ESG criteria: a negative impact on company performance and financing?

ESG now plays an important role in corporate strategy and financing. However, it can also be seen as a constraint, due to the new obligations associated with it. Truth or misconception? We take stock.

Contrary to popular belief, taking ESG criteria into account does not necessarily have a negative impact on companies' financial performance - quite the contrary.

The Journal of Sustainable Finance & Investment conducted a study based on some 2,200 individual academic studies. The results show a positive correlation between ESG criteria and financial performance for the vast majority of studies analyzed, and over time.

Influence of ESG criteria on corporate financing

There has been a real shift in investment practices. Today, there are more "responsible" investors, who pay close attention to corporate CSR.

Faced with this change, banks have structured impact loan offers, and more generally "arrowed loan" offers, which finance investments with a sustainable purpose at preferential rates (for example, the creation of a recycling center).

They then created "indexed credits", which are aimed at any type of investment (not necessarily sustainability-oriented), but to which they integrate these famous ESG criteria. These indexed credits aim to improve companies' practices towards sustainability, by offering them preferential financial conditions (the applicable interest rates are indexed to indicators with a positive impact) based on the achievement of pre-determined objectives. All these types of credit (e.g. "arrowed", "green", "indexed") are part of the "impact credit" family.

On the corporate side, a study by Redbridge shows that 57% of large companies took out indexed loans in 2022, compared with just 35% in 2021. This figure rises to 96% in five years' time, confirming this trend, which is also spreading to the SME segment.

Large companies taking out index-linked loans

ESG criteria, far from being a hindrance to corporate performance, appear on the contrary to be conducive to better long-term financial performance. Academic studies and current market trends point to a positive correlation between the inclusion of these criteria and economic performance. This trend is also reflected in the growing commitment of investors and banks to sustainability.