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In the wake of the COVID-19 health and financial crisis, banks face an urgent call to play their part in addressing today’s environmental and social concerns before they turn into tomorrow’s emergencies. Just like the digital explosion, the Global Financial Crisis and COVID-19, this is an inflection point where tomorrow’s leaders will separate themselves from the rest. Most lenders are not yet ready to make the most of the opportunities of sustainable lending, but forward-thinking banks are acting now to transform their lending value chain, reskill their lending practice employees and embed environmental, social, and governance (ESG) data into their credit risk models.
Sustainable-linked lending appears to be on a similar growth trajectory to sustainable investment, rocketing from $5 billion in 2017 to 2020’s $120 billion. Yet, despite growing interest in the topic, banks are sitting on the sidelines. Reasons for hesitance include a lack of clear standards; challenges of assessing risk profiles associated with unproven business models and technologies; potentially longer payback periods; and apprehensions about the maturity and bankability of some of the organizations and projects in the sustainable lending category. Banks that take the lead today will develop the knowledge and skills in their lending practices to thrive in the sustainable lending market of the future. This, in turn, could help them to drive higher market valuations and better financial performance as investors, regulators and customers focus more closely on ESG factors in years to come. Read Accenture’s report on how the leaders are preparing for the surge in sustainable lending.