Smaller businesses might find themselves answering sustainability-related questions during loan applications, reviews, and discussions with banks. This shift reflects evolving expectations for financial institutions to understand and manage risks effectively.
Why Banks Incorporate ESG in Risk Management
The European Banking Authority has provided guidelines for managing environmental, social, and governance (ESG) risks, outlining how institutions should identify, measure, manage, and monitor these risks as part of their risk management frameworks. These guidelines were enforced on 11 January 2026 for most institutions, with small and non-complex institutions given an extension until 11 January 2027. Because sustainability factors can influence a borrower's long-term resilience, lenders may consider them during risk assessments.
How sustainability information may support an assessment
For smaller businesses, this means that lenders might evaluate their sustainability practices as part of loan applications. The importance of this information depends on its materiality, the borrower's exposure, and the individual institution's risk assessment framework. It is not a uniform scoring criterion applied identically to every applicant. Well-organized, clear sustainability information can give lenders a more accurate understanding, facilitating a more informed and constructive dialogue. Conversely, if a business cannot provide such information, lenders may have limited data to base their decisions on, making thorough preparation crucial to reducing uncertainty in the discussion.
Preparing for a Discussion with a Lender
Preparation doesn't necessarily mean creating a lengthy report. For SMEs, a practical approach might involve compiling concise, traceable information rather than producing large volumes. This could include:
- Identifying the sustainability issues most pertinent to the business;
- Preparing recent and clearly dated information;
- Indicating the source of each figure;
- Honestly explaining any missing information;
- Ensuring consistency with information already provided to customers or other partners;
- Assigning someone who can explain the information if needed.
The goal is to maintain reliability rather than volume: information should be clear, consistent, and traceable to its source. Small inconsistencies, such as differing reporting periods or rounded numbers, can raise questions that well-organized underlying information can easily avoid.
A practical example
Consider a small business applying for credit facility renewal. Instead of creating a lengthy report, it prepares a short, dated summary detailing its energy use over the past two years, a brief note on waste management and staff wellbeing, and the source of each figure. When the relationship manager asks about sustainability, the business owner can respond directly and cite the sources. While this does not change the fundamentals of the application, it lets the conversation proceed based on clear, factual information rather than vague assumptions.
Preparation is not a guarantee
Providing sustainability information does not guarantee loan approval, an improved credit rating, lower interest rates, or preferential treatment. Financing decisions depend on many factors. According to the OECD, borrowing costs for SMEs remained above pre-pandemic levels in 34 of the 39 countries studied, with lending conditions remaining tight amid economic uncertainty. The practical benefit is narrower but significant: current and well-supported information enables an SME to answer a lender's questions consistently, reducing avoidable uncertainty. This is where TRUST-ESG's emphasis on reliable ESG insights aligns with genuine financing discussions.
Before the next financing conversation, an SME should assess whether it can quickly present current, verifiable sustainability information and explain its sources.
References
European Banking Authority. (2025, January 9). Guidelines on the management of ESG risks (EBA/GL/2025/01).
OECD. (2026a). Financing SMEs and entrepreneurs 2026: An OECD scoreboard. OECD Publishing.