In a way, sustainability-linked loans can.
In sustainability-linked loans, the borrower’s ability to implement eco-friendly measures has a direct impact on the interest rates. This strategy incentivizes companies to achieve Environmental, Social, and Governance (ESG) goals and enjoy lower interest rates.
Consider the example of Schneider, which embraced this concept in 2020. To get a reduction in the loan interest, the company had to either mitigate 800 megatons of CO₂ emissions, enhance staff gender diversity, or train 1 million underprivileged individuals in energy management skills by 2025.
Though sustainability-linked loans sound similar to sustainable loans and green loans, they vary in mechanism and purpose. Each serves responsible financing in differing ways. Sustainability-linked loans reward ESG performance, while sustainable loans fund social projects, and green loans are environment-focused.
Fintechs support sustainability-linked loans by enhancing the loan origination, management, and collection process. Financial institutions today are joining forces with fintechs to elevate their lending with the following benefits.
The world needs more sustainable efforts to make the planet a better place. While sustainability-linked loans propel responsible financing, Fintechs streamline the lending process and help monitor sustainable objectives.
The potential synergy between these two forces promises a greener future.
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