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01 February 2024

Sustainability-linked loans and green finance developments in Poland

Greater interest in ESG and the energy transition may be observed recently throughout Europe, especially after the COVID-19 pandemic and the Russian aggression against Ukraine. The green energy transition has become not only a matter of climate protection but also of domestic security. As banks are one of the most important sources of external financing, they play a significant role in the transformation to a sustainable economy and can contribute towards mitigating adverse effects on the environment and society by key players in the global economy.

One product that banks offer is sustainability-linked loans (SLLs), which impose ambitious sustainability performance targets on borrowers linked with the amount of the loan margin. Usually, this type of financing is provided according to the Loan Market Association's Sustainability Linked Loan Principles. The key performance indicators (KPIs) should relate to relevant areas of the company's impact on the environment and society and should be verifiable and comparable. Such KPIs can be connected to reducing greenhouse gas emissions or other pollutants, certifying raw materials or acting against social exclusion.

One of the first Polish SLLs was the EUR 225m (subsequently increased to EUR 400m) financing of the Raben Group in 2021, which included seven financing institutions. The margin depended on Raben's fulfilment of conditions set by five KPIs in the areas of ESG for the road transport and logistics sector.

Another was the syndicated SLL to Wirtualna Polska Holding S.A. in 2022, where a set of three indicators was reflected to respond to relevant ESG issues from the perspective of the company's operations. These were to increase the share of renewable energy sources in electricity consumption from the current 44 % to 90 % by 2026, to increase the number of environmental articles appearing in borrower-owned channels from the current 330 per year to 830 by 2026, and to increase the proportion of women in management from the current 36 % to 41 % by 2026.

In 2023, the Polsat Plus Group entered into loan agreements for around PLN 10m (approx. EUR 2.2m) with a consortium of Polish and foreign financial institutions linked to the group's sustainable development goals.

One of the main players in SSLs is BNP Paribas Bank Polska S.A., which was recently involved as ESG agent in syndicated SSL facilities worth PLN 300m (approx. EUR 65m) for the Iglotex Group (Poland's leading food manufacturer and distributor) and PLN 120m (approx. EUR 26m) for the Śnieżka Group (active in the paint and varnish industry) where the KPIs included obtaining ESG rating and reduction of emission.

In addition to SLLs, there has been more financing connected with the energy transition on the Polish market. For example, ING Bank Śląski S.A. is among the institutions that will finance the Baltic Power offshore wind farm, being the first financing of its kind in Poland. The total value of the investment is EUR 4.73bln. There are also other green products available, mostly dedicated to smaller enterprises and communities, such as ESG Rating-Linked Loans (in which an improvement in the ESG rating score can lower the cost of financing), green leasing, green loans for housing communities or energy efficiency financing programmes for commercial buildings.

In these transformative times and with interest in ESG and the energy transition on the rise, the pivotal role of banks in fostering sustainability and global well-being is more evident than ever.

authors: Weronika Kapica, Aleksandra Goławska