Going Green: New guidelines for bank credits

3. December 2021 | Reading Time: 3 Min

As part of the European Green Deal, the EU has committed to reducing net greenhouse gas emissions by at least 55% by 2030 compared to 1990. Europe is to become the first climate-neutral continent by 2050. But what do these climate targets have to do with future lending? Our tax experts have summarised everything about the new requirements for lending in Austria for you here.

WHAT INFORMATION WILL COMPANIES HAVE TO PROVIDE WHEN GRANTING CREDITS IN THE FUTURE?

The EU Taxonomy Regulation provides banks for the first time with a uniform EU-wide classification system for environmentally sustainable economic activities and thus with a guideline for requesting information before granting credits. Not only the current situation has to be determined, but also the future development has to be estimated.

In order to be able to assess risks appropriately, the next step in the lending process is to determine the region-, sector- and company-specific relevant ESG factors and compare them with the queried sustainability performance and strategy of a company. Through this process, a credit institution can estimate how sustainably the borrower will develop in the future. It is therefore to be expected – or already a reality – that ecologically responsible companies will be able to negotiate better credit conditions in the future.

The subject areas to be included can be broken down as follows:

Environment

  • Greenhouse gas emissions – GHG emissions
    • Total GHG emissions in CO2 equivalents of the company, from the generation of purchased energy and the value chain, e.g. suppliers, service providers, end consumers.
    • Performance indicators used to track the carbon footprint
    • Specific GHG reduction targets and measures to achieve them, as well as measures to reduce fossil energy consumption and any justifications in the event of failure to achieve targets
  • Strategies and burdens of companies that are part of the ETS – EU Emissions Trading Scheme
    • Impact of the ETS on the profit and loss account
    • Development of free allocations and hedging against ETS price increases
  • (Hazardous) waste production, waste reuse and prevention, use of renewable resources
  • Water consumption and measures to reduce it
  • Production sites in countries with low environmental regulations
  • Impact of farm activities on animal welfare and biodiversity
  • Investment behaviour
    • Investments and plans for the use of renewable energy sources
    • CapEx, i.e. share of total investments related to environmentally sustainable assets or economic activities
    • GHG Compansation – Offsets
    • Resource and energy efficient buildings
  • Potential negative impacts of climate change on the company: Production, procurement, sales, etc.

Social and governance

  • Guidelines/KPIs to promote worker safety, social responsibility, human rights, corruption prevention
    Set standards in the value chain to mitigate ESG risks.
  • Information on legal proceedings and other controversies regarding environmental protection, rule of law, ethics, tax avoidance, price fixing, lobbying activities, cyber security, etc. and their potential financial impact
  • Transparency regarding ownership, management structure and ESG risks in terms of the above.

TPA TIP: If a borrower has external ESG ratings, ISO or comparable certificates and already works with concrete corporate guidelines and the EU Taxonomy Regulation (including risk management and control functions), this is also positively included.

The nomination of a sustainability officer and the disclosure of sustainability reports – even if these are not yet required by law – to the credit institution are also advantageous. Much of the information required for this is available in the company’s accounting system or can be collected relatively easily. TPA is happy to support you in this!

Green Finance - ESG - Klimawandel - Umwelt - Nachhaltigkeit - TPA News

ARE YOU ALREADY SURFING THE GREEN WAVE OF SUCCESS?

The correlation between sustainability risks and lending conditions shows: Sustainable action is increasingly becoming an essential factor for lasting corporate success. The pressure on companies to report on their social and ecological footprint is increasing. A sustainable company not only acts in accordance with economic, environmental and social values, but also has a strategy to capture ESG risks and opportunities, and discloses them in sustainability reports.

At the EU level and through national legislators, continuous expansion and tightening of the requirements can be expected. Those who do not keep up to date risk falling behind and suffering financial disadvantages. Our experts will be happy to support you in developing a customised sustainability strategy that will lead your company onto the green wave of success.

 

Contact our experts