Sustainability risks and opportunities are part of overall assessment
- Financing depends on an overall assessment of a company’s repayment capacity. Account is also taken of sustainability-related competitiveness and risk factors, and how they are managed within the company. Furthermore, themes such as climate change and social justice are becoming more important to businesses’ future prospects: because repayment schedules are often long, companies need to project further into the future.
- Collateral and collateral valuations also take account of climate and environmental risks: is real estate pledged as collateral located in a flood-risk area, for example? Is the main heating type based on renewables rather than, say, oil or electricity generated from fossil fuels? Or does the company generate some of the energy it uses?
Reporting builds credibility and improves market position
- Transparent reporting and concrete ESG development measures enable a company’s actions to be compared to those of other firms and the company’s own goals. Reporting makes such actions visible. For instance, reporting on annual emissions increases the credibility of a company’s emissions reduction targets. Progress in the right direction is more important than the starting point or individual figures. In addition, the transparency introduced by reporting reduces investor risk: all business activities involve risks, but such risks can be managed if identified.
- Expectations are continuously growing. For example, the EU’s Corporate Sustainability Reporting Directive (CSRD) places several new obligations on many companies, either directly or as part of the subcontracting and delivery chain of larger enterprises. Ability to report demonstrates a company’s potential to enhance its market position and fulfil statutory reporting requirements. This makes such companies attractive to investors, because they too are reporting on their investments in greater detail.
Financial support, guarantees and special loans are available to enable sustainable investment
- Financing, support and grants from government and private sources are available for projects and development that promote sustainability. For example, the risk sharing guarantee granted by the European Investment Fund (EIF) makes financing easier to obtain for renewal and growth projects. An EIF guarantee is needed when a company lacks sufficient collateral. It can be granted for projects with goals such as improving the energy efficiency of production plants, making premises more accessible, or replacing virgin raw materials with recycled materials. The EIF guarantee reduces the bank’s risk by decreasing the need for other collateral, enabling the bank to grant a loan at lower cost.
- There is also a specific product for projects that promote the green transition and have been classified as sustainable: the green loan. Green loans are granted for activities such as enhancing energy efficiency or building solar panels on rooftops. Such loans are available at lower cost than normal loans. They also send out a strong and credible message to other stakeholders and investors – sustainable investments indicate faith in a company’s ability to prepare for the future.
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