Until recently, questions from banks to potential borrowers concerned their financial position and financial performance of the company. Professionals and businesses now applying for credit must also answer other questions such as: how much pollutants does the business emit? Have you ever hired uninsured employees or minors during audits? What percentage of women are employed in your business? How is the raw material produced? How close is the company to environmentally sensitive areas and what measures are you taking to avoid burdening the environment?

This is the data that banks must collect in order to check the degree of adaptation of all companies to the so-called ESG criteria, i.e. those that certify their sustainable presence and financial sustainability, based on environmental (E – environment), social (S – social) and corporate governance criteria (G – Governance). Try to find out what impact these risks have, ie. on the turnover of the business, the value of the property, or its ability to manage extraordinary events that could affect its operation and thus service their credit.

Business adaptation to sustainability is no longer a theoretical exercise. It is already integrated into the credit policy of banks and is gradually entering the daily life of a business when it is necessary to apply for a loan, regardless of its size, i.e. small, medium or large. By the same logic, individuals or professionals who want to continue, for example, the purchase of real estate, which must comply with the energy efficiency requirements of the climate law, so that they can get a loan from a bank.

Research shows that in home lending, energy-grade properties are better served than less energy-efficient housing. This is turning into a useful element in the evaluation phase of new financing, and more intensive banks will request an energy efficiency certificate, which is mandatory by law with every transfer.

Individuals or professionals who want to continue, for example, the purchase of real estate, will gradually enter the same logic.

While banks are not at the point where they are turning down a loan because a company’s operations deviate from its environmental and social commitments, the time for that to happen is not far off. The start will be for specific activities, such as electricity generation from fossil fuels, which is banned from the end of 2028, or financing the purchase of conventional cars, which will be banned everywhere from early 2030. The adjustment starts from the beginning of 2024 for taxis or new company vehicles for personal use. “A professional taxi driver may not get a consumer loan when cash flow from taxis is cut through measures such as driving bans in their city center unless they take care to change their diesel fuel. vehicle,” explain the competent heads of credit departments of banks.

In addition, it is possible that this loan is provided on less favorable terms, such as, for example. with a higher interest rate or with increased conditions for business adaptation to environmental or corporate governance criteria. This option was implicitly but explicitly left open by the ECB through the SMM, warning banks exposed to environmentally sensitive portfolios to higher capital commitments. The climate stress test, which was first conducted in 2022 and will be repeated in 2024, will put banks in front of their responsibilities as they will need to be able to load their loan portfolio in terms of energy load. . This means that gradually they will need to be able to estimate CO2 emissions for each loan they provide. By the same logic, and in parallel with climate stress tests, banks should be able to evaluate a company’s performance in terms of sustainability in terms of its social footprint and adherence to high standards of corporate governance.

“Large companies have the resources to meet their net zero obligations, which is not always the case for small businesses, and as a result, many of them are delaying their action against climate change,” said Eurobank Deputy Managing Director Costas Vassiliou. his recent presentation at the Delphi Economic Forum. “Therefore, both banks and large companies have an important role to play in providing mainly incentives and recommendations for the transition to green activities of small companies, while not excluding, of course, possible negative incentives for those who refuse the necessary transition.”

“Collecting financial data is a challenge for banks trying to document their decisions to support their clients’ energy transition plans,” said Piraeus Bank CEO Crisanti Berbati. The group “developed a calculation model (Climabiz) that quantifies climate change risks for sectors of the economy and businesses that are considered vulnerable to climate change and to which the bank is exposed,” Ms. Berbati said.

Among the available tools used by banks to evaluate a company’s adaptation to ESG criteria – in addition to environmental studies, which are an indispensable tool that must accompany every investment – quality assurance systems (ISO) certificates, verification of any complaints or violations of labor laws, energy class of the building , on-the-spot checks, and scorecards (an initiative taken by TEIRESIAS) have been developed to measure performance. “In a business portfolio, for example, a quality assurance system means that the business has registered procedures, and even if the bank cannot conduct on-site inspections, market certification ensures that they are followed,” they point out to the responsible “K”. leaders, noting that it is important for small businesses that the composition of the board of directors does not consist of family members or that there is an external auditor.

Measuring climate risk

Experts assure that measuring business sustainability in mathematical terms can cover anything from a small individual neighborhood property to a large energy-intensive industry. As ResNovae co-founder and managing director Nicholas Hr. Kakoyannis, who developed the ESGenius platform, “quantification of climate risks is facilitated by the use of technology. By applying mathematical models and artificial intelligence (AI) methods, we have developed the most advanced ESG platform in the nation, “on which nearly 1,000 business sustainability indicators are tracked.” With the support of the platform, the HDB ESG Tracker was recently created in collaboration with Hellenic Development Bank, which is a single information system for collecting, processing and presenting aggregated ESG data on sustainable entrepreneurship and development issues at the national, regional and economic basis of activity. With this tool, as explained by HDB CEO Athena Hatcipetra, “SMEs, mainly companies, will be able to capture the sustainability stage they are in based on the ESG criteria, respond to the selected ESG criteria and compare their performance in ESG issues with those of others. companies in the same industry.