Sustainable Finance Strategies in the Formula 1 Industry: A Fintech Perspective

Introduction

With 34 participating nations, 20 drivers, 10 teams, and billion-plus fans, Formula 1 is a well-known sport that has a significant environmental impact. It produces more than 250,000 tonnes of CO2 emissions annually, demonstrating the urgent need for sustainability measures (Redahan, 2022). The race among the fastest drivers in the world is also the competition among the best engineers in the world. Formula 1 Racing is one of the biggest sports in the world and it is a pioneer in technology and innovation in automotives. This money sport holds the steering wheel in a global level of tourism and influence for 23 cities in an almost year-long season. Situations similar to those of 2012 and 2015, where the economic impact in Austin, Texas resulted in about 25,000 jobs surrounding the event, adding about $2.8 billion to the economic flow of the city (Storm et. al., 2020) make us analyze the immensity of influence and the number of countries involved in the planning, maneuvering, and realizing of the sport. The chapter believes such dimensions result in an immense natural resource consumption and in the consumption of materials with a difficult recyclable life.

Sustainability has been an ongoing conversation over the last decade. Comments about how we can reduce waste, how much reduction is needed to provide number of extra years before the world collapses, and how we can stop pollution are ongoing in most Environmental, Social, and Governance goals, also known as ESG goals, on most company websites. Sustainability today has shifted from the necessity of reduction of negative impact into ways of providing positive impact that will rather benefit society and the environment, from its core (Juntunen et. al., 2019, p. 332). Although there has been a societal change in perspective towards becoming sustainable, companies struggle from moving away from the reduction mindset, trying to reduce consumption and waste, due to the complexities that follow this new methodology which entails not creating such waste in the first place. Juntunen et al. describe it as a need for an institution remodeling involving new models for business conduction, through changes in product, service and systems (2019, p.334).

Fintech has a role in the application of this new methodology of sustainability and the authors argue it is the ultimate solution for effective implementation of sustainable practices in businesses. Formula 1 CEO, Chase Carey states they are now focusing on becoming the first net-zero sport in the world. The goal to achieve this by 2030 is that they believe they can “create positive environmental outcomes through their progressive innovations” (Lowrey, 2020). The authors believe that through the application of green bonds and impact investments in the teams in Formula 1 Racing, the sport will be able to achieve said “progressive innovations” towards their new zero goal by 2030 and influence other sports to follow the same financial investment structure. The primary source of funding for Formula One is sponsorships. If these sponsors can be persuaded to uphold an ESG pledge, which denotes a commitment to environmental, social, and governance norms, it will essentially bind the sport's financial ecosystem to work together to advance it. Such a commitment would start a chain reaction that would get the sport closer to its sustainability goals.

The authors hypothesise that, to achieve its goal as a sustainable sport, Formula 1 has to integrate into its sponsorship plans, the use of Green Financial resources such as Green Bonds and Impact investments. According to our hypothesis, a key component of Formula 1 team sponsors' financial sponsorship plans is the use of financial resources, such as bonds and investments. As Cobbs et al, has described in their 2017 paper that earlier studies have mostly focused on sponsors' survival rates and how they affect team performance, our study aims to set a new standard for the field. In particular, the authors want to investigate the viability and effects of changing the Formula 1 sponsorship structure to include sustainable financial options. The dynamics of sponsorship relationships within Formula 1 are being changed by our investigation into the adoption of sustainable finance practices among sponsors. The authors hope to learn that with the change in these financial tools will contribute towards the sustainability of teams as well as contribute to the sport’s larger sustainability goals.