Banks are focusing on "green" entrepreneurs. Are they more willing to finance such investments?

The sustainable finance market is growing. Banks are focusing on developing the offer of green instruments that entrepreneurs and other institutions can use to finance investments from various ESG areas. These include both green bonds and loans connected with the implementation of specific climate goals. One of the areas that companies want to finance within ESG is the circular economy, i.e. closing the product cycle according to the principle of reduce, reuse and recycle.

- The circular economy is an important element of sustainability and ESG. As a bank, we would like to see this factor in more and more transactions - Armand Ferreira, Head of the Sustainable Solutions Group at ING Wholesale Banking, told Newseria. - We are seeing more and more transactions in the circular economy. When we talk to companies about financing their initiatives, we always look at the risks and benefits. Sometimes it is a bit too early, the technology is too new, but when we talk to clients, we look at the possibilities and how we can help them invest in the circular economy . It is very important for us to finance these types of transactions. Our goal is to invest more in sustainable development and the circular economy, instead of traditional transactions based on the use of fossil fuels or the old economic model.

As he points out, many sectors may be interested in financing the circular economy. More and more companies are expressing their willingness to invest in the circular economy, regardless of size or industry they operate in. However, there are sectors for which the circular economy is becoming key.

- For example, trade, where we discuss the issues of plastics, clothing materials - cotton and various types of fibers. Here it may seem that it is easy to talk about closed circulation and recycling possibilities. However, recycling requires the collection and recovery of raw materials, companies are needed that will deal with their recycling so that new raw materials can be created. This is associated with many challenges, but in the trade sector it is possible - indicates the ING expert. - We also see such opportunities in the construction sector, for example, when demolishing a building, you can ensure that as many materials as possible are reused. This is starting to be implemented in several countries.

Since January 1st, construction companies in Poland have been required to separate construction waste into six fractions: wood, metals, glass, plastics, gypsum and mineral waste such as concrete, bricks and ceramic tiles. According to the assumptions, this is to increase the level of recycling and reduce the amount of waste going to landfills.

Circular economy is just one - although increasingly important - ESG area that companies include in their business strategies and for which they use sustainable financing offered by banks. ING THINK analysis indicates that the market for such green debt instruments is growing. In 2024, global issuance reached over USD 1.65 trillion. The most popular financial instruments include green and sustainable bonds and sustainability-linked loans. For comparison, a year earlier it was less than USD 1.5 trillion, and further increases are expected this year. These funds flow, among others, to circular economy, but also to investments in renewable sources or adaptation to climate change.

- ING is very focused on this issue. For this purpose, we have developed sustainable products that help finance products and projects that fit into the circular economy. We have created a sustainable version for many of our financial products. In the case of loans, we have created a sustainability-linked loan product, where the interest rate the customer pays depends on meeting the set targets (KPIs) - in this case, the circular economy - and other ESG KPIs of the company. If the company is able to meet these circular goals, we reward it with a reduction in interest. If it does not meet the set targets, it has to pay a penalty, says Armand Ferreira.

According to the report “Green Finance in Poland 2024”, edited by Ludwik Kotecki, many changes are taking place in this market. First, governments and regulators around the world are introducing legal frameworks and policies aimed at promoting sustainable finance. In the EU, the drive towards standardization in the area of ​​ESG reporting aims to make it easier for investors to evaluate and compare sustainable investments. ESG factors are increasingly being included in mainstream investment strategies. Both asset managers and institutional investors are gaining the conviction that sustainable investments can bring competitive returns and reduce risks related to environmental and social issues. Pressure from investors, but also from consumers, is making financial institutions and corporations more and more involved in the implementation of sustainable development goals and including them in their strategies.

Banks in Poland - surveyed by PwC at the end of 2023 - indicated that they plan to expand their product offering in the field of sustainable finance (83%). When asked about ESG risk management and strategy in this area, they answer that they mainly limit financing of sectors considered controversial in the context of sustainable development (92%). ESG risk assessment is used by banks in: the process of granting loans (100%), updating the business strategy or business model (83%), the process of approving new products (67%) and due diligence of suppliers (50%).

Source: