KfW Research: Sustainability is gaining in importance in loan negotiations

• Banks and savings banks are asking businesses increasingly more often for information on their sustainability activities
• Access to credit has become more difficult for businesses in Germany
• Equity base has improved

Banks and savings banks are increasingly addressing the topic of sustainability in loan negotiations with enterprises. This is one of the findings of a business survey which KfW has conducted with umbrella organisations as well as professional and regional business associations.

Around 27% of businesses that were in loan negotiations in the past twelve months noted that the credit institutions addressed the topic of sustainability. Although this is still a moderate proportion, it is growing. In the previous survey in 2022, that share was a mere 18%.

“Businesses benefit from focusing even more strongly on the topic of sustainability. Banks and savings banks are increasingly incorporating sustainability criteria in their lending operations for regulatory reasons and with a view to their own reputation management. This trend is set to further intensify”,

said Dr Juliane Gerstenberger, Senior Economist at KfW.

Businesses are expecting this as well. Four in ten businesses surveyed anticipate that the topic of sustainability will become more important in future loan negotiations. However, only 34% of businesses believe that they are already well or very well prepared for this.

This discrepancy highlights the fact that businesses still have a lot of work to do when it comes to tracking their sustainability KPIs. Banks and savings banks most often ask businesses to provide information about their greenhouse gas emissions and their energy and electricity consumption.

Another finding of the business survey 2024 is that the financing environment for enterprises has worsened significantly since the previous survey two years ago. The share of businesses that found it easy to obtain a loan stood at a mere 35% – eight percentage points less than in the year 2022. The smaller the surveyed businesses were, the more difficult it was for them to obtain finance.

The equity base of businesses has generally improved. In the spring, 37% of the businesses surveyed reported that their equity ratio had improved over the preceding twelve months.

“Businesses thus continued to stabilise their equity base after the slump in the COVID-19 crisis”,

said Dr Gerstenberger.

About the Business Survey: The survey was conducted for the 22nd time among businesses of all size classes, sectors, legal forms and regions. Just under 1,800 businesses from 17 umbrella organisations, trade and regional associations participated. It was conducted between the beginning of March and the end of April 2024 and essentially reflects the situation and sentiment prevailing in the year 2023. The Business Survey 2024 “Financing environment has worsened – sustainability continues to gain in importance” is available for download at www.kfw.de/unternehmensbefragung.