What are sustainability-linked loans?

Sustainability is playing an increasingly significant role in the context of loans too, as banks tighten their lending criteria and customers look for new approaches. "More and more companies are aiming, as far as possible, to integrate their sustainability strategy into all the financing instruments they use," observes Ina Liermann, Executive Director Corporate Loans at Helaba.

The volume of sustainability-linked loans is growing particularly rapidly: the term only appeared four years ago and they already account for a larger share (EUR 120 billion) of the global market than green loans (EUR 80 billion). The advantage of sustainability-linked loans for the borrower is that they are not tied to any specific project or projects. This does also mean, however, that borrower and bank have to agree strict terms to ensure the loan really does impact positively on sustainability performance. Standards and certification are part of the equation here, as are clearly formulated targets and measurable indicators that map the business model as a whole. Companies availing themselves of sustainability-linked loans have to be prepared to report on these indicators regularly and transparently.

"The challenge for us as a bank is to strike the right balance between responding to existing customer requirements and encouraging customers to think differently," says Ina Liermann. Customers that are already on the sustainable business pathway need to be supported in a way that helps to keep them moving forwards without overtaxing them. "But it is also important to be very clear about the risks of moving too slowly, and to impress on customers that the die is cast and they cannot afford to let events leave them behind."
"Customers want to integrate their sustainability strategy into all their financing arrangements."
Ina Liermann, Executive Director Corporate Loans