Intro - sustainability-linked financing

The sustainability-linked financing market has grown rapidly as companies have faced increasing pressure to reduce their carbon footprint and boost their environmental, social and governance (ESG)-related performance. The financing incentivizes companies to meet their ESG goals by creating opportunities to minimize their capital costs.

But for companies seeking to borrow money — and banks looking to lend it — successfully tapping into this market hinges on the quality of their ESG data. Without a clear and reliable sustainability assessment, they risk misrepresenting ESG-related progress to stakeholders or issuing loans based on a skewed understanding of those achievements.

Sustainability-linked financing 101

The sustainability-linked loan market has expanded rapidly as companies have moved to incorporate ESG factors more broadly into their corporate strategy, including their financing. Here’s what happens:

  1. Financing — A company who needs financing chooses to incorporate a sustainability component into a loan.
  2. Rating — The company is rated based on key sustainability criteria.
  3. Adjusted Coupon Rate — The coupon rate is adjusted based on the company’s sustainability performance. If the rating goes up, it pays less. If it goes down, it pays more.

With MSCI ESG Ratings, we offer an objective, rules-based methodology to identify a whole range of risks and opportunities associated with sustainability-linked financing.


Using ESG - Sustainability-linked finance

Using ESG Ratings to help lock down costs

MSCI ESG Research works with over 2,600 clients globally, including most of the world’s top asset managers. Investors use our MSCI ESG Ratings to help identify ESG leaders and laggards within each industry to better understand how ESG risks and opportunities are managed.

Issuers can use our ratings to gain insights into how their ESG performance is viewed by investors. With their MSCI ESG industry report, they can also discover how their ratings and assessments compare to their peers.

MSCI ESG Research indicates that companies with higher ESG scores, on average, experience lower capital costs than those with poor scores in both developed and emerging markets.1

Download factsheet (PDF, 195 KB) (opens in a new tab)

Our ratings also can play a key role in sustainability-linked financing. MSCI research indicates that companies with high ESG scores have lower capital costs — we believe our ESG ratings can serve as a critical assessment tool for companies and banks who want to ensure they’re taking advantage of the opportunities that arise from that correlation.

Your MSCI ESG Rating can:

  • Help determine how you compare to your peers
  • Serve as a key performance indicator (KPI) within ESG-linked loans or credit facilities
  • Support debt issuance programs

Featured Content - Second-Party Opinions

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Second-Party Opinions

The once niche market of sustainable debt financing has experienced remarkable growth. With that, we’ve seen a dramatic evolution and proliferation of sustainable financing instruments.

MSCI in Practice: Sustainable Debt Financing and the Importance of Strong ESG Credentials

This webinar discusses how corporate leadership can meet financing goals via sustainability commitments, demonstrating how good ESG performance may help access potentially lower costs of capital as investors, lenders and companies improve their understanding of how management of ESG risks can translate into long-term financial performance.


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Sustainability-Linked Financing Related Content

Footnotes - Sustainability-linked financing

1ESG and the cost of capital.