Finastra launches ESG Service that automates sustainability-linked lending

Finastra has launched an open and scalable ESG Service that facilitates the integration of sustainability performance target criteria into ESG pricing for both Finastra Loan IQ and other back-office systems in the market.

The cloud-native SaaS solution streamlines sustainability-linked lending, which utilizes complex pricing structures with multiple moving parts that need to be tracked against the sustainability targets outlined in the credit agreement.

Finstra’s ESG Service automates KPI and ESG pricing management for banks

Such complexity can tie up resources and limit banks’ scope in terms of ESG product offerings and introduce risks associated with manual processes.

By providing an automated solution for managing the KPIs and ESG pricing changes of sustainability-linked loans, Finstra’s ESG Service aims to enable banks to grow these lending portfolios efficiently at scale and minimizes the risks tied to manual processes.

Simon Thorogood, Senior Director, Corporate and Syndicated Lending, Finastra, said: “A shift in the mindset of corporate stakeholders, investors, customers and employees is pushing banks to adopt a more sustainable business model and this is driving demand for sustainability-linked loans. This creates a huge opportunity for banks to grow revenues and become leaders in the space, with borrowers looking for banks to help shepherd them through their ESG journey. Finastra’s ESG Service offers banks a well-defined, transparent and automated solution for managing ESG performance and the associated pricing adjustments, creating a more seamless experience for clients.

“Furthermore, with complex and constantly-evolving ESG regulations on the horizon, having a centralized store of data will greatly aid banks in being able to efficiently and accurately meet their regulatory obligations in terms of meeting the relevant disclosure requirements.”

According to Finastra, transaction volumes for sustainability-linked loans have increased considerably in recent years as part of a broader push towards ESG-focused financing. ESG financing totaled $1.6 trillion in 2021.

The SaaS solution uses open APIs to support varied deal structures, the inclusion of new capabilities and partner applications, and additional pricing components, beyond interest and ongoing fees. The solution supports multiple transaction processing systems that require loan pricing adjustments.

The ESG Service automates the means for tracking ESG performance and the related margin changes to deliver significant benefits to users across the middle and back office, including credit managers, borrowers, and sustainability coordinators.