Crowdfunding and Green Financing: The Future of Contemporary Finance

Abstract

Contemporary Finance Topics: Crowdfunding and Green Financing [Name] [University] BUS629: Financial Budgeting Forecasting & Analysis (FTI2421A) [Instructor Name] 2024, June 17 Contemporary Finance Topics: Crowdfunding and Green Financing Contemporary issues in the finance sector determine how organizations access capital from investors. The paper offers a discussion of crowdfunding and green financing as two important topics that have affected the industry since the beginning of the 21st century. Crowdfunding involves the collection of small investments from a large group of people using an internet platform. Crowdfunding services charge a percentage of the contributions to connect the investors with the business ventures (Schwartz, 2020). Crowdfunding is likely to increase over the next decade as more startups view the option as a preferable means of accessing capital. Green financing is a contemporary topic that has resulted from the concerns of consumers and the society on concepts of sustainability. It describes the measures that lenders use to promote sustainability in organizations by offering preferable terms to businesses (Debrah et al., 2022). Crowdfunding and green financing are important topics that will gain greater influence in finance over the next decade and influence how companies relate with investors and lenders. Definition and Description The internet has expanded the range of options companies have to access capital to venture into businesses. Crowdfunding is one of the tools that startup companies can use to reverange capital while avoiding to lose the control of their business. Crowdfunding involves the collection of small amounts of money from a large group of investors to start a business. It involves the use of crowdfunding sites such as Kickstarter and Indiegogo to collect funds from a large group of people to start a business (Lee & Lehdonvirta, 2022). Investors can raise from as low as $10 to support a business they feel is likely to succeed. Crowdfunding protects the owners of businesses by ensuring that they do not lose control of their investment to venture capitalists. With the rise in the access and usage of the internet and social media, crowdfunding has become a popular means of accessing capital to establish and grow a business. An example of crowdfunding is when Oculus VR raised $2.4 million to make virtual reality hardware in 2012 and exceeded their original goal by close to 10 times (Hellman, 2022). The company’s founder Palmer Luckey used Kickstarter to raise the capital for his business as opposed to relying on traditional mainstream investors for funding. Climate change and the contribution of businesses to global warming is an important issue in finance. Green financing involves the provision of funding to facilitate environmentally friendly investments and projects in organizations (Debrah et al., 2022). The concept involves the identification of an environmental issue and using funding to facilitate climate-friendly practices. There are different types of green financing with each seeking to increase the application of environmentally friendly practices in the production of goods and services (Taghizadeh-Hesary & Yoshino, 2020). Green loans, for instance, support initiatives that seek to minimize global warming such as the development of household solar energy and investments in the alternative energy sector in industrial settings. On the other hand, green mortgages offer better terms for customers participating in environmental sustainability. Advantages and Disadvantages of the Topics Crowdfunding offers access to capital from a large group of people intending to support a particular business venture. It relies on social media to inform potential investors of the product and gain their support through contributions (Lee & Lehdonvirta, 2022). Startups gain access to funding from people in diverse communities who support the business idea or the product. Additionally, the funding model ensures that organizations retain control for their businesses and influence the product development. Using crowdfunding allows startup businesses to assess the size of the market for their products before the development of the business (Schwartz, 2020). Despite the advantages, crowdfunding faces risks for organizations relying on the model to access capital to develop their product. The startups that fail to reach their funding goals lose the contributions that investors have pledged to offer. Crowdfunding sites such as Kickstarter return the contributions if the funding campaign has not reached its goal. The advantages of green financing include the motivation for businesses to engage in environmentally friendly practices when developing products and services. Climate change is an increasingly problematic issue that demands that organizations participate in environmentally-friendly practices. Green financing encourages investments in practices that lead to a better environment among organizations. Investors have to abide by the requirements of the lending entities to receive funding for their projects. The concept acts as a motivation for organizations to adopt practices that lead to a better environment (Debrah et al., 2022). A disadvantage of green financing is the lack of sufficient global standards to regulate how organizations receive funding. The lack of sufficient regulation leads to greenwashing where organizations mislead their stakeholders on the extent of their environmental sustainability efforts. It is difficult to measure and compare the contributions of organizations to sustainability when implementing green financing practices...