Finance & Economics

Green Finance Becomes a New Norm: Research

The new LBBW study “Sustainability and Green Finance” confirms that combining finance with sustainable aspects is increasingly becoming normal rather than exceptional.

Green Finance Becomes a New Norm: Research

Landesbank Baden-Wuerttemberg (LBBW) has conducted joint research with Finance and FAZ Business Media, surveying the financial decision-makers on the subjects of sustainability and green finance.

Among the 365 CEOs and CFOs surveyed, 17% rely on ESG-linked loans to finance their corporate transformation. Though the percentage seems small, the positive dynamics appear clear in comparison to the previous years. Thus, two years ago, the proportion was only 5%, while four years ago it was a mere 1%.

The study also registered an increasing use of green bonds, ESG-linked leasing, sustainable supply chain finance and factoring as innovative green financing tools on the market.

Notably, ESG-linked financing instruments become more popular with companies due to their flexibility. In 2023, six times as many ESG-linked SSDs were issued as truly green promissory bills.

The main reason for opting for green finance tools is the company’s sustainability efforts. Currently, the EU wants to specify reliable indicators to make sustainability measurable. However, the majority of financial decision-makers are unfamiliar with common ESG criteria and prefer to work with indicators they have determined themselves.

The situation is expected to change soon, though. By 2028, around 15,000 companies in Germany must prepare their sustainability reports following the requirements of the pan-European Corporate Sustainability Reporting Directive (CSRD).

Extensive requirements and detailed disclosures are a real challenge for smaller companies involved in the supply chains, as they require significant time and money investments. Besides, 62% of the financial decision-makers surveyed find data collection and processing per new requirements difficult, since the current quality of the data is often not sufficient for the ISR standards.

Moreover, 34% of respondents believe that the content of the CSRD is not clear enough and that the given standards will probably be amended several times in the coming years.

While the ESG disclosure and reporting requirements are not clear and unified, the risk of greenwashing remains high, according to 48% of the financial decision-makers surveyed. At the same time, they believe clear regulations, truly reliable indicators and neutral supervision can alleviate the greenwashing risks.

Recent European Commission statistics also show that 53% of sustainability claims on products and services contain vague, misleading or unfounded information. One of the main concerns about executives is unintentional greenwashing which is often linked to vague regulations and reporting requirements on the ESG topic.

Although clear regulations and neutral supervision are critical factors in opposing greenwashing practices, technological innovations such as artificial intelligence (AI) can also make a big difference in the assessment of sustainability efforts and practices. They provide high-quality data-driven insights to business executives and empower them to make ESG-focused decisions.

Nina Bobro

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Nina is passionate about financial technologies and environmental issues, reporting on the industry news and the most exciting projects that build their offerings around the intersection of fintech and sustainability.