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ESG-linked loans – the financing of the future

5 March 2025 | Knowledge, News, The Right Focus

Sustainability is an increasingly important element of business strategy. In this context, the banking sector plays a key role as a provider of finance for corporate investment, and the ESG-linked lending mechanism based on the international Sustainability Linked Loan Principles (SLLP) is particularly relevant.

Green loans on the rise

The sustainable loan market showed solid growth in 2024, reaching EUR 907 billion globally, an increase of 17% compared to 2023.[1]

However, it should be remembered that this is still a period of adaptation for such instruments. This is also being driven by the commitment of a much wider group of companies to the reporting requirements introduced by the CSRD and the consequent disclosure and attestation of internal data. And this data will be essential for the granting of Sustainability Linked Loans.

The European Commission estimates that around 50,000 companies will be covered by the requirements of the CSRD, compared to 11,000 under the previous NFR.[2]

Better lending terms for companies with an ESG strategy

Banks are analysing their customers from an ESG perspective to better identify long-term risks to their solvency. Companies with sustainability goals are seen as more stable and resilient, which translates into better financing terms.

The Sustainability Linked Loan Principles are a market self-regulation that introduces the principle of working out a financing structure with the client.

The structure should be based on indicators (KPIs) relevant to the company’s sustainability performance, and assume measurable annual progress.

The structure of the ESG targets includes a mutually agreed mechanism for adjusting the interest rate of the loan. Once the agreement has been signed and the financing has been provided, the borrower is required to report progress to the bank on an annual basis, and the data provided must be verified by an independent third party.

On the basis of this information, the lender will assess whether the goals set have been achieved and will then adjust the terms of the loan interest rate.

An increase in the unacceptable level of ESG risk may in turn lead to a refusal to lend.

When considering sustainability criteria in the lending process, the bank will review the client’s actions in terms of spending on environmental protection, reduction of pollution, carbon dioxide emissions or energy consumption.

It is worth noting that this trend is spreading to other instruments, and the conditioning of financial terms on the achievement of ESG goals can also be seen in bank guarantees, factoring and leasing contracts offered by Polish financial institutions.

Any questions? Contact us

Joanna Barbrich

[1] Green and Sustainability-Linked Loan, https://www.bbvacib.com/green-and-sustainability-linked-loan-newsletter/

[2] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52021SC0151

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Contact us:

Joanna Barbrich

Joanna Barbrich

Associate / Chief Sustainability Officer

+48 728 432 408

j.barbrich@kochanski.pl