EFRAG: With ESG reporting, SMEs benefit from subsidized loans with discounts of up to 30 bp

How much is it worth to be ESG? According to EFRAG, up to 30 basis points of discount. SMEs that adopt ESG practices and report them can, in fact, benefit from subsidized loans with discounts of up to 30 basis points. Financing whose total value is estimated between 3 and 6 billion euros per year. This is what emerges from the EFRAG cover letter to the VSME standard (Voluntary Sustainability Reporting Standard for non-listed SMEs) in which, thanks to the support of Syntesia Prometeia , the costs and benefits of voluntary sustainability reporting (ESG) for unlisted SMEs are analyzed. The document shows how greater transparency and monitoring of environmental, social and governance factors can translate into better financing opportunities, more advantageous debt conditions and a strengthening of the positioning within supply chains, which are increasingly oriented towards ESG criteria.

In recent years, sustainability reporting has established itself as a strategic tool for companies that see benefits in terms of both cost of capital and access to financing. But if for large listed companies, ESG transparency is now an essential requirement to attract investors and contain the cost of capital, for unlisted SMEs the real potential of ESG reporting lies in the possibility of obtaining more favorable credit conditions and integrating more easily into value chains.

EFRAG highlights how most of the literature on the impact of sustainability reporting has traditionally focused on the analysis of the relationship between ESG criteria, cost of capital and overall company value, now reaching a consensus on the fact that ESG disclosures reduce the cost of capital . However, this aspect is not particularly relevant for unlisted SMEs , for which access to equity represents a residual source of financing equal to 1% of total financing, according to data from a SAFE survey by the ECB and the Commission. Therefore, the potential benefits deriving from ESG reporting on the cost of capital would be insignificant and unlikely to be relevant for most preparers, for whom the most important source of financing is by far bank financing and external loans.

EFRAG analysis highlights how the connection between the quality and granularity of ESG disclosures and the cost of debt financing is becoming increasingly evident. According to the analysis, ESG transparency impacts credit conditions, with tangible benefits for companies that adopt effective reporting practices.

In fact, the cost of debt is more sensitive to the quality of ESG information: credit institutions increasingly incorporate environmental, social and governance information to reduce information asymmetries to improve their ability to assess the financial risk of companies. In particular, banks tend to penalize poor transparency and reward companies with detailed ESG reports, offering them more advantageous financing conditions. In particular, ESG reporting affects both reputational risk , linked to the perception of the credit institution as a financier of unsustainable business practices, and credit risk , which concerns the possibility that a financed company will fail to meet its obligations, with potential losses on the capital lent.

According to the EFRAG document, companies that clearly and in detail communicate their ESG practices are perceived as more reliable, which translates into better financing conditions. This mechanism is activated through different channels:

• Additional information: ESG disclosures provide data that complements traditional financial metrics, providing a more complete picture of corporate risk.
• Risk perception: companies with transparent ESG communication are seen as less exposed to reputational and operational risks, improving their ratings by credit institutions.
• Direct and indirect impact: Directly, quality ESG reporting can lead to a more favorable credit risk assessment. Indirectly, ESG scores can influence the interest rate charged on loans.

The effect of ESG reporting on the cost of debt, however, is not uniform and depends on the financial structure of the company. Highly indebted companies may benefit more, as ESG reporting provides creditors with a clearer view of their risk profile. In financial systems based on long-term relationships between companies and credit institutions, such as those prevalent in many European economies, banks tend to appreciate this information more, leading to a more marked reduction in the cost of financing.

Sustainability reporting is an enabling factor for access to subsidized financing. An increasing number of loans to SMEs are now tied to ESG criteria, which makes the disclosure of ESG data an essential requirement to obtain more advantageous financing conditions. In particular, SMEs that adopt ESG practices can access subsidized loans for sustainable investments , with discounts between 10 and 30 basis points . The overall value of these loans is estimated between 3 and 6 billion euros per year .

However, improving access to credit does not concern all loans, but mainly those related to sustainable finance . In the EU, this segment is estimated between 15 and 27 billion euros , demonstrating how the transition to ESG financing models is becoming a strategic lever for SMEs. According to a recent cost-benefit analysis conducted for the European Commission, banks can reward detailed ESG disclosures with a 10-20% increase in access to credit for SMEs, in line with major academic studies.

In addition to direct credit benefits, ESG reporting has a positive impact on corporate sustainability and the ability of companies to attract green investments. Indeed, the disclosure of ESG data provides valuable information to banks and financial institutions, enriching their credit risk analysis and decision-making process, especially if presented in standardized and cost-effective formats. This tool helps reduce information asymmetries between companies and their investors or creditors, thus improving access to credit, which will mainly focus on sustainability-related loans.

According to economic literature, green finance has a measurable impact on reducing CO₂ emissions , saving energy and improving environmental performance .

VSME can therefore incentivize green lending and investment, as financial institutions encourage companies to adopt more sustainable practices by offering loans at reduced interest rates based on sustainability criteria. This impact is particularly significant when a sustainable company approaches a bank that promotes sustainability.

Companies that integrate ESG criteria into their strategies are more likely to obtain financing at more favorable interest rates , as banks tend to reward companies that are more virtuous in terms of sustainability. This effect becomes even more evident when a company with good ESG practices turns to a credit institution committed to sustainable finance. In short, the combination of subsidized loans and increasing regulatory and marketing pressure on banks favors access to sustainable finance mechanisms for companies that demonstrate a commitment to sustainability.

The analysis of the financial benefits resulting from ESG reporting must distinguish between reducing the cost of credit and improving access to finance .

As for the reduction of the cost of credit , ESG premiums vary between 5 and 25 basis points , while for subsidized loans for sustainable investments the discount can reach up to 30 basis points . These values ​​must be multiplied by the total amount of loans granted to SMEs in the EU , estimated at 2,500 billion euros (OECD data). Furthermore, subsidized loans for sustainable investments amount to 3-6 billion euros per year .

As for improving access to credit , the effect of ESG reporting does not immediately translate into a monetary benefit, but can generate indirect profits. These are estimated on the basis of the average return on investment ( ROI ) for SMEs, which net of the cost of debt is equal to 5.9% (ORBIS data).

Finally, EFRAG highlights how the adoption of the VSME standard can generate indirect costs and benefits also on competitiveness , internal management , transparency and responsibility .

On a competitive level, although there is no direct correlation, the adoption of the standard can improve the market positioning of SMEs, enhancing their products or services in the eyes of consumers and facilitating access to "green" markets, such as sustainable public procurement. However, the group of experts points out, there is also the risk that European companies will be disadvantaged compared to non-EU competitors not subject to voluntary reporting obligations, thus avoiding additional costs and the disclosure of sensitive data.

From a management perspective, sustainability reporting strengthens the integration of ESG policies into corporate management, improving the allocation of responsibilities, reducing operational risks and promoting greater resilience. Furthermore, banks and investors reward more sustainable companies with more advantageous financial conditions, incentivizing virtuous behaviors.

Finally, the adoption of VSME leads to greater transparency and accountability. Clear communication on environmental and social impacts allows companies to strengthen the trust of stakeholders (customers, investors, employees and communities), promoting continuous dialogue and alignment with the values ​​of the company.

For SMEs , the real value of ESG reporting lies not only in reducing the cost of capital, but in the possibility of improving access to credit and obtaining more favorable financial conditions. The adoption of standardized ESG frameworks , such as the Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME) by EFRAG , can facilitate risk assessment by investors and financial institutions, strengthening the company's solidity and competitiveness on the market. More than a regulatory obligation, ESG transparency is a strategic lever to ensure a more solid positioning in the evolving economic landscape.