Virgin Money wants to lead the way in “green” banking.
By offering sustainability-linked loans (SLL) to small and medium enterprises (SME), Virgin Banking is aiming to increase planet-friendly businesses. For eligible customers borrowing at least £250,000 and meeting assessment criteria, Virgin Money will offer finance with no arrangement fee. In addition, the forward-thinking banking institution has committed to 5% of its loans going to firms driving environmental and social change by 2022.
The first bank in Europe to offer SSLs, Virgin Money want to address the gap between sustainability ambition and action in SMEs. According to the bank’s research, SMEs make up the majority of the global economy, yet lack the resources or expertise to understand how to realise the UN’s Sustainable Development Goals (SDGs).
As Graeme Sands, Virgin Money marketing director, explains in the press release, “While businesses overwhelmingly recognise the importance of sustainability, many – especially SMEs – struggle to translate good intentions into a clear plan and are worried about the cost and time involved in implementing an ESG programme.”
Money Makes the World Go Green
Virgin data highlighted that whilst 85% of UK SMEs surveyed believed sustainability is important to their business, only 43% currently have targets in place. By providing guidance and incentives to SMEs willing to take meaningful action, Virgin hopes to positively influence the day-to-day running of UK SMEs.
In order to do this, the bank has partnered with Future-Fit Foundation – a charity that promotes green business practices – to build a benchmarking tool to measure sustainability progress. “The tool enables us to identify and incentivise those businesses whose core activities create a fairer and more equitable society and we firmly believe that doing this allows us to better undertake our economically pivotal role of directing capital responsibly,” says Sands.
The company believes that banks have a unique role to play, not just by addressing their own impacts, but by influencing and incentivising the businesses they finance. Sands stresses, “We firmly believe that we, and other banks, have a duty to direct capital responsibly.” As a result, Virgin Money is making this tool free-to-use, not only for customers, but for competitor banks too.
The finance sector is facing increasing scrutiny over its climate action. New Zealand is moving toward legislation that would require large financial institutions to include climate policies.
Cash for Climate Action
Since the publication of the Sustainability-Linked Loan Principles in 2019, global sustainability-linked loan volumes have shot past “green” loan levels. A “green loan” finances a specific green purpose. By contrast, SLLs are cheaper loans based on the borrower achieving certain sustainable or ESG (environmental, social and governance) related targets. According to Bloomberg data, companies raised $62 billion of sustainability-linked loans worldwide in 2019, with 80% of these in Europe.
The boom in SLLs is being driven by their flexibility – there is no need for the borrower to engage in a “green” activity – and how they demonstrate a company’s ESG credentials. Last year, the Governor of the Bank of England, Mark Carney, called climate change risk a “defining issue for financial stability” and cited promoting SSLs as a way to address this.