Study shows lenders anticipate growing influence of ESG credentials on mid-market borrowing
New research from leading business and financial adviser Grant Thornton UK LLP has found that ESG credentials are an increasingly important factor for mid-market businesses seeking to access capital.
Despite sustainability-linked lending not being as prevalent as it was a couple of years ago, the forces driven by ESG that influence lenders to become increasingly selective about which borrowers they support, and at what price are not going away and will only ramp up over time.
The study, which follows a similar survey from 2022, asked nearly 50 UK-based lenders about their strategy around, and attitudes to, ESG and sustainable finance for the mid-market.
Key findings include:
- 73% of lenders have an ESG lending strategy in place (up from 57% in 2022).
- 81% of lenders say a firm’s ESG status, or ability to transition to net zero, will have an increasing influence on their appetite to lend over the next five years.
- 93% of lenders think regulators may introduce a requirement to integrate sustainability considerations into a bank’s internal capital allocation models for loans – which will impact both the availability and the cost of borrowing.
“Against a backdrop of inflation, rising interest rates and geopolitical instability there’s been a hiatus in the ESG linked funding agenda. Global sustainability linked loan issuance fell 55% in 2023 amid concerns around greenwashing and regulatory uncertainty,” says Jon Bramwell, Debt Advisory Director at Grant Thornton UK.
“However, lenders are committed to meeting their own sustainability targets and disclosures, and consequently are increasingly focused on the emissions produced by their mid-market borrowers.
“Sustainable finance products act as facilitators to change the behaviour and sustainability credentials of borrowers. They’re also inextricably linked with a lender’s own sustainability ambitions. Mid-market firms need to be cognisant of this. Those that don’t have a roadmap in place to improve their ESG credentials may find it negatively impacts on the price and availability of capital as soon as their next financing round,” says Bramwell.
