The financial industry is willing to look towards the sustainable development policy more often than ever before, taking into account the ESG (Environmental, Social, Governance) guidelines in activities not only at the level of the institutions’ functioning, but also in the way of building an offer for their clients.
Factoring, a popular form of financing for enterprises, is increasingly adapting its offer and approach to corporations based on their ESG rating. Many factoring providers understand that companies with strong policies in terms of environmental, social and corporate responsibility should benefit from additional financial benefits and support – this prompts them to change their factoring offer to meet these needs in a better way. Here we will take a closer look at the relationship between the ESG policies and the financial industry, specifically factoring.
E for Environment
As environmental awareness grows, investors expect companies to take steps to minimize their negative impact on the natural environment. Companies are more often being judged on their efforts to reduce greenhouse gas emissions, energy efficiency, water and waste management, etc. Companies that manage these issues effectively have a better chance of raising capital and earning investor trust. For example, after delivering the report and obtaining the appropriate score, companies applying for factoring may receive less expensive financing, e.g. by 0.25%–0.50% per annum.
S for Society
ESG values require companies to act ethically, respect human rights, provide safe working conditions and ensure diversity in workforce. Investors attach more and more importance to how companies manage their relations with employees, customers, suppliers and local communities. In this case, corporate social responsibility becomes a factor affecting the financial success of the company in a long term.
G for Corporate Governance
The management elements of the company, such as the composition of the board, corporate structure, remuneration policy and reporting transparency, are also of great importance to investors and, in consequence, to financial institutions. Well-managed companies often perform better financially and are less prone to risk.
The ESG reporting model is not yet mandatory and currently applies only to large entities. From 2026 on, however, it is to cover all companies operating in the European Union. It is gratifying that financial or factoring institutions are starting to create – if they haven’t already created – policies that also reward companies taking care of those aspects of cooperation between enterprises and the environment. Software suppliers are already modifying their factoring solutions roadmaps of their with new functionalities related to the issue of sustainable development, both those delivered to all customers at the product level, as well as individual orders of the individual factors.