from public and private sources, and the need for money exceeds the available amount of money many times over. How to create a winning financing strategy for your green investment and find the correct financing partners and risk-sharing models?

Authors: Tapio Partanen and Riitta Silvennoinen, Deloitte 

Step 1. Define partnership requirements for your future financing partners

When seeking financing partners for your investment, it is crucial to establish clear requirements to ensure alignment and mutual success. Establishing clear criteria ensures that your partnerships are built on a solid foundation, paving the way for mutual success and a sustainable future.

To find partners whose values resonate with your mission and vision, we recommend that you do the following:

Firstly, evaluate potential partners based on their commitment to ethical practices, sustainability and corporate social responsibility.

Secondly, understand that the risk tolerance of potential partners is essential as different investors have varying levels of comfort with risk. We recommend assessing their capabilities in managing and mitigating risks and looking for partners with a proven track record in your industry.

Thirdly, evaluate your dilution strategy upfront to maintain control and protect the interests of existing shareholders, determine the acceptable level of equity dilution and communicate this clearly to potential partners.

Step 2. Screen the field

Screen the field to find potential partners and instruments related to public funding, equity investors, project finance and group-level debt providers, as well as tax incentives.

Choosing the correct financing partners is vital to the success of your green investment project. An ideal equity partner brings credibility and strategic expertise, guiding the project through its various stages. While the initial monetary impact of equity partners may seem limited compared with the total required capital of the project, their add ed value extends far beyond their financial input.

Securing the right equity partners enhances the project’s credibility, making it more attractive to other investors and stakeholders. Therefore, while the initial contribution may be small relative to the total capital required, the strategic benefits and future capital-raising potential make equity partners indispensable to your green investment project.

Moreover, the financing strategy needs to be cohesive, ensuring that the equity and credit storylines are aligned. This alignment not only ensures the best financing terms for the project, it is also a necessity in the public and private capital markets.

With regard to public financing, there are currently good signs and the will to accelerate green investments in many ways in the EU. The Clean Industrial Deal will mobilise over €100 billion to support EU-made clean manufacturing. It will accelerate state aid approval for renewable energy, industrial decarbonisation and clean tech manufacturing. It plans to strengthen the EU Innovation Fund and Industrial Decarbonisation Bank, aiming to secure €100 billion in funding from various sources. Horizon Europe will launch a call to boost research and innovation, and the Invest EU Regulation will be amended to increase financial guarantees, hoping to mobilise up to €50 billion for clean tech, mobility and waste reduction. All these initiatives aim to drive green investments.

Finland has introduced a new tax credit to encourage investments in clean technology and industrial decarbonisation. Investors can benefit from a 20% tax credit on eligible investment costs from 2028 to 2047. To qualify, the investment need to be least €50 million, with a maximum of €150 million per group of companies.

The credit applies to sectors like clean hydrogen, battery value chains, energy storage and industrial decarbonisation. This tax credit, delivered through the tax system rather than upfront funding, offers a significant opportunity for companies to invest in clean technology and support Finland’s sustainability goals.

Step 3: Create a timeline related to your investment timeline and investment needs

Green investment projects are typically long and CAPEX intensive, starting from pre-development and ending in a commercial operations phase. According to your timeline, you should consider the following instruments that are related to the phases of investment project:

1. The pre-development phase: Seek seed funding from angel investors, venture capitalists or government grants that are aimed at early-stage projects. Explore domestic subsidies and grants that support feasibility studies and concept development; these are often available through local government programmes or industry-specific initiatives.
   
   
2. The development phase or Front-End Engineering Design (FEED) stage: Seek additional equity financing from venture capital firms, private equity investors or strategic partners. Investigate the international subsidies and grants available for development projects, particularly those focused on clean technology or industrial decarbonisation. Leverage the tax incentives offered by governments to support development activities, ensuring your project qualifies and applying for these incentives to reduce costs.
   
   
3. The construction phase: Secure debt financing from banks, financial institutions or specialised project finance lenders, including loans, bonds or other debt instruments. Continue to explore international subsidies that support construction activities, particularly for projects with significant environmental or social benefits. Apply for tax incentives related to construction, such as credits for using sustainable materials or technologies.
   
   
4. The commercial operations phase: Consider revenue-based financing options where repayment is tied to the project’s revenue generation. Utilise the tax incentives available for operational activities, such as credits for energy efficiency or production-based incentives. Apply for subsidies that support ongoing operations, maintenance and expansion.

Step 4. Implementation of your financing strategy with your investment project

With a good strategy it is easy to start implementation, contacting potential partners, applying for funding and negotiating the terms and conditions of the valuable collaboration in your investment project.

Our global Deloitte team is happy to support you from Step 1 until the end. We have experts around the world who can knock on the door at EU offices or big international players, and we have many references and success stories to share. We can help you to create, apply and implement a winning financing strategy for your green investment.

Please contact:

Riitta Silvennoisen
Sustainability | Strategy & Transactions
+358 (0)50 589 3036
riitta.silvennoinen@deloitte.fi

Tapio Partanen
M&A | Corporate Finance
+358 (5)0 406 6920
tapio.partanen@deloitte.fi