What is sustainable financing?

Sustainable financing is a form of financing that takes environmental, social and governance (ESG) considerations into account when setting criteria for the funding. 

Environmental criteria can be linked to, for example, CO2 emissions reduction, preservation of biodiversity or pollution prevention. Social criteria can be linked to conditions such as equality, inclusiveness and labour relations, while governance criteria refer to a company conducting business in a responsible and transparent manner.

Two types of financing

Sustainable financing can generally be divided into two categories. One type of financing is linked to a specific purpose or project. Examples include green loans and green bonds. For personal customers, a green loan could be used to install solar panels or carry out improvements to increase energy efficiency at home. For corporate customers, it could be a loan to construct a new energy-friendly building or more environmentally friendly production facilities. In both cases, borrowers must be able to document the purpose of the loan.     

The second type of financing is not earmarked for specific activities and applies exclusively to corporates. It’s a form of corporate financing that is linked to the sustainability goals of a company and how it delivers on them. It is thus a form of financing that looks more at the company’s sustainable transition over time. The financing can take the form of loans or bonds, and the main difference compared to green loans is that the money is not tied to a specific project but can be used for general business activities.

For a company to be considered for the latter type of financing, its sustainability goals linked to the financing must be of high strategic importance and integrated into the business. Moreover, recognised methods must be used to measure the company’s progress.