Green finance: no more talking, now it's time to act!

ZF Friedrichshafen, for example: the technology group has placed green bonds for 4.3 billion euros to invest in drive technology for wind turbines and e-mobility. In addition, there is a sustainability-linked promissory bill (SSD) and a syndicated loan, the conditions of which are based on the CO₂ balance, among other things. Michael Frick, CFO of the ZF Group, now relies on green finance as a matter of course. "Sustainable finance instruments spur us on to completely align our Group with sustainability," says Frick, "by creating incentives for environmentally and socially responsible business practices."

ZF Friedrichshafen is no longer an isolated case, as the current study "Sustainability and Green Finance" by LBBW, Finance and FAZ Business Media shows. For the study, 365 CEOs and CFOs were asked whether they are involved in green finance. It emerged that financial decision-makers are not only talking about green finance, they are also using it. Now that subsidies to finance the transformation have long been established on the market, 17% of those surveyed have already taken out loans with sustainability components - two years earlier, the figure was only 5%. The number of financial decision-makers who have taken out green loans has more than doubled - to 10 percent. Green bonds are also increasingly being used. New financing options such as ESG-linked leasing, sustainable supply chain finance and factoring are currently establishing themselves on the market.

Two clearly distinguishable variants of green finance can be observed. In the case of decidedly green financing instruments, a green purpose is explicitly defined. ESG-linked financing instruments provide significantly more flexibility, which makes them more popular with companies. Last year, for example, six times as many ESG-linked SSDs were issued as truly green promissory bills.

First the sustainability strategy, then green finance

According to the study, cost benefits are rarely the decisive reason for opting for green finance: "More often, they serve to advance the company's sustainability efforts." Companies proceed in three steps: First, a sustainability strategy is developed, which is then operationalized. Only when it is clear what is to happen and how can the corresponding financing be provided in the third and final step. "This is the only way to ensure that the financing concept is credible and avoids any suspicion of greenwashing," says Joachim Erdle, Board Member for Corporate Customers at LBBW.

In fact, the risk of greenwashing should not be underestimated. 48 percent of the financial decision-makers surveyed consider it to be high. They call for clear regulations and neutral supervision in order to free themselves from such suspicions. The study states: "The only thing that helps here is to use truly reliable indicators."

The EU wants it this way: with ESRS to CSRD

The European Union now wants to specify reliable indicators to make sustainability measurable. These indicators exist for the environment, social affairs and governance, which refers to responsible corporate management. These three areas are abbreviated as "ESG". There are now special ESG ratings that can be used by any company to determine which sustainability aspects it excels in - and where there is still room for improvement. As the study shows, the majority of financial decision-makers are unfamiliar with ESG criteria and prefer to work with indicators they have determined themselves. This may be more convenient, but it is not forward-looking. European Union regulations are forcing more and more companies to systematically record their ESG data and publish it in their sustainability reporting.

The aim of the European Union is to make sustainability reports just as comparable as financial reports. By 2028, around 15,000 companies in Germany must prepare their sustainability reports in accordance with the requirements of the Corporate Sustainability Reporting Directive (CSRD). These reports will also include information on supply chains. Suppliers who are unable to provide the relevant data and information are at risk of being delisted. This is causing Michael Frick, CFO of ZF Friedrichshafen, a headache: "Extensive requirements and detailed disclosures pose enormous challenges for smaller companies within our value chain."

The next task: ESG data management

62 percent of the financial decision-makers surveyed complained about the effort involved in data collection and processing, especially as the quality of the data is currently often not sufficient for the ISR standards. New processes need to be established here. This costs time and money. What annoys decision-makers is that the CSRD standards will probably have to be amended several times in the coming years. 34 percent of respondents explicitly agree with the statement that the content of the CSRD is not clear. Joachim Erdle, LBBW Board Member for Corporate Customers, therefore advocates a certain amount of pragmatism, including on the corporate side: "Not everything will be perfect straight away."

A detailed presentation of the study results, both on green finance and ESG data management, can be found at www.finance-magazin.de.