HSBC’s head office in Dubai. (Credit: Supplied)
Banking giant HSBC has launched a new sustainable finance product designed to drive sustainability improvements for mid-sized corporates in the UAE, Egypt, Qatar and Bahrain.
On Monday, the bank officially launched its Sustainability Improvement Loan in the UAE. The facility links the interest rates of loans to a company’s environmental, social, and governance (ESG) performance.
The interest rate for Sustainability Improvement Loan is linked to changes in borrowers’ sustainability assessments and ratings from EcoVadis, one of the world’s largest providers of business sustainability intelligence and ratings.
Borrowers of Sustainability Improvement Loans are required to complete an annual sustainability assessment throughout the duration of the facility. Those whose scores improve may benefit from a reduced interest margin. Similarly, the interest margin may increase if the borrowers’ scores decline.
According to HSBC, this new offering aims to simplify the path to sustainable finance for corporates.
“The availability of this product will help an even greater number of organisations take demonstrable steps towards their sustainable goals,” said Patricia Gomes, Regional Head of Commercial Banking, HSBC MENAT. “We wanted to create a product that makes sustainability accessible to all of our clients, regardless of where they are on their transition journey.”
Who is EcoVadis?
EcoVadis is a global leader in business sustainability ratings, providing detailed assessments of companies’ environmental, social, and governance (ESG) performance.
With a network spanning over 100,000 businesses across 200 industries and 175 countries, EcoVadis evaluates companies based on a comprehensive set of criteria, helping them understand their sustainability impact.
These ratings are instrumental in enabling organizations to improve transparency, reduce risk, and drive positive environmental and social change within their operations. HSBC’s partnership with EcoVadis underscores its commitment to offering clients reliable and globally recognised assessments for sustainability improvement.
Focusing on Three Pillars
The launch of this new solution highlights HSBCs broader sustainability strategy, which focuses on three key pillars: transitioning existing clients, financing the new economy, and supporting sustainable supply chains.
- Transitioning clients: HSBC aims to help companies of all sizes, shift to more sustainable business practices. The Sustainability Improvement Loan is part of this effort, allowing even our smaller clients to participate.
- Financing the new economy: HSBC is also committed to funding innovative climate technologies and large-scale infrastructure projects like solar parks and wind farms, which are critical to decarbonisation.
- Supporting supply chains: As the world’s largest trade bank, HSBC is focused on helping companies decarbonise their supply chains, not just their own operations. This includes offering financing options like Sustainable Supply Chain Finance.
Client Experiences
Clients who have already taken advantage of the loan have expressed enthusiasm about its simplicity and impact.
“For us, it was an obvious choice,” said Martin Bradley, Group CFO at Dulsco Group. “The Sustainability Improvement Loan allows us to lower our cost of capital while we continue working on our ESG goals. It’s simple to achieve because it aligns perfectly with what we’re already doing to improve our sustainability practices.”
Another client, Zulfiker Hasis, Founder and CEO of Delight Investment Group, highlighted the financial and reputational benefits. “We were already on the path of improving our sustainability score, but the fact that HSBC offers a financial incentive made it even more compelling,” he said. “It’s not just about reducing costs. We can now proudly use this loan as part of our brand when we communicate with clients, showing that we are committed to sustainability.”
The product is already live and available to HSBC clients in the UAE, Qatar, Egypt, and Bahrain.
How the Loan Works
The Sustainability Improvement Loan is designed to encourage mid-sized companies to make real, measurable changes to their sustainability practices. Companies with an EcoVadis rating can link their loan interest rates to their ESG score. If their score improves, their interest rate will decrease. If it declines, the rate will rise.
The loan operates on a straightforward principle: better sustainability performance leads to better financial outcomes. For example, if a company demonstrates improvements in its ESG performance, as measured by its EcoVadis rating, it will benefit from a lower interest rate. On the other hand, if the company’s sustainability rating worsens, the interest rate will increase. This financial incentive structure not only encourages companies to enhance their sustainability practices but also integrates sustainability into their long-term financial planning.
Jennifer Chammas, Regional Head of Sustainability and Sustainable Finance, Commercial Banking HSBC MENAT explained, “The loan structure is straightforward: as your ESG score improves, your interest rate margin goes down. If it deteriorates, you’ll pay a little more. This incentivises companies to actively work on their sustainability strategies and improve their ESG ratings.”
Early-Stage Sustainability Support
The introduction of the Sustainability Improvement Loan is specifically focused on supporting corporates that may be earlier on in their sustainability journey. The bank has already completed several transactions using this new solution, with more in the pipeline.
HSBC sees this new product as a key step in helping businesses transition toward more sustainable operations. Jennifer Chammas added, “These new instruments enable HSBC to further engage with customers on their sustainability objectives and provide sustainable finance instruments that are suitable for customers based on where they are in their ESG journey.”
The new loan is part of HSBC’s broader strategy to grow its sustainable finance portfolio in the region. HSBC hopes that the product will encourage more companies to begin or accelerate their sustainability journeys.
“We’ve made a complex product far more straightforward,” said Jennifer Chammas. “Now, all of our clients can take real steps toward sustainability while benefiting financially.”
To learn more about this offering in its respective markets, click on the links below: