European Climate Change and ESG regulation and Banks’ Lending to SMEs

Sustainability in the banking industry presents unique complexities
that affect lending to SMEs. ESG considerations permeate the core operations
of banking and ESG risks impact banks’ risks exposure. Understanding the
effects of climate regulation on the banking sector is key for SMEs as they are
not exempted from the transition to a more sustainable economic system. In the
foreseeable future, the possibility to access external funds from banks and other
channels for SMEs will also depend on their climate and ESG profile. Data will
be a key issue in the design of the lending processes of banks. A lower availability
of funds can be detrimental to the companies’ investment strategy and can
hinder the transition process to a more sustainable business model. SMEs are
thus called to design strategies to improve their ESG profile and to collect and
disclose relevant data.