Banks are becoming more and more focused on sustainable (ESG) financing of commercial real estate, two thirds of surveyed banks already have an ESG strategy for this sector, with a similar number of banks assessing loans from the sustainability perspective. Almost half of survey participants are working on or already offer special, sustainable financing products, with some bankers already seeing loans being rejected due to a failure to meet ESG criteria. This is based on this year's 13th KPMG Property Lending Barometer survey with over 40 banks participating from 10 CEE countries.

The growing importance of sustainable financing was confirmed by bankers from all participating countries, with implementation of new EU legislation (including taxonomy) into strategies of parent companies and then individual banks being the key driver behind the trend. “Requirements and steps taken by individual central banks come into play, and whether a country is a member of the Eurozone and is within the ECB authority has a significant effect as well,” said Pavel Kliment, partner responsible for the real estate sector in KPMG Czech Republic.

Two-thirds of banks assessing loans from the ESG perspective

Over 68% of the bankers surveyed said that their institution has now incorporated ESG criteria into assessment of real estate loans, with roughly the same number of bankers mentioning collection of new data and introduction of related internal reporting and monitoring. According to the survey, implementation of new measures in the sector is slowest in Bulgaria, Romania, and Serbia. 

65% of bankers confirmed having a bank wide ESG strategy for real estate financing, with surveyed Czech, Hungarian, and Polish banks above this average. However, in Croatia and Romania, more than half of the banks surveyed have no ESG strategy for the sector.

Additional ESG services provided by the banks, like subsidy consultancy or energy-saving consultancy, are very limited too, with the exception of Czechia and Croatia.

Source: KPMG Property Lending Barometer 2022

External certification as a key factor

Over 75% of the banks surveyed who already have ESG evaluation criteria in place use external certificates like BREEAM, LEED, WELL or GRESB to assess buildings‘ sustainability, with a similar number of banks using their own special ESG questionnaire. Energy labels are used as well, most often in Croatia and Czechia.

In general, surveyed banks rely on more than one tool when evaluating loans from the ESG and sustainability perspective.

Failure to meet ESG criteria requirements can be a reason for loan rejection – 7% of respondents from banks with existing internal ESG criteria confirmed seeing such cases, with a further 26% having seen loans rejected due to failure to meet several different conditions, with ESG criteria being among them.

Limited experience with products focused on sustainable financing

More than half of surveyed bankers confirmed their banks have either created or are working on introducing special products aimed at sustainable financing, allowing them to offer lower interest margins, longer maturity, or lower amortization to projects that meet ESG criteria. However, there is limited practical experience in terms of actually providing these special products.

“Most of the surveyed Czech bankers do not plan to introduce similar special products for now. Fulfilment of ESG criteria is usually perceived as one of the key conditions that must be met to receive a loan at all. Similar sentiments were expressed by bankers from Poland and Serbia,” explained Pavel Dolák, KPMG Czech Republic’s survey coordinator.

About Property Lending Barometer 2022

Property Lending Barometer is a survey focused on bank financing of commercial real estate projects that has been carried out by KPMG for 13 years now. This year, data was collected in June and July, with 41 banks participating from the Czech Republic, Poland, Hungary, Slovakia, Serbia, Croatia, Bulgaria, Romania, North Macedonia and Albania.

Special topic of survey was ESG and bank financing.

All report will be published in October 2022.