How decarbonization enables greater financial investment opportunities

The growing emphasis on ESG data by financial institutions

Banks and investors are actively using ESG metrics to assess credit risk and make lending decisions. This shift stems from a recognition that companies with strong ESG propositions are better equipped to navigate environmental and social challenges, thereby presenting lower credit risks. Numerous studies support this link: firms with higher ESG ratings benefit from reduced costs of capital and narrower bond spreads. For instance, a 2024 study published in the Journal of Corporate Finance found that companies with superior ESG performance tend to enjoy lower yield spreads on their bonds—translating into more affordable financing.

“Being on top of your ESG data is important to identify risks, exploit opportunities, and live up to requirements from stakeholders, including the financial sector.”

Jacob Westerberg, Senior Advisor, Position Green

In parallel with academic findings, central banks are sounding the alarm. The European Central Bank (ECB) has observed that companies with higher carbon emissions are subjected to higher interest rates compared to greener counterparts. This emerging “climate risk premium” underscores the financial sector’s intent to align lending practices with sustainability and emissions-reduction goals.

ESG data as a predictor of financial performance

It’s now widely accepted that ESG performance is not just a reputational asset but a financial one. Companies that proactively manage ESG risks tend to exhibit enhanced operational efficiency, resilience, and long-term profitability.

Years of research, including work by McKinsey & Company and The ESG Premium report, reinforces this correlation—showing that ESG-oriented companies may experience cost savings, stronger employee engagement, and even reduced insurance premiums. These advantages contribute to a stronger financial case for embedding ESG, particularly decarbonization, into core business strategies.

Voluntary ESG data tracking: A strategic advantage in securing favorable financing

With the emergence of the Voluntary Sustainability Reporting Standard for SMEs (VSME), small and medium-sized enterprises have a unique opportunity to stand out—at low effort and low cost. Companies that proactively track and report their ESG data are better positioned to differentiate themselves with lenders and investors who are looking for reliable, comparable data.

By voluntarily adopting ESG reporting practices, companies can:

• Enhance transparency: Providing clear, consistent ESG data fosters trust with financial stakeholders.
• Showcase leadership: Strong ESG propositions send a signal of competitiveness, strategic foresight, and maturity.
• Demonstrate risk management: Proactive ESG risk disclosure supports more favorable lender assessments.
• Gain access to capital: Companies may benefit not only from slightly lower interest rates, but—perhaps more importantly—from better access to financing in a crowded capital market.

Decarbonization: Central to financial risk assessment and cost of capital

Within the broader ESG framework, decarbonization stands out as a critical driver of financial competitiveness. As the financial sector intensifies its scrutiny of climate-related risks, carbon-intensive companies face higher borrowing costs, stranded asset risks, and exposure to tightening carbon regulation—particularly under mechanisms such as the EU ETS (European Union Emissions Trading System) and CBAM (Carbon Border Adjustment Mechanism).

Conversely, companies that proactively decarbonize benefit from improved creditworthiness, reduced exposure to carbon pricing, and stronger investor confidence. Proactive decarbonization lowers both the direct and indirect risks associated with future regulatory tightening, customer attrition, and reputational damage.

Key takeaways for your finance teams

For Chief Financial Officers (CFOs) and financial leaders, the integration of ESG considerations into financial strategy is no longer optional—it’s a competitive imperative. To navigate this evolving landscape:

• Prioritize ESG data collection and reporting: Implement systems to accurately track and disclose ESG metrics, aligning with frameworks like the VSME.
• Embed decarbonization into financial planning: Recognize its role in influencing risk, valuation, and access to capital.
• Engage with lenders and investors on ESG expectations: Understand how financial partners assess sustainability performance and tailor your reporting accordingly.

Want to learn how your company can leverage ESG data for financial gain?

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