Green finance: sustainability is becoming the new normal

When it comes to sustainability, banks and companies are increasingly in the same boat. Companies with unsustainable business models are increasingly at risk of becoming less accepted by society. Lending to these types of companies will create problems for banks too. In other words, banks need to examine the future viability of business models more closely when lending to companies.

The future proofing of companies is influenced by many different stakeholders from social, political, regulatory and economic sectors. Tried-and-tested models for carrying out quantitative analysis of a company's performance have their limitations in this regard. In addition, financing arrangements often change, because in the circular economy, it’s not just the performance of a company's cash flow that changes. They also have a higher need for capital when products are no longer being sold and the focus is instead on marketing usage rights.

In order to be able to take into account the sustainability of business models as a central component of risk management, banks therefore need to have a close dialogue with their customers’ finance and sustainability department. The better the information that banks get from companies, the easier it is to assess their future viability. However, qualitative models are still in their infancy, so banks would do well to adapt and develop their environmental and social responsibility criteria.

Lending is one of the most important parameters for banks to fulfil their social responsibility to contribute to greater sustainability. Thanks to the continuous development of qualitative models and a broad social acceptance of sustainable business models, sustainability is becoming an integral part of credit assessment and integrated risk analysis.