‘By financially anchoring sustainability pledges, you give them extra credibility’

A loan that links sustainability goals to a discounted interest rate? At KBC, we are finding that more and more companies are opting for such green financing. One of them is Greenyard, a world leader in fruit and vegetables. ‘Our sustainability strategy was already well on track, but received a boost and extra appreciation thanks to this loan.’

Green finance is on the rise. The growing importance of sustainability as a social issue plays a big role in this trend, and Stephanie De Clercq, Head of Sustainable Finance at KBC Securities, also sees some other reasons. 'Regulations are increasing: for example, 50 000 European companies will soon be required to report on the impact of their activities on people and the environment. Today there are only 11 000 that are required to do this.’
Financial institutions are increasingly playing a leading role in this context. ‘At KBC, we are conscious of our role in the transition to a more sustainable society. These types of loans help us to fulfil our ambitions, as they encourage customers to take real actions.’

What are the options for companies looking to build sustainability into their financing?

The best-known option is a ‘green loan’. ‘That’s a loan that can be used to finance a green project, as defined in the EU Taxonomy,’ De Clercq clarifies. ‘It might be a water treatment plant, for example, or solar panels or the sustainable renovation of a building.’ In addition, companies can take out a Sustainability Linked Loan. ‘With these loans, the contract includes a number of specific sustainability targets for the company, such as a target to reduce greenhouse gas emissions or water consumption, or to promote equal pay between men and women,’ says De Clercq. ‘Whether or not those ESG (Environmental, Social and Governance) targets are met determines whether the company receives a discount or has to pay a premium on the interest rate.’ KBC is seeing an increase in this latter form of financing in particular. ‘The advantage of this type of loan is that it can be used flexibly. A green loan has to be linked to a specific project, whereas a Sustainability Linked Loan can be used more broadly. That makes it accessible to all companies and sectors.’

Relevant, mature and ambitious

The fruit and vegetable giant Greenyard also decided to embed its sustainability goals in its bank loans. ‘It was a logical choice,’ says Florens Slob, Director of Sustainability and Innovation. 'Sustainable cultivation, corporate social responsibility throughout the chain and further reducing our footprint are part of our strategy. Those targets are an integral element in all our decisions, at all levels. Extending that to our loans was really a logical progression.’

A mature ESG policy, such as Greenyard's is a prerequisite for a Sustainability Linked Loan. ‘The product is open to all companies, but that doesn’t mean that every company is eligible,’ says De Clercq. ‘The targets set out in the contract should be relevant, and sufficiently ambitious. The company must have a credible and substantiated sustainability strategy, otherwise we are at risk of greenwashing.’ The company also needs to have sufficient historical data to enable trends to be mapped. Greenyard more than met those conditions.

We had an ambitious roadmap in place even before taking out the loan, says Slob. In that roadmap, Greenyard sets a number of specific targets to be achieved by 2025: reduce emissions by 50 per cent; use only recyclable packaging; reduce water consumption by 10 per cent; cut avoidable food waste by half; and use 100 per cent certified suppliers in high-risk countries. Those indicators were not chosen randomly. They are the result of a thorough materiality analysis among our stakeholders, Greenyard stresses. We asked employees, customers, growers, suppliers and also financial institutions about what they consider to be important in terms of sustainability.

Florens Slob, Director of Sustainability and Innovation at Greenyard

Sparring partner

Greenyard had these targets anchored in a Sustainability Linked Loan. Slob says: ‘We had our long-term targets, but for the loan we had to translate them into concrete annual targets so that KBC and the other banks can evaluate them annually. This was an intensive process as it involved all divisions of the company. Fortunately, we found the bank to be a good sparring partner. KBC was a coordinating bank in the process and has genuine specialists in-house who know what we are talking about when we talk about specific KPIs for sustainability.’

The final step, after selecting the right indicators and ambitions, is validation. 'After taking out the loan, the intention is that companies will report annually on their performance,’ elucidated De Clercq. ‘To ensure the figures used are correct, they need to be validated by an external partner. In practice, this is often the auditor of the financial statements.’ Greenyard didn't have to look far for that, either. ‘We have had been given a limited assurance opinion on our sustainability reporting [audit of the figures by external partner, ed.] since last year; that puts us slightly ahead of the upcoming European legislation on reporting,’ says Slob. ‘That audit now serves a dual purpose.’


So what are the main advantages of a Sustainability Linked Loan? ‘There’s the financial aspect, of course, but that’s not the most important thing for us. Sustainability Linked Loans also encourage a company to develop a good framework and process around this important topic, which in turn helps it to meet targets,’ says Slob. ‘Being approved for this Sustainability Linked Loan provided further confirmation from an expert that our sustainability strategy is right.’ Slob sees the discounted interest rate mainly as a token of appreciation for its efforts. ‘Anyone can buy green electricity or install solar panels, but the big changes that have a real impact - complete electrification and replacing natural gas as an energy source, for example - are not easy for everyone to achieve. There is still scope here for the government to offer companies better support. This loan is a form of external appreciation by the bank, acting as a partner in the process.’

KBC recognises Greenyard's story. ‘Of course, the lower interest margin is nice for many companies, but in reality it’s often the appreciation that is the deciding factor. This loan gives them credibility: it shows that a company isn’t just making a promise, but is actually demonstrating its willingness to anchor that promise financially. That can provide a boost for their credibility.’ This also applies for the bank itself, De Clercq believes. ‘Sustainability is high on the agenda at KBC. This product enables us to genuinely encourage and guide customers towards achieving their ESG goals.’

Does she have any advice for companies that are considering a Sustainability Linked Loan? De Clercq responds: ‘Numbers tell the tale. Everything starts with a good materiality analysis. Which indicators can your company use to make a difference? It's a useful exercise anyway, but from there it's also only a small step to building it into the finance structure.’

What is a Sustainability Linked Loan?

A Sustainability Linked Loan is a loan for which specific sustainability targets are incorporated in the contract. If the borrower can demonstrate that it has met the targets, it will receive a discount on the interest rate. Key Performance Indicators (KPIs) can range from environmental targets relating to aspects such as CO2 emissions, waste processing, water consumption or social targets such as improving workplace safety or diversity. The crucial factor is that them must be relevant, impactful and part of a well-founded and ambitious sustainability strategy.

What is KBC doing?

As a signatory to the United Nations' Collective Commitment to Climate Action, KBC published its first climate report in 2022. This report set out explicit targets for lending in the most climate-intensive sectors (e.g. real estate, energy, agriculture). KBC publishes progress updates on those targets in its annual sustainability report. Scan the QR code to read the latest report.

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Want to know more about KBC's sustainability strategy and how we put our corporate social responsibility into practice? Then be sure to read these documents.

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