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- ESG-linked financing explained in simple terms: four questions to the CFO
ista has concluded its second ESG-linked financing. But what exactly is ESG-linked financing and how does it work? We asked ista’s CFO, Thomas Lemper.
What exactly does the abbreviation ESG mean?
Thomas Lemper: It sounds abstract but it is very simple to explain: ESG stands for Environmental, Social and Governance. On the basis of these criteria, the lenders assess whether potential borrowers take into account such factors as ecological and social aspects as well as sustainable corporate governance.
How has this trend come about?
Thomas Lemper: Sustainability is one of the main concerns of our time and has now also made its way into the world of finance. I think this development is really good – not only as a financier but also as someone who cares personally about the issue. Major investors like Blackrock are beginning to base their investment decisions on ESG criteria and banks are also increasingly linking their loans to such topics. This will permanently change the entire coordinate system of decision-making criteria. Companies that do not put sustainability and climate protection front and centre of their actions will sooner or later have to pay a premium when raising capital.
How is ista reacting to this?
Thomas Lemper: We at ista have long since been committed to sustainability. So when the term of the previous financing came to an end, the obvious thing to do was to go for a sustainable financing concept. With the new financing structure, we are creating a framework to operate even more sustainably in the future and invest even more in digital services and products. I think it is great that we at ista are adopting this approach and are now also being measured by it in business terms.
How exactly does ESG-linked financing work?
Thomas Lemper: A consortium of banks grants a loan for a certain sum for a certain period. The special feature of this loan is the variable interest rates, which are directly linked to success in meeting sustainability targets. Together with the banks involved, we at ista have defined ambitious sustainability targets, such as CO2 emissions per employee and the further expansion of the digital infrastructure, which should be as resource-efficient as possible. If we meet these targets, the interest rates decrease and, conversely, they increase if we fail to meet them. The sustainability KPIs will be audited by SGS-TÜV Saar GmbH. When I look back on our sustainability successes so far, I am proud to see that we are starting from a good position – but we have to stay on the ball. Let’s get on with it!